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Kraft Heinz (KHC) Q2 Earnings Beat Estimates, Revenues Lag

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The Kraft Heinz Company (KHC - Free Report) posted second-quarter 2017 results wherein earnings surpassed the Zacks Consensus Estimate but missed the same on revenues. Notably, the company’s shares increased 1.14% in after-hours trading on Aug 3, in response to better-than-expected earnings results.


Adjusted earnings per share of 98 cents surpassed the Zacks Consensus Estimate of 96 cents by 2.1%. Earnings grew 15.3% year over year on significant gains because of cost-savings initiatives.


Reported sales of $6.68 billion fell shy of the Zacks Consensus Estimate of $6.69 billion marginally by 0.2% and also declined 1.7% year over year due to soft consumer demand in North America and Canada. Notably, Kraft Heinz’s sales have now declined in five of the last six quarters and the company expects sales growth to ramp up in the second half of 2017. The reported figure includes an unfavorable 0.8% impact from currency.

Organically (excluding currency), sales declined 0.9%.

Volume/mix decreased 0.5% in the quarter against a 3.7% decrease in the previous quarter. The slump was due to weak demand of cheese, meats, and food services in its biggest market, the U.S. However, these were partly offset by positive contributions from condiments and sauces in all business segments. Pricing declined 0.4% in the quarter compared with 1% increase in the preceding quarter.

The company has been witnessing weakness in top line for the last several quarters. Soft spending by U.S. shoppers along with rapid changes in consumer preferences and behavior are hurting the company’s categories. Kraft Heinz, like many other U.S. food producers, Mondelez International, Inc. (MDLZ - Free Report) and General Mills, Inc. (GIS - Free Report) among others, have been struggling due to the shift in consumer preference toward natural and organic ingredients over packaged and processed food.

Operating Highlights

Gross profit of $2.68 billion was up 5.9% year over year.

Adjusted EBITDA was up 0.7% to $2.1 billion in the second quarter owing to cost initiatives. Adjusted EBITDA margin was 29.2%.

Quarterly Segment Discussion

U.S.: Net sales of $4.6 billion declined 1.2% year over year. Organic sales dropped 1.2% on lower volumes. Volume/mix decreased 0.8% in the quarter comparison with 4.2% decrease in the last quarter. Pricing was down 0.4%.

The downside was primarily due to select distribution losses in cheese and meats as well as lower shipments in foodservice that overshadowed the benefits from a shift in Easter-related sales as well as gains in frozen, macaroni and cheese, and condiments and sauces.

Canada: Net sales of $597 million declined 6.4% year over year despite a 3.3% favorable impact from currency. Organically, its sales declined 3.1%. Volume/mix grew 0.6% attributable to growth in condiments and sauces that more than offset the discontinuation of select cheese products. Pricing decreased 3.7%.

Europe: Net sales of $595 million declined 4.9% year over year due to 4.1% currency headwinds. Organically, sales fell 0.8% amid a challenging consumer and retail environment. Volume/mix was up 0.8% against 0.4% in the preceding quarter as robust consumption gains in condiments and sauces and gains in food service. Pricing declined 1.6%.

Rest of World: Net sales of $851 million increased 1.6% year over year. Organically, sales grew 3% on higher pricing. While pricing increased 3.7%, volume/mix fell 0.7%.

Kraft Heinz currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Release

Kellogg Company (K - Free Report) reported second-quarter comparable earnings of 97 cents per share, beating the Zacks Consensus Estimate of 92 cents by 5.4%. Earnings increased 6.6% year over year banking on higher operating profit and a lower effective tax rate, which more than offset a higher level of restructuring charges.

The Kraft Heinz Company Price, Consensus and EPS Surprise

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