Back to top

Kraft Heinz (KHC) Q2 Earnings Grow Despite High Input Costs

Read MoreHide Full Article

The Kraft Heinz Company (KHC - Free Report) posted second-quarter 2018 results, with the top and the bottom line beating the Zacks Consensus Estimate. Earnings also improved year over year.

Notably, this marked the company’s first sales beat after five successive quarters of negative surprise. It looks like the dismal sales surprise history and input cost inflation have been weighing on this Zacks Rank #4 (Sell) stock. It has lost 18.4% in the past six months compared with the industry’s decline of 3.1%.



Q2 in Detail

Adjusted earnings per share of $1.00 surpassed the consensus mark of 91 cents. Also, the bottom line increased 2% year over year on the back of lower taxes.

The Kraft Heinz Company Price, Consensus and EPS Surprise
 

The Kraft Heinz Company Price, Consensus and EPS Surprise | The Kraft Heinz Company Quote

Net sales climbed 0.7% to $6,686 million, which surpassed the Zacks Consensus Estimate of $6,576 million. Net sales growth includes 0.3% and 0.8% favorable impacts from currency, and acquisitions and divestitures, respectively. Organic sales dipped 0.4%.

Pricing was up 1.3%, driven by price improvements in Rest of World markets and North America. Volume/mix dipped 1.7% due to lower shipments in North America, partly compensated by strength in EMEA and improvements in Rest of World condiments and sauces.

Operating Highlights

Gross profit of $2,365 million decreased 2.8% year over year.

Adjusted EBITDA was down 4.4% to $1,974 million in the quarter due to escalated input costs, unfavorable volume/mix and increased strategic investments.

Segment Discussion

United States: Net sales of $4,513 million declined 1.9% year over year. Organic sales also fell 1.9%. During the quarter, pricing improved 0.4%, owing to better pricing in certain categories. Volume/mix fell 2.3% due to lower shipments of nuts, frozen and cheese, somewhat compensated by improvement in ready-to-drink beverages.

Segment adjusted EBITDA tumbled 8% to $1,432 million, owing to non-key commodity cost inflation, reduced volume/mix and increased investments. This was partly cushioned by enhanced productivity and pricing.

Canada: Net sales of $564 million went down 4.5% year over year, owing to an 8.2% drop in organic sales, partly offset by a 3.7% favorable impact from currency. Pricing rose 0.6%, thanks to better pricing in condiments and sauces. Volume/mix declined 8.8%, owing to absence of promotional activities that benefitted results in the year-ago period. Adverse trade inventory adjustments and product discontinuations also hurt results.

Segment adjusted EBITDA fell 8.9% to $172 million due to unfavorable volume/mix, partly made up by favorable currency impacts.

EMEA: Net sales of $703 million improved 8.7% year over year, with a 5.4% favorable impact from currency and a 0.7% negative impact from divestiture of a joint venture in South Africa. Organic sales grew 4%. Volume/mix advanced 5% on robust gains in condiments and sauces, strength in foodservice across all regions and gains from addition of Kraft products in various regions. However, pricing declined 1%, owing to pricing actions in infant nutrition, condiments and sauces, partly compensated by better pricing at meals.

Adjusted EBITDA jumped 8.9% to $201 million on the back of positive currency impacts and productivity gains, partly negated by increased overhead expenses and reduced pricing.

Rest of World (comprising Latin America and APAC): Net sales of $906 million rose 13.5%, with a 5.4% adverse impact from currency and an 8.1% positive impact from Cerebos’ buyout. Organic sales grew 10.8% on higher pricing and increased volume/mix. Volume/mix improved 1.6%, fueled by solid growth in condiments and sauces in most regions. This was partly countered by reduced shipments in Southeast Asia, as well as transportation headwinds in Brazil. Pricing jumped 9.2%, mainly owing to pricing actions to fight input cost inflation, especially in Latin America.

Adjusted EBITDA surged 24.6% to $213 million, thanks to strong organic sales, partially offset by escalated input costs and currency headwinds.

Financials

Kraft Heinz ended the quarter with cash and cash investments of $3,369 million, long-term debt of $31,380 million and total shareholders’ equity of $65,677 million.

In a separate press release, Kraft Heinz announced a quarterly dividend of 62.5 cents per share, which is payable on Sep 14, 2018 to shareholders of record as on Aug 17.

Well, Kraft Heinz’s first-half 2018 results came ahead of management’s expectations, keeping it encouraged about driving sustainable sales growth. The company expects sales growth to be backed by its robust product pipeline and solid marketing efforts. Though cost inflation has been denting Kraft Heinz’s bottom line, management expects profitability to improve by the end of 2018 and beyond.

Unsure of Kraft Heinz? Check These Solid Picks

Chefs’ Warehouse (CHEF - Free Report) , with long-term earnings per share growth rate of 22%, carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

B&G Foods (BGS - Free Report) , with a Zacks Rank #2, has rallied close to 26% in the past three months.

Pinnacle Foods (PF - Free Report) has long-term earnings per share growth rate of 8% and a Zacks Rank #2

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>



More from Zacks Analyst Blog

You May Like