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Kraft Heinz (KHC) Q4 Earnings Surpass Estimates, Sales Lag

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The Kraft Heinz Company (KHC - Free Report) reported fourth-quarter 2019 results, with the bottom line surpassing the Zacks Consensus Estimate and the top line lagging the same. However, both metrics declined year over year.

Q4 in Detail

Adjusted earnings per share of 72 cents surpassed the consensus mark of 68 cents. However, the bottom line declined 14.3% year over year.

Net sales declined 5.1% year over year to $6,536 million. Also, the figure lagged the Zacks Consensus Estimate of $6,579 million. Net sales growth included 0.6% and 2.3% unfavorable impacts of currency and divestitures, respectively. Organic sales dipped 2.2%.

Pricing was up 2%, driven by price improvements in the United States, Rest of World and EMEA markets. Volume/mix fell 4.2% due to lower volumes in the United States. Also, volumes in Rest of World segment were down to some extent.

The Kraft Heinz Company Price, Consensus and EPS Surprise

 

The Kraft Heinz Company Price, Consensus and EPS Surprise

The Kraft Heinz Company price-consensus-eps-surprise-chart | The Kraft Heinz Company Quote


Operating Highlights

Gross profit of $2,107 million declined 4.9% year over year and gross margin came in at 32.2% in the reported quarter.
    
Adjusted EBITDA was down 6.6% to $1,564 million in the quarter due to higher supply chain expenses in Rest of World segment along with lower prices in Canada unit. Also, rise in general corporate costs were a drag.

Segment Discussion

United States: Net sales of $4,682 million declined 2.7% year over year. During the quarter, pricing improved 3.1% owing to better prices in certain categories and favorable impact of promotional activities. Volume/mix fell 5.8% due to lower distribution in cold cuts and frozen categories along with reduced shipments in a few categories. However, consumption growth in condiments, sauces and foodservice provided some cushion.

The segment’s adjusted EBITDA inched up1.6% to $1,270 million, driven by higher prices, reduced logistic costs and lower compensation expenses. These factors more than offset the adverse impacts from volume/mix, key commodity cost inflation and increased manufacturing expenses.

Canada: Net sales of $457 million declined 23.8% year over year, which included unfavorable impact of divestitures to the tune of 21.4% and a favourable currency impact of 0.1% .Organic sales fell 2.5% year over year. Pricing dipped 5% due to increased promotional activities and higher trade expense. Volume/mix moved up 2.5% owing to growth in products such as peanut butter and pasta sauce. However, weakness in coffee and reduced cheese shipment acted as deterrents.

Segment adjusted EBITDA declined 26.1% to $116 million due to unfavorable pricing and higher procurement costs.

EMEA: Net sales of $689 million declined 0.5% year over year, with a 0.8% unfavorable impact of currency. Organic sales inched up 0.3% year on year. Volume/mix was up 0.2% on growth in food services across most regions as well as condiments and sauces in Russia. However, persistent softness in infant nutrition and lower promotional activities remained a drag. Moreover, pricing grew slightly owing to better pricing in the U.K.

Adjusted EBITDA increased 6.3% to $182 million on higher organic net Sales and lower compensation expenses. It also reflects 1.4% loss from unfavorable currency.

Rest of World (comprising Latin America and APAC): Net sales of $708 million declined 10.1%, with a 5.2% adverse impact of currency and a 3.3% negative impact of sale of an Indian nutritional beverage. Organic sales declined 1.6%. Pricing was up 0.7%, especially in Latin America and China. Volume/mix declined 2.3% due to reduced shipments across various categories in Australia and New Zealand along with lower shipments in Latin American.

Adjusted EBITDA dropped 53.9% to $60 milliondueto weak lower volume/mix and escalated supply-chain costs.

Financials

Kraft Heinz ended the quarter with cash and cash equivalents of $2,279 million, long-term debt of $28,216 million, and total shareholders’ equity of $51,623 million.

In a separate press release, the company announced a quarterly dividend of 40 cents per share, which is payable Mar 27, 2020, to shareholders of record as of Mar 13.

Price Performance

We note that the Zacks Rank #3 (Hold) stock has lost 32.9% in the past year against the industry’s growth of 11.9%.

 



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