Kraft Heinz meets cost-cut target of $1.7 billion by 2017 end

Kraft Heinz meets cost-cut target of $1.7 billion by 2017 end

Kraft Heinz meets cost-cut target of $1.7 billion by 2017 end

The FINANCIAL -- The Kraft Heinz Company on February 16 reported fourth quarter and full year 2017 financial results.

“There's no question that our financial performance in 2017 did not reflect our progress or potential,” said Kraft Heinz CEO Bernardo Hees. “We made significant improvements in many of our businesses, and were able to accelerate some important business investments at the end of the year. This, together with benefits from the U.S. Tax Cuts and Jobs Act and additional investments in our capabilities, should help further advantage our brands and grow our business in 2018 and beyond.”

“Since the HR-1 Tax Cuts and Jobs Act was signed into law, we have already taken actions and are accelerating key business initiatives,” said Kraft Heinz CFO David Knopf. “This includes approximately $300 million in strategic investments to build our capabilities, our people skills and our brands; more than $800 million in capital expenditures to improve quality, safety and capacity; as well as $1.3 billion to pre-fund our post-retirement benefit plans.”

Net sales were $6.9 billion, up 0.3 percent versus the year-ago period, including a 0.9 percentage point benefit from currency. Organic Net Sales decreased 0.6 percent versus the year-ago period. Pricing increased 1.0 percentage points, driven by price increases in Rest of World markets and the United States. Volume/mix decreased 1.6 percentage points, primarily due to lower shipments across several categories, particularly nuts, natural cheese and cold cuts in the United States as well as cheese and coffee in Canada. This was partially offset by ongoing growth in macaroni and cheese in the United States as well as strong growth from condiments and sauces in Europe, China and Indonesia.

Net income attributable to common shareholders increased to $8.0 billion and diluted EPS increased to $6.52, primarily reflecting benefits from U.S. Tax Reform. Adjusted EBITDA increased 4.0 percent versus the year-ago period to $2.0 billion, including a favorable 0.8 percentage point impact from currency. Excluding the impact of currency, Adjusted EBITDA increased primarily due to gains from cost savings initiatives, lower overhead costs and favorable pricing, which was partially offset by higher input costs and lower volume/mix. Adjusted EPS decreased 1.1 percent to $0.90, mainly reflecting growth in Adjusted EBITDA that was more than offset by a higher effective tax rate versus the prior year period, according to the Kraft Heinz Company.

United States net sales were $4.8 billion, down 1.1 percent versus the year-ago period. Pricing increased 0.6 percentage points, reflecting higher pricing in cheese and seasonal items partially offset by distribution-related investments in cold cuts. Volume/mix decreased 1.7 percentage points driven by a combination of distribution losses on Planters in the club channel, lower shipments in natural cheese and service-related losses in cold cuts. This was partially offset by consumption-driven gains in macaroni and cheese as well as innovation-led growth in Lunchables, Capri Sun ready-to-drink beverages, and P3.

United States Segment Adjusted EBITDA increased 1.4 percent versus the year-ago period to $1.5 billion, driven by gains from cost savings initiatives, lower overhead costs and higher pricing. This was partially offset by unfavorable key commodity costs, lower volume/mix and increased investments to support strategic growth initiatives.

Canada net sales were $591 million, down 4.1 percent versus the year-ago period, including a favorable 4.5 percentage point impact from currency. Organic Net Sales decreased 8.6 percent versus the year-ago period. Pricing was flat to the prior year period while volume/mix decreased 8.6 percentage points. The decline in volume/mix primarily reflected lower inventory levels at retail versus the prior year period, the discontinuation of select cheese products and lower shipments of coffee.

Canada Segment Adjusted EBITDA increased 7.1 percent versus the year-ago period to $162 million, including a favorable 5.2 percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 1.9 percent as gains from cost savings initiatives more than offset the impact of lower volume/mix.

Europe net sales were $656 million, up 9.3 percent versus the year-ago period, including an 8.4 percentage point benefit from currency. Organic Net Sales increased 0.9 percent versus the year-ago period. Pricing declined 0.9 percentage points, primarily due to changes in promotional spending levels versus the prior year in Italy, the UK and Russia. Volume/mix increased 1.8 percentage points as growth from condiments and sauces in Germany, Spain and France more than offset ongoing consumption weakness in Italy infant nutrition.

Europe Segment Adjusted EBITDA increased 7.4 percent versus the year-ago period to $203 million, including a positive 8.0 percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA decreased 0.6 percentage points as gains from cost savings were more than offset by higher input costs in local currency and weak commercial performance in Italy.

Rest of World net sales were $843 million, a 5.2 percent increase versus the year-ago period, despite a negative 1.8 percentage point impact from currency. Organic Net Sales increased 7.0 percent versus the year-ago period. Pricing increased 5.7 percentage points, primarily driven by actions to offset higher input costs in local currency. Volume/mix was 1.3 percentage points higher as strong growth in China and Indonesia was partially offset by negative mix impacts in Australia and lower shipments in Brazil.

Rest of World Segment Adjusted EBITDA decreased 0.8 percent versus the year-ago period to $142 million, including an unfavorable 4.4 percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 3.6 percentage points, primarily reflecting favorable pricing and lower overhead costs that were partially offset by higher input costs in local currency.