Kraft Heinz Reports First Quarter 2016 Results
-
Q1 GAAP net sales increased 165% due to the merger of Kraft and
Heinz; Organic
Net Sales (1) increased 1.1% - Q1 GAAP operating income increased 197%; Adjusted EBITDA(1) increased 27.3% on a constant currency basis
-
Q1 GAAP diluted EPS increased 204% to
$0.73 ; Adjusted EPS(1) increased 37.7% to$0.73
"We've had a solid start to the year. Our savings are coming in faster
than anticipated and we're performing better where it matters most, with
our customers and consumers in the marketplace," said
Q1 2016 Financial Summary
For the Three Months Ended | Year-over-year Change | |||||||||||||||||
|
|
Actual | Currency | Divestitures | Organic | |||||||||||||
(in millions, except per share data) | ||||||||||||||||||
GAAP net sales | $ | 6,570 | $ | 2,478 | 165.1 | % | ||||||||||||
GAAP operating income | 1,513 | 509 | 197.2 | % | ||||||||||||||
GAAP diluted EPS | $ | 0.73 | $ | 0.24 | 204.2 | % | ||||||||||||
Pro forma net sales(2) | $ | 6,570 | $ | 6,830 | (3.8 | )% | (4.5) pp | (0.4) pp | 1.1 | % | ||||||||
Adjusted EBITDA(2) | 1,951 | 1,609 | 21.3 | % | ||||||||||||||
Adjusted EPS(2) | $ | 0.73 | $ | 0.53 | 37.7 | % | ||||||||||||
Net sales were
Adjusted EBITDA increased 21.3 percent versus the year-ago period to
Q1 2016 Business Segment Highlights
For the Three Months Ended | Year-over-year Change | ||||||||||||||||
|
|
Actual | Currency | Divestitures | Organic | ||||||||||||
(in millions) | |||||||||||||||||
Pro forma net sales(2,5) | $ | 4,715 | $ | 4,707 | 0.2 | % | 0.0 pp | 0.0 pp | 0.2% | ||||||||
Segment Adjusted EBITDA(2,5) | 1,493 | 1,123 | 32.9 | % | |||||||||||||
United States Segment Adjusted EBITDA increased 32.9 percent versus the
year-ago period to
For the Three Months Ended | Year-over-year Change | |||||||||||||||||
|
|
Actual | Currency | Divestitures | Organic | |||||||||||||
(in millions) | ||||||||||||||||||
Pro forma net sales(2) | $ | 504 | $ | 551 | (8.5 | )% | (10.0) pp | 0.0 pp | 1.5 | % | ||||||||
Segment Adjusted EBITDA(2) | 151 | 113 | 33.6 | % | ||||||||||||||
Canada Segment Adjusted EBITDA increased 33.6 percent versus the
year-ago period to
For the Three Months Ended | Year-over-year Change | |||||||||||||||||||
|
|
Actual | Currency | Divestitures | Organic | |||||||||||||||
(in millions) | ||||||||||||||||||||
Pro forma net sales(2,5) | $ | 553 | $ | 626 | (11.7 | )% | (3.9 | ) pp | (4.1 | ) pp | (3.7 | )% | ||||||||
Segment Adjusted EBITDA(2,5) | 177 | 214 | (17.3 | )% | ||||||||||||||||
Europe Segment Adjusted EBITDA decreased 17.3 percent versus the
year-ago period to
Rest of World(6)
For the Three Months Ended | Year-over-year Change | ||||||||||||||||||
|
|
Actual | Currency | Divestitures | Organic | ||||||||||||||
(in millions) | |||||||||||||||||||
Pro forma net sales(2,5) | $ | 798 | $ | 946 | (15.6 | )% | (26.0 | ) pp | 0.0 pp | 10.4 | % | ||||||||
Segment Adjusted EBITDA(2,5) | 167 | 190 | (12.1 | )% | |||||||||||||||
Rest of World net sales were
Rest of World Segment Adjusted EBITDA decreased 12.1 percent versus the
year-ago period to
End Notes |
||
(1) |
Organic |
|
(2) |
Pro forma net sales, Adjusted EBITDA and Adjusted EPS for the three
months ended |
|
(3) |
The Company's key commodities in |
|
(4) | Cost savings initiatives include the Company's integration, restructuring and ongoing productivity efforts. | |
(5) |
In the first quarter of 2016, the Company moved certain of the
historical Kraft export businesses from the Company's |
|
(6) |
Rest of World is comprised of three operating segments: |
|
Webcast and Conference Call Information
A webcast of
ABOUT
Forward-Looking Statements
This press release contains a number of forward-looking statements. Words such as "anticipate," "remain," "enter," "implement," "position," "believe," "will," and variations of such words and similar expressions are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding the Company's plans, investments, execution, growth and integration. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond the Company's control.
Important factors that may affect the Company's business and operations
and that may cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, increased
competition; the Company's ability to maintain, extend and expand its
reputation and brand image; the Company's ability to differentiate its
products from other brands; the consolidation of retail customers; the
Company's ability to predict, identify and interpret changes in consumer
preferences and demand; the Company's ability to drive revenue growth in
its key product categories, increase its market share, or add products;
an impairment of the carrying value of goodwill or other
indefinite-lived intangible assets; volatility in commodity, energy and
other input costs; changes in the Company's management team or other key
personnel; the Company's inability to realize the anticipated benefits
from the Company's cost savings initiatives; changes in relationships
with significant customers and suppliers; execution of the Company's
international expansion strategy; changes in laws and regulations; legal
claims or other regulatory enforcement actions; product recalls or
product liability claims; unanticipated business disruptions; failure to
successfully integrate the Company; the Company's ability to complete or
realize the benefits from potential and completed acquisitions,
alliances, divestitures or joint ventures; economic and political
conditions in the nations in which the Company operates; the volatility
of capital markets; increased pension, labor and people-related
expenses; volatility in the market value of all or a portion of the
derivatives that the Company uses; exchange rate fluctuations;
disruptions in information technology networks and systems; the
Company's inability to protect intellectual property rights; impacts of
natural events in the locations in which the Company or its customers,
suppliers or regulators operate; the Company's indebtedness and ability
to pay such indebtedness; the Company's dividend payments on its Series
A Preferred Stock; tax law changes or interpretations; pricing actions;
and other factors. For additional information on these and other factors
that could affect the Company's forward-looking statements, see the
Company's risk factors, as they may be amended from time to time, set
forth in its filings with the
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information (the
"pro forma financial information") presented in this release illustrates
the estimated effects of the merger (the "2015 Merger") consummated on
The pro forma financial information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. The Company utilized estimated fair values at the closing date of the 2015 Merger for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. The Company's purchase price allocation is substantially complete with the exception of identifiable intangible assets, certain income tax accounts and goodwill. During the measurement period, the Company will continue to obtain information to assist in determining the fair value of net assets acquired, which may differ materially from these preliminary estimates.
The historical consolidated financial statements have been adjusted in the accompanying pro forma financial information to give effect to unaudited pro forma events that are (1) directly attributable to the 2015 Merger, (2) factually supportable and (3) expected to have a continuing impact on the results of operations of the combined company.
The pro forma financial information has been prepared based upon
currently available information and assumptions deemed appropriate by
management. This pro forma financial information is not necessarily
indicative of what the Company's results of operations actually would
have been had the 2015 Merger been completed as of
This pro forma financial information should be read in conjunction with
historical financial statements and accompanying notes filed with the
Non-GAAP Financial Measures
To supplement the financial information, the Company has presented
Organic
Management uses these non-GAAP financial measures to assist in comparing
the Company's performance on a consistent basis for purposes of business
decision making by removing the impact of certain items that management
believes do not directly reflect the Company's core operations.
Management believes that presenting the Company's non-GAAP financial
measures is useful to investors because it (i) provides investors with
meaningful supplemental information regarding financial performance by
excluding certain items, (ii) permits investors to view performance
using the same tools that management uses to budget, make operating and
strategic decisions, and evaluate historical performance, and (iii)
otherwise provides supplemental information that may be useful to
investors in evaluating the Company's results. The Company believes that
the presentation of these non-GAAP financial measures, when considered
together with the corresponding
Organic
Adjusted EBITDA is defined as net income/(loss) from continuing
operations before interest expense, other expense/(income), net,
provision for/(benefit from) income taxes, depreciation and amortization
(excluding integration and restructuring expenses) (including
amortization of postretirement benefit plans prior service credits);
excluding, when they occur, the impacts of integration and restructuring
expenses, merger costs, unrealized losses/(gains) on commodity hedges,
nonmonetary currency devaluation, equity award compensation expense
(excluding integration and restructuring expenses), impairment losses,
and losses/(gains) on the sale of a business. Adjusted EBITDA for any
period prior to the 2015 Merger Date includes the operating results of
Kraft on a pro forma basis, as if Kraft had been acquired as of
Adjusted EPS is defined as diluted earnings per share excluding, when
they occur, the impacts of integration and restructuring expenses,
merger costs, unrealized losses/(gains) on commodity hedges, impairment
losses, losses/(gains) on the sale of a business, nonmonetary currency
devaluation and timing impacts of preferred stock dividends. Adjusted
EPS for any period prior to the 2015 Merger Date includes the operating
results of Kraft on a pro forma basis, as if Kraft had been acquired as
of
See the attached schedules for supplemental financial data, which includes the financial information, the non-GAAP financial measures and corresponding reconciliations for the relevant periods.
Schedule 1 |
||||||||
|
||||||||
Condensed Consolidated Statements of Income | ||||||||
(in millions, except per share data) | ||||||||
(Unaudited) | ||||||||
For the Three Months Ended | ||||||||
|
|
|||||||
Net sales | $ | 6,570 | $ | 2,478 | ||||
Cost of products sold | 4,192 | 1,631 | ||||||
Gross profit | 2,378 | 847 | ||||||
Selling, general and administrative expenses | 865 | 338 | ||||||
Operating income | 1,513 | 509 | ||||||
Interest expense | 249 | 201 | ||||||
Other expense/(income), net | (8 | ) | (39 | ) | ||||
Income/(loss) before income taxes | 1,272 | 347 | ||||||
Provision for/(benefit from) income taxes | 372 | 68 | ||||||
Net income/(loss) | 900 | 279 | ||||||
Net income/(loss) attributable to noncontrolling interest | 4 | 3 | ||||||
Net income/(loss) attributable to |
896 | 276 | ||||||
Preferred dividends(1) | — | 180 | ||||||
Net income/(loss) attributable to common shareholders | $ | 896 | $ | 96 | ||||
Basic shares outstanding | 1,215 | 377 | ||||||
Diluted shares outstanding | 1,225 | 399 | ||||||
Per share data applicable to common shareholders: | ||||||||
Basic earnings/(loss) per share | $ | 0.74 | $ | 0.26 | ||||
Diluted earnings/(loss) per share | 0.73 | 0.24 | ||||||
*The consolidated statements of income for the three months ended
|
(1) There were no cash distributions for Series A Preferred Stock
for the three months ended |
Schedule 2 |
||||||||
|
||||||||
Pro Forma Condensed Combined Statements of Income | ||||||||
(in millions, except per share data) | ||||||||
(Unaudited) | ||||||||
For the Three Months Ended | ||||||||
|
|
|||||||
Net sales | $ | 6,570 | $ | 6,830 | ||||
Cost of products sold(1) | 4,192 | 4,556 | ||||||
Gross profit | 2,378 | 2,274 | ||||||
Selling, general and administrative expenses(2) | 865 | 992 | ||||||
Operating income | 1,513 | 1,282 | ||||||
Interest expense | 249 | 305 | ||||||
Other expense/(income), net | (8 | ) | (56 | ) | ||||
Income/(loss) before income taxes | 1,272 | 1,033 | ||||||
Provision for/(benefit from) income taxes | 372 | 292 | ||||||
Net income/(loss) | 900 | 741 | ||||||
Net income/(loss) attributable to noncontrolling interest | 4 | 3 | ||||||
Net income/(loss) attributable to |
896 | 738 | ||||||
Preferred dividends(3) | — | 180 | ||||||
Net income/(loss) attributable to |
$ | 896 | $ | 558 | ||||
Basic common shares outstanding | 1,215 | 1,187 | ||||||
Diluted common shares outstanding | 1,225 | 1,218 | ||||||
Per share data applicable to common shareholders: | ||||||||
Basic earnings per share | $ | 0.74 | $ | 0.47 | ||||
Diluted earnings per share | 0.73 | 0.46 | ||||||
*There are no pro forma adjustments in the three months ended |
(1) Integration and restructuring expenses in cost of products sold
were as follows: |
(2) Integration and restructuring expenses in selling, general and
administrative expenses were as follows: |
(3) There were no cash distributions for Series A Preferred Stock
for the quarter ended |
Schedule 3 |
||||||||||||||||||||||
|
||||||||||||||||||||||
Reconciliation of Pro |
||||||||||||||||||||||
For the Three Months Ended | ||||||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
Pro Forma |
Impact of |
Impact of |
Organic Net |
Price | Volume/Mix | |||||||||||||||||
|
||||||||||||||||||||||
|
$ | 4,715 | $ | — | $ | — | $ | 4,715 | ||||||||||||||
|
504 |
(55 |
) |
— | 559 | |||||||||||||||||
|
553 |
(24 |
) |
— | 577 | |||||||||||||||||
Rest of World | 798 |
(71 |
) |
|
— | 869 | ||||||||||||||||
$ | 6,570 | $ |
(150 |
) |
$ | — | $ | 6,720 | ||||||||||||||
|
||||||||||||||||||||||
|
$ | 4,707 | $ | — | $ | — | $ | 4,707 | ||||||||||||||
|
551 | — | — | 551 | ||||||||||||||||||
|
626 | — | 27 | 599 | ||||||||||||||||||
Rest of World(1) | 946 | 159 | — | 787 | ||||||||||||||||||
$ | 6,830 | $ | 159 | $ | 27 | $ | 6,644 | |||||||||||||||
Year-over-year growth rates |
||||||||||||||||||||||
|
0.2 |
% |
0.0 |
pp |
0.0 |
pp |
0.2 | % |
0.1 |
pp |
0.1 |
pp |
||||||||||
|
(8.5 | )% | (10.0 | ) pp |
0.0 |
pp |
1.5 | % |
3.7 |
pp |
(2.2 | ) pp | ||||||||||
|
(11.7 | )% | (3.9 | ) pp | (4.1 | ) pp | (3.7 | )% | (2.9 | ) pp | (0.8 | ) pp | ||||||||||
Rest of World(1) | (15.6 | )% | (26.0 | ) pp |
0.0 |
pp |
10.4 | % |
2.1 |
pp |
8.3 |
pp |
||||||||||
(3.8 | )% | (4.5 | ) pp | (0.4 | ) pp | 1.1 | % |
0.3 |
pp |
0.8 |
pp |
|||||||||||
*There are no pro forma adjustments in the three months ended |
(1) In the first quarter of 2016, the Company moved certain of the
historical Kraft export businesses from the Company's |
(2) The Company increased Europe Organic |
Schedule 4 |
||||||||
|
||||||||
Reconciliation of Pro Forma Operating Income to Adjusted EBITDA | ||||||||
(in millions) | ||||||||
(Unaudited) | ||||||||
For the Three Months Ended | ||||||||
|
|
|||||||
Pro forma operating income | $ | 1,513 | $ | 1,282 | ||||
Depreciation and amortization (excluding integration and restructuring expenses) | 161 | 216 | ||||||
Integration and restructuring expenses | 260 | 81 | ||||||
Merger costs | 15 | 13 | ||||||
Unrealized losses/(gains) on commodity hedges | (8 | ) | (2 | ) | ||||
Nonmonetary currency devaluation | 1 | — | ||||||
Equity award compensation expense (excluding integration and restructuring expenses) | 9 | 19 | ||||||
Adjusted EBITDA | $ | 1,951 | $ | 1,609 | ||||
Segment Adjusted EBITDA: | ||||||||
|
$ | 1,493 | $ | 1,123 | ||||
|
151 | 113 | ||||||
|
177 | 214 | ||||||
Rest of World(1) | 167 | 190 | ||||||
General corporate expenses | (37 | ) | (31 | ) | ||||
Adjusted EBITDA | $ | 1,951 | $ | 1,609 | ||||
*There are no pro forma adjustments in the three months ended |
(1) In the first quarter of 2016, the Company moved certain
historical Kraft export businesses from the Company's |
|
||||||||||||
Schedule 5 |
||||||||||||
|
||||||||||||
Reconciliation of Adjusted EBITDA to Constant Currency Adjusted EBITDA | ||||||||||||
For the Three Months Ended | ||||||||||||
(dollars in millions) | ||||||||||||
(Unaudited) | ||||||||||||
Adjusted EBITDA | Impact of Currency |
Constant Currency |
||||||||||
|
||||||||||||
|
$ | 1,493 | $ | — | $ | 1,493 | ||||||
|
151 | (16 | ) | 167 | ||||||||
|
177 | (8 | ) | 185 | ||||||||
Rest of World | 167 | (12 | ) | 179 | ||||||||
General corporate expenses | (37 | ) | — | (37 | ) | |||||||
$ | 1,951 | $ | (36 | ) | $ | 1,987 | ||||||
|
||||||||||||
|
$ | 1,123 | $ | — | $ | 1,123 | ||||||
|
113 | — | 113 | |||||||||
|
214 | — | 214 | |||||||||
Rest of World(1) | 190 | 48 | 142 | |||||||||
General corporate expenses | (31 | ) | — | (31 | ) | |||||||
$ | 1,609 | $ | 48 | $ | 1,561 | |||||||
Year-over-year growth rates |
||||||||||||
|
32.9 |
% |
0.0 pp | 32.9 |
% |
|||||||
|
33.6 |
% |
(14.2) pp | 47.8 |
% |
|||||||
|
(17.3 | )% | (3.7) pp | (13.6 | )% | |||||||
Rest of World(1) | (12.1 | )% | (38.2) pp | 26.1 |
% |
|||||||
General corporate expenses | 19.4 |
% |
0.0 pp | 19.4 |
% |
|||||||
21.3 |
% |
(6.0) pp | 27.3 |
% |
||||||||
*There are no pro forma adjustments in the three months ended |
(1) In the first quarter of 2016, the Company moved certain
historical Kraft export businesses from the Company's |
Schedule 6 |
|||||||||
|
|||||||||
Reconciliation of Pro Forma Diluted EPS to Adjusted EPS | |||||||||
(Unaudited) | |||||||||
For the Three Months Ended | |||||||||
|
|
||||||||
Pro forma diluted EPS | $ | 0.73 | $ | 0.46 | |||||
Integration and restructuring expenses | 0.14 | 0.05 | |||||||
Merger costs | 0.01 | 0.02 | |||||||
Additional preferred dividend in 2015(1) | (0.15 | ) | — | ||||||
Adjusted EPS | $ | 0.73 | $ | 0.53 | |||||
*There are no pro forma adjustments in the three months ended |
(1) There were no cash distributions for Series A Preferred Stock
for the quarter ended |
Schedule 7 |
||||||||
|
||||||||
Condensed Consolidated Balance Sheets | ||||||||
(in millions) | ||||||||
(Unaudited) | ||||||||
|
|
|||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 4,199 | $ | 4,837 | ||||
Trade receivables | 939 | 871 | ||||||
Sold receivables | 805 | 583 | ||||||
Inventories | 2,892 | 2,618 | ||||||
Other current assets | 977 | 871 | ||||||
Total current assets | 9,812 | 9,780 | ||||||
Property, plant and equipment, net | 6,434 | 6,524 | ||||||
|
43,542 | 43,051 | ||||||
Intangible assets, net | 62,049 | 62,120 | ||||||
Other assets | 1,436 | 1,498 | ||||||
TOTAL ASSETS | $ | 123,273 | $ | 122,973 | ||||
LIABILITIES AND EQUITY | ||||||||
Trade payables | $ | 2,773 | $ | 2,844 | ||||
Accrued marketing | 867 | 856 | ||||||
Accrued postemployment costs | 164 | 328 | ||||||
Income taxes payable | 575 | 417 | ||||||
Interest payable | 266 | 401 | ||||||
Dividends payable | 794 | 762 | ||||||
Other current liabilities | 1,291 | 1,324 | ||||||
Total current liabilities | 6,730 | 6,932 | ||||||
Long-term debt | 25,167 | 25,151 | ||||||
Deferred income taxes | 21,659 | 21,497 | ||||||
Accrued postemployment costs | 2,380 | 2,405 | ||||||
Other liabilities | 737 | 752 | ||||||
TOTAL LIABILITIES | 56,673 | 56,737 | ||||||
Redeemable noncontrolling interest | 21 | 23 | ||||||
9.00% Series A cumulative compounding redeemable preferred stock | 8,320 | 8,320 | ||||||
Equity: | ||||||||
Common stock, |
12 | 12 | ||||||
Additional paid-in capital | 58,438 | 58,375 | ||||||
Retained earnings/(deficit) | 193 | — | ||||||
Accumulated other comprehensive income/(losses) | (560 | ) | (671 | ) | ||||
|
(40 | ) | (31 | ) | ||||
Total shareholders' equity | 58,043 | 57,685 | ||||||
Noncontrolling interest | 216 | 208 | ||||||
TOTAL EQUITY | 58,259 | 57,893 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 123,273 | $ | 122,973 | ||||
Schedule 8 |
||||||||||||||||||
|
||||||||||||||||||
Pro Forma Condensed Combined Statement of Income | ||||||||||||||||||
For the Three Months Ended |
||||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Historical |
Historical |
Pro Forma |
Pro Forma | |||||||||||||||
Net sales | $ | 2,478 | $ | 4,352 | $ | — | $ | 6,830 | ||||||||||
Cost of products sold | 1,631 | 2,989 | (64 | ) | (1) | 4,556 | ||||||||||||
Gross profit | 847 | 1,363 | 64 | 2,274 | ||||||||||||||
Selling, general and administrative expenses | 338 | 622 | 32 | (2) | 992 | |||||||||||||
Operating income | 509 | 741 | 32 | 1,282 | ||||||||||||||
Interest expense | 201 | 124 | (20 | ) | (3) | 305 | ||||||||||||
Other expense/(income), net | (39 | ) | (17 | ) | — | (56 | ) | |||||||||||
Income/(loss) before income taxes | 347 | 634 | 52 | 1,033 | ||||||||||||||
Provision for/(benefit from) income taxes | 68 | 204 | 20 | (4) | 292 | |||||||||||||
Net income/(loss) | 279 | 430 | 32 | 741 | ||||||||||||||
Net income/(loss) attributable to noncontrolling interest | 3 | — | — | 3 | ||||||||||||||
Net income/(loss) attributable to |
276 | 430 | 32 | 738 | ||||||||||||||
Preferred dividends | 180 | — | — | 180 | ||||||||||||||
Net income/(loss) attributable to common shareholders | $ | 96 | $ | 430 | $ | 32 | $ | 558 | ||||||||||
Basic common shares outstanding | 1,187 | |||||||||||||||||
Diluted common shares outstanding | 1,218 | |||||||||||||||||
Per share data applicable to common shareholders: | ||||||||||||||||||
Basic earnings per share | $ | 0.47 | ||||||||||||||||
Diluted earnings per share | 0.46 | |||||||||||||||||
(1) Represents the change to align Kraft to |
(2) Reflects 2015 Merger-related adjustments including the change to
align Kraft to |
(3) Represents the incremental change in interest expense resulting from the fair value adjustment of Kraft's long-term debt in connection with the 2015 Merger, including the elimination of the historical amortization of deferred financing fees and amortization of original issuance discount. |
(4) Represents the income tax effect of pro forma adjustments utilizing a 38.5% weighted average statutory tax rate. |
View source version on businesswire.com: http://www.businesswire.com/news/home/20160504006615/en/
Michael.Mullen@kraftheinzcompany.com
or
ir@kraftheinzcompany.com
Source:
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