Kraft Heinz Reports First Quarter 2018 Results
- Q1 net sales decreased 0.3%; Organic Net Sales(1) decreased 1.5%
- Q1 diluted EPS increased to
$0.81 ; Adjusted EPS(1) increased to$0.89 from$0.84 the prior year
“Our first-quarter results were consistent with, if not slightly better
than, the expectations we expressed in February,” said
Q1 2018 Financial Summary
For the Quarter Ended | Year-over-year Change | |||||||||||||||
March 31, | April 1, | Impact of | ||||||||||||||
2018 | 2017 | Actual | Currency | Organic | ||||||||||||
(in millions, except per share data) | ||||||||||||||||
Net sales | $ | 6,304 | $ | 6,324 | (0.3 | )% | 1.2 pp | (1.5 | )% | |||||||
Operating income | 1,481 | 1,433 | 3.4 | % | ||||||||||||
Net income/(loss) attributable to common shareholders | 993 | 893 | 11.1 | % | ||||||||||||
Diluted EPS | $ | 0.81 | $ | 0.73 | 11.0 | % | ||||||||||
Adjusted EBITDA(1) | 1,795 | 1,844 | (2.6 | )% | 0.9 pp | |||||||||||
Adjusted EPS(1) | $ | 0.89 | $ | 0.84 | 6.0 | % | ||||||||||
Net sales were
Net income attributable to common shareholders increased to
Q1 2018 Business Segment Highlights
United States |
||||||||||||||||
For the Quarter Ended | Year-over-year Change | |||||||||||||||
March 31, | April 1, | Impact of | ||||||||||||||
2018 | 2017 | Actual | Currency | Organic | ||||||||||||
(in millions) | ||||||||||||||||
Net sales | $ | 4,368 | $ | 4,518 | (3.3 | )% | 0.0 pp | (3.3 | )% | |||||||
Segment Adjusted EBITDA | 1,382 | 1,464 | (5.6 | )% | 0.0 pp | |||||||||||
United States Segment Adjusted EBITDA decreased 5.6 percent versus the
year-ago period to
Canada |
||||||||||||||||
For the Quarter Ended | Year-over-year Change | |||||||||||||||
March 31, | April 1, | Impact of | ||||||||||||||
2018 | 2017 | Actual | Currency | Organic | ||||||||||||
(in millions) | ||||||||||||||||
Net sales | $ | 484 | $ | 440 | 9.8 | % | 4.8 pp | 5.0 | % | |||||||
Segment Adjusted EBITDA | 134 | 125 | 7.1 | % | 4.4 pp | |||||||||||
Canada Segment Adjusted EBITDA increased 7.1 percent versus the year-ago
period to
EMEA(3) |
||||||||||||||||
For the Quarter Ended | Year-over-year Change | |||||||||||||||
March 31, | April 1, | Impact of | ||||||||||||||
2018 | 2017 | Actual | Currency | Organic | ||||||||||||
(in millions) | ||||||||||||||||
Net sales | $ | 685 | $ | 597 | 14.7 | % | 12.4 pp | 2.3 | % | |||||||
Segment Adjusted EBITDA | 182 | 140 | 30.4 | % | 14.7 pp | |||||||||||
EMEA net sales were
EMEA Segment Adjusted EBITDA increased 30.4 percent versus the year-ago
period to
Rest of World(3)(4) |
||||||||||||||||
For the Quarter Ended | Year-over-year Change | |||||||||||||||
March 31, | April 1, | Impact of | ||||||||||||||
2018 | 2017 | Actual | Currency | Organic | ||||||||||||
(in millions) | ||||||||||||||||
Net sales | $ | 767 | $ | 769 | (0.2 | )% | (3.2) pp | 3.0 | % | |||||||
Segment Adjusted EBITDA | 143 | 144 | (0.7 | )% | (5.6) pp | |||||||||||
Rest of World net sales were
Rest of World Segment Adjusted EBITDA decreased 0.7 percent versus the
year-ago period to
End Notes
(1) | Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures. Please see discussion of non-GAAP financial measures and the reconciliations at the end of this press release for more information. | |
(2) | The Company's key commodities in the United States and Canada are dairy, meat, coffee and nuts. | |
(3) | In the first quarter of our fiscal year 2018, we reorganized certain of our international businesses to better align our global geographies. As a result, we moved our Middle East and Africa businesses from the historical Asia Pacific, Middle East, and Africa (“AMEA”) operating segment into the historical Europe reportable segment, forming the new Europe, Middle East, and Africa (“EMEA”) reportable segment. The remaining businesses from the AMEA operating segment became the Asia Pacific (“APAC”) operating segment. We have reflected this change in all historical periods presented. | |
(4) | Rest of World is comprised of two operating segments: Latin America and APAC. | |
Webcast and Conference Call Information
A webcast of The
ABOUT THE
The
Forward-Looking Statements
This press release contains a number of forward-looking statements. Words such as "reflect," "invest," "see," "make," "expect," "give," "deliver," "drive," "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, expectations, investments, innovations, opportunities, capabilities, execution and growth. 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, operating in
a highly competitive industry; changes in the retail landscape or the
loss of key retail customers; the Company’s ability to maintain, extend
and expand its reputation and brand image; the impacts of the Company’s
international operations; the Company’s ability to leverage its brand
value; 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 ability to realize the anticipated
benefits from its cost savings initiatives; changes in relationships
with significant customers and suppliers; the execution of the Company’s
international expansion strategy; tax law changes or interpretations;
legal claims or other regulatory enforcement actions; product recalls or
product liability claims; unanticipated business disruptions; 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
Non-GAAP Financial Measures
To supplement the financial information, the Company has presented
Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA,
and Adjusted EPS, which are considered non-GAAP financial measures. The
non-GAAP financial measures provided should be viewed in addition to,
and not as an alternative for, results prepared in accordance with
accounting principles generally accepted in
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 underlying 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 GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting the Company's business than could be obtained absent these disclosures.
Organic Net Sales is defined as net sales excluding, when they occur,
the impact of acquisitions, currency, divestitures and a 53rd week of
shipments. The Company calculates the impact of currency on net sales by
holding exchange rates constant at the previous year's exchange rate,
with the exception of
Adjusted EBITDA is defined as net income/(loss) from continuing
operations before interest expense, other expense/(income), net,
provision for/(benefit from) income taxes, and depreciation and
amortization (excluding integration and restructuring expenses); in
addition to these adjustments, the Company excludes, 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 (e.g., remeasurement gains and losses), and equity award
compensation expense (excluding integration and restructuring expenses).
The Company also presents Adjusted EBITDA on a constant currency basis.
The Company calculates the impact of currency on Adjusted EBITDA by
holding exchange rates constant at the previous year's exchange rate,
with the exception 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 (e.g., remeasurement gains and losses), and U.S. Tax Reform, and including when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis. The Company believes Adjusted EPS provides important comparability of underlying operating results, allowing investors and management to assess operating performance on a consistent basis.
See the attached schedules for supplemental financial data, which includes the financial information, the non-GAAP financial measures and corresponding reconciliations to the comparable GAAP financial measures for the relevant periods.
Schedule 1 |
||||||||
The Kraft Heinz Company | ||||||||
Condensed Consolidated Statements of Income | ||||||||
(in millions, except per share data) | ||||||||
(Unaudited) | ||||||||
For the Quarter Ended | ||||||||
March 31, | April 1, | |||||||
2018 | 2017 | |||||||
Net sales | $ | 6,304 | $ | 6,324 | ||||
Cost of products sold(a) | 4,059 | 4,125 | ||||||
Gross profit | 2,245 | 2,199 | ||||||
Selling, general and administrative expenses(b) | 764 | 766 | ||||||
Operating income | 1,481 | 1,433 | ||||||
Interest expense | 317 | 313 | ||||||
Other expense/(income), net(c) | (90 | ) | (130 | ) | ||||
Income/(loss) before income taxes | 1,254 | 1,250 | ||||||
Provision for/(benefit from) income taxes | 261 | 359 | ||||||
Net income/(loss) | 993 | 891 | ||||||
Net income/(loss) attributable to noncontrolling interest | — | (2 | ) | |||||
Net income/(loss) attributable to common shareholders | $ | 993 | $ | 893 | ||||
Basic shares outstanding | 1,219 | 1,217 | ||||||
Diluted shares outstanding | 1,228 | 1,229 | ||||||
Per share data applicable to common shareholders: | ||||||||
Basic earnings/(loss) per share | $ | 0.81 | $ | 0.73 | ||||
Diluted earnings/(loss) per share | 0.81 | 0.73 |
(a) | Integration and restructuring expenses recorded in cost of products sold were $76 million for the quarter ended March 31, 2018 ($61 million after-tax) and $96 million for the quarter ended April 1, 2017 ($66 million after-tax). | |
(b) | Integration and restructuring expenses recorded in selling, general and administrative expenses (“SG&A”) were $14 million for the quarter ended March 31, 2018 ($10 million after-tax) and $39 million for the quarter ended April 1, 2017 ($26 million after-tax). | |
(c) | Integration and restructuring expenses recorded in other expense/(income), net were $13 million for the quarter ended April 1, 2017 ($9 million after-tax). There were no such expenses for the quarter ended March 31, 2018. | |
Schedule 2 |
|||||||||||||||
The Kraft Heinz Company | |||||||||||||||
Reconciliation of Net Sales to Organic Net Sales | |||||||||||||||
For the Quarter Ended | |||||||||||||||
(dollars in millions) | |||||||||||||||
(Unaudited) | |||||||||||||||
Impact of | Organic Net | ||||||||||||||
Net Sales | Currency | Sales | Price | Volume/Mix | |||||||||||
March 31, 2018 | |||||||||||||||
United States | $ | 4,368 | $ | — | $ | 4,368 | |||||||||
Canada | 484 | 22 | 462 | ||||||||||||
EMEA | 685 | 74 | 611 | ||||||||||||
Rest of World | 767 | 17 | 750 | ||||||||||||
$ | 6,304 | $ | 113 | $ | 6,191 | ||||||||||
April 1, 2017 | |||||||||||||||
United States | $ | 4,518 | $ | — | $ | 4,518 | |||||||||
Canada | 440 | — | 440 | ||||||||||||
EMEA | 597 | — | 597 | ||||||||||||
Rest of World | 769 | 40 | 729 | ||||||||||||
$ | 6,324 | $ | 40 | $ | 6,284 | ||||||||||
Year-over-year growth rates | |||||||||||||||
United States | (3.3 | )% | 0.0 pp | (3.3 | )% | 0.8 pp | (4.1) pp | ||||||||
Canada | 9.8 | % | 4.8 pp | 5.0 | % | 0.0 pp | 5.0 pp | ||||||||
EMEA | 14.7 | % | 12.4 pp | 2.3 | % | (0.5) pp | 2.8 pp | ||||||||
Rest of World | (0.2 | )% | (3.2) pp | 3.0 | % | 4.3 pp | (1.3) pp | ||||||||
Kraft Heinz | (0.3 | )% | 1.2 pp | (1.5 | )% | 1.0 pp | (2.5) pp | ||||||||
Schedule 3 |
||||||||
The Kraft Heinz Company | ||||||||
Reconciliation of Net Income/(Loss) to Adjusted EBITDA | ||||||||
(dollars in millions) | ||||||||
(Unaudited) | ||||||||
For the Quarter Ended | ||||||||
March 31, | April 1, | |||||||
2018 | 2017 | |||||||
Net income/(loss) | $ | 993 | $ | 891 | ||||
Interest expense | 317 | 313 | ||||||
Other expense/(income), net | (90 | ) | (130 | ) | ||||
Provision for/(benefit from) income taxes | 261 | 359 | ||||||
Operating income | 1,481 | 1,433 | ||||||
Depreciation and amortization (excluding integration and restructuring expenses) | 206 | 222 | ||||||
Integration and restructuring expenses | 90 | 135 | ||||||
Merger costs | 9 | — | ||||||
Unrealized losses/(gains) on commodity hedges | 2 | 42 | ||||||
Equity award compensation expense (excluding integration and restructuring expenses) | 7 | 12 | ||||||
Adjusted EBITDA | $ | 1,795 | $ | 1,844 | ||||
Segment Adjusted EBITDA: | ||||||||
United States | $ | 1,382 | $ | 1,464 | ||||
Canada | 134 | 125 | ||||||
EMEA | 182 | 140 | ||||||
Rest of World | 143 | 144 | ||||||
General corporate expenses | (46 | ) | (29 | ) | ||||
Adjusted EBITDA | $ | 1,795 | $ | 1,844 | ||||
Schedule 4 |
||||||||||||
The Kraft Heinz Company | ||||||||||||
Reconciliation of Adjusted EBITDA to Constant Currency Adjusted EBITDA | ||||||||||||
For the Quarter Ended | ||||||||||||
(dollars in millions) | ||||||||||||
(Unaudited) | ||||||||||||
Impact of | Constant Currency | |||||||||||
Adjusted EBITDA | Currency | Adjusted EBITDA | ||||||||||
March 31, 2018 | ||||||||||||
United States | $ | 1,382 | $ | — | $ | 1,382 | ||||||
Canada | 134 | 6 | 128 | |||||||||
EMEA | 182 | 20 | 162 | |||||||||
Rest of World | 143 | 3 | 140 | |||||||||
General corporate expenses | (46 | ) | (2 | ) | (44 | ) | ||||||
$ | 1,795 | $ | 27 | $ | 1,768 | |||||||
April 1, 2017 | ||||||||||||
United States | $ | 1,464 | $ | — | $ | 1,464 | ||||||
Canada | 125 | — | 125 | |||||||||
EMEA | 140 | — | 140 | |||||||||
Rest of World | 144 | 11 | 133 | |||||||||
General corporate expenses | (29 | ) | — | (29 | ) | |||||||
$ | 1,844 | $ | 11 | $ | 1,833 | |||||||
Year-over-year growth rates | ||||||||||||
United States | (5.6 | )% | 0.0 pp | (5.6 | )% | |||||||
Canada | 7.1 | % | 4.4 pp | 2.7 | % | |||||||
EMEA | 30.4 | % | 14.7 pp | 15.7 | % | |||||||
Rest of World | (0.7 | )% | (5.6) pp | 4.9 | % | |||||||
General corporate expenses | 55.1 | % | 5.0 pp | 50.1 | % | |||||||
Kraft Heinz | (2.6 | )% | 0.9 pp | (3.5 | )% | |||||||
Schedule 5 |
|||||||
The Kraft Heinz Company | |||||||
Reconciliation of Diluted EPS to Adjusted EPS | |||||||
(Unaudited) | |||||||
For the Quarter Ended | |||||||
March 31, | April 1, | ||||||
2018 | 2017 | ||||||
Diluted EPS | $ | 0.81 | $ | 0.73 | |||
Integration and restructuring expenses(a)(c) | 0.05 | 0.08 | |||||
Merger costs(a)(b) | 0.01 | — | |||||
Unrealized losses/(gains) on commodity hedges(a)(b) | — | 0.02 | |||||
Nonmonetary currency devaluation(a)(d) | 0.04 | 0.01 | |||||
U.S. Tax Reform(e) | (0.02 | ) | — | ||||
Adjusted EPS | $ | 0.89 | $ | 0.84 |
(a) | Income tax expense associated with these items is based on applicable jurisdictional tax rates and deductibility assessments of individual items. | |
(b) | Refer to the reconciliation of net income/(loss) to Adjusted EBITDA for the related gross expenses. | |
(c) | Integration and restructuring included the following gross expenses: | |
• Expenses recorded in cost of products sold were $76 million for the three months ended March 31, 2018 and $96 million for the three months ended April 1, 2017. |
||
• Expenses recorded in SG&A were $14 million for the three months ended March 31, 2018 and $39 million for the three months ended April 1, 2017; and |
||
• Expenses recorded in other expense/(income), net, were $13 million for the three months ended April 1, 2017 (there were no such expenses for the three months ended March 31, 2018). |
||
(d) | Nonmonetary currency devaluation included the following gross expenses: | |
• Expenses recorded in other expense/(income), net, were $47 million for the three months ended March 31, 2018 and $8 million for the three months ended April 1, 2017. |
||
(e) | U.S. Tax Reform included a benefit from income taxes of $20 million for the three months ended March 31, 2018 (there were no such expenses for the three months ended April 1, 2017). | |
Schedule 6 |
||||||||
The Kraft Heinz Company | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(in millions, except per share data) | ||||||||
(Unaudited) | ||||||||
March 31, 2018 | December 30, 2017 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 1,794 | $ | 1,629 | ||||
Trade receivables, net | 1,044 | 921 | ||||||
Sold receivables | 530 | 353 | ||||||
Income taxes receivable | 150 | 582 | ||||||
Inventories | 3,144 | 2,815 | ||||||
Other current assets | 775 | 966 | ||||||
Total current assets | 7,437 | 7,266 | ||||||
Property, plant and equipment, net | 7,267 | 7,120 | ||||||
Goodwill | 44,843 | 44,824 | ||||||
Intangible assets, net | 59,600 | 59,449 | ||||||
Other assets | 1,640 | 1,573 | ||||||
TOTAL ASSETS | $ | 120,787 | $ | 120,232 | ||||
LIABILITIES AND EQUITY | ||||||||
Commercial paper and other short-term debt | $ | 1,001 | $ | 460 | ||||
Current portion of long-term debt | 2,742 | 2,743 | ||||||
Trade payables | 4,241 | 4,449 | ||||||
Accrued marketing | 567 | 680 | ||||||
Income taxes payable | 291 | 152 | ||||||
Interest payable | 345 | 419 | ||||||
Other current liabilities | 1,142 | 1,229 | ||||||
Total current liabilities | 10,329 | 10,132 | ||||||
Long-term debt | 28,561 | 28,333 | ||||||
Deferred income taxes | 14,085 | 14,076 | ||||||
Accrued postemployment costs | 400 | 427 | ||||||
Other liabilities | 949 | 1,017 | ||||||
TOTAL LIABILITIES | 54,324 | 53,985 | ||||||
Redeemable noncontrolling interest | 8 | 6 | ||||||
Equity: | ||||||||
Common stock, $0.01 par value | 12 | 12 | ||||||
Additional paid-in capital | 58,733 | 58,711 | ||||||
Retained earnings/(deficit) | 8,718 | 8,589 | ||||||
Accumulated other comprehensive income/(losses) | (975 | ) | (1,054 | ) | ||||
Treasury stock, at cost | (240 | ) | (224 | ) | ||||
Total shareholders' equity | 66,248 | 66,034 | ||||||
Noncontrolling interest | 207 | 207 | ||||||
TOTAL EQUITY | 66,455 | 66,241 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 120,787 | $ | 120,232 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20180502006454/en/
Source: The
The Kraft Heinz Company
Michael Mullen (media)
Michael.Mullen@kraftheinz.com
or
Christopher
Jakubik, CFA (investors)
ir@kraftheinzcompany.com