The Kraft Heinz Company (KHC - Free Report) reported first-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, sales improved year over year. However, earnings declined from the year-ago quarter’s figure.
The Kraft Heinz Company Price, Consensus and EPS Surprise
Company price-consensus-eps-surprise-chart | The Kraft Heinz Company Quote
Q1 in Detail
Adjusted earnings per share of 58 cents surpassed the consensus mark of 54 cents. However, the bottom line fell 12.1% year over year due to decline in other income along with unfavorable changes in non-cash equity award compensation costs. Also, higher taxes were deterrent.
Net sales increased 3.3% year over year to $6,157 million. Also, the figure surpassed the Zacks Consensus Estimate of $6,142 million. Net sales growth included 1.1% and 1.8% unfavorable impacts of currency and divestitures, respectively. Organic sales rose 6.2% on the back of strong consumer demand stemming from to the coronavirus pandemic.
Pricing was up 1.6%, driven by price improvements in the United States and International markets. Volume/mix increased 4.6% on the back of increased at-home consumption.
Operating Highlights
Gross profit of $1,858 million declined 7.6% year over year and gross margin came in at 30.2% in the reported quarter.
Adjusted EBITDA was down 1.1% to $1,415 million in the quarter due to higher general corporate costs along with reduced demand from Canada region.
Segment Discussion
United States: Net sales of $4,495 million increased 6.4% year over year. During the quarter, pricing moved up 2.4% owing to better prices in certain categories. Volume/mix increased 4% on strong growth in various categories like condiments and sauces, ready to drink beverages, and nuts to name a few. However, lower shipments in cold cuts, natural cheese and domestic foodservice acted as deterrents.
The segment’s adjusted EBITDA increased 6.2% to $1,209 million which includes contributions from increased demand related to the COVID-19 pandemic. Higher prices and volumes more than offset the adverse impacts from volume/mix, key commodity cost inflation and increased supply chain expenses.
Canada: Net sales of $361 million declined 19.8% year over year, which included the unfavorable impact of divestitures to the tune of 20.7% and a favorable currency impact of 1.3%. Nevertheless, organic sales increased 2.2% year over year driven by increased demand related to the coronavirus outbreak. Pricing dipped 6.4% due to higher trade expenses and reduced prices in foodservice. Volume/mix moved up 8.6% owing to growth in products such as peanut butter and pasta sauce. However, weakness in coffee and reduced foodservice shipment were headwinds.
Segment adjusted EBITDA declined 54% to $55 million due to unfavorable pricing and higher supply chain costs.
International: Net sales of $1301 million increased 1.3% year over year, which included the unfavorable impact of divestitures to the tune of 1.1% and a favorable currency impact of 4.5%. Organic sales grew 6.9% year on year. Pricing inched up 1.7% owing to better prices in Latin America, Australia, and the U.K. Volume/mix was up 5.2% on growth in retail consumption in both developed and emerging markets. However, reduced shipments in Asia and foodservice were a drag.
Adjusted EBITDA increased 2.5% to $245 million on higher organic net sales.
Financials
Kraft Heinz ended the quarter with cash and cash equivalents of $5,403 million, long-term debt of $31,531 million as well as total shareholders’ equity of $51,009 million.
In a separate press release, the company announced a quarterly dividend of 40 cents per share, which is payable on Jun 26 to shareholders of record as of May 29.
Outlook
For second-quarter 2020, the company anticipates a low to mid-single-digit year over year organic net sales growth. During the second quarter, adjusted EBITDA is expected to grow at a mid-single-digit on a constant-currency basis. This outlook reflects increased demand from retail customers owing to greater in at-home consumption, especially in developed markets. Also, the outlook takes in account lower demand in foodservice channels worldwide.
Price Performance
We note that the Zacks Rank #2 (Buy) stock has gained 6.7% in the past three months against the industry’s decline of 8.2%.
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