Kraft Heinz reports 'good' performance for first half of 2016

by Monica Watrous
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Kraft Macaroni and Cheese, Heinz Ketchup
Net sales for Kraft Heinz eased to $6,793 million, down 4.7 percent from $7,130 million.
 

PITTSBURGH – “Good, not great” is how the CEO of The Kraft Heinz Co. described his company’s performance in the first half of the year. While a number of new product initiatives are beginning to gain traction in markets around the world, weak consumption trends in certain categories stifled results in the second quarter, said Bernardo Hees during an Aug. 4 earnings call with financial analysts.

Net income attributable to Kraft Heinz shareholders in the three months ended July 3 totaled $770 million, equal to 63 cents per share on the common stock, which compared with $186 million, or 16 cents per share, in the same period a year ago. Cost-cutting actions and lower commodity costs contributed to the strong results.

Net sales, meanwhile, eased to $6,793 million, down 4.7 percent from $7,130 million. Excluding foreign currency translation, net sales declined 0.5 percent on lower volume in meat and food service that offset gains from innovation in Lunchables and P3 products in the United States.

Bernardo Hees, Kraft Heinz Co.
Bernardo Hees, CEO, The Kraft Heinz Co.

“As an industry, we are in an environment where retail competition is intensifying in our biggest and most mature markets, including the United States, Canada, the UK, Continental Europe and Australia,” Hees said. “But our biggest challenge remains the fact that we continue to have a number of categories where consumption trends are working against us. And while we are making progress against those opportunities and expect better performance going forward, our organic sales growth during the first half of the year was held back.”

Adjusted EBITDA for the US segment increased 26 percent to $1,518 million, driven by gains from cost savings initiatives and favorable pricing net of commodity costs. US net sales fell 1.9 percent to $4,692 million.

George Zoghbi, The Kraft Heinz Co.
George Zoghbi, COO, US Commercial - The Kraft Heinz Co.

“We’ve been able to maintain solid momentum in the marketplace in a number of categories that we placed big bets on with new products and/or advertising support,” said George Zoghbi, COO, US Commercial. “This includes Heinz sauces, which grew at mid-single digits driven by the introduction of barbecue sauce, year two of mustard and the share growth of ketchup; Philadelphia Cream Cheese, ready-to-eat refrigerated desserts and Lunchables, which are all growing at mid- to high-single digits. However, these gains were more than offset by weak consumption trends in categories like roast and ground coffee, frozen nutritional meals and hot dogs.”

Over the next six months, Zoghbi said the company’s key objectives include continuing to execute the integration of the companies while minimizing disruption.

Kraft Heinz Devour frozen meals
The development of Devour began following the combination of Kraft and Heinz.
 

“Second, we will step up our in-store activity, including a strong agenda of new product introductions we have planned for the second half,” he added. “Look for new product introductions in our desserts, cheese and frozen categories in the months ahead, which follow the roll-out of our new Devour frozen meals this past month.”

Contrary to other recent launches, which were in the works before Kraft Foods Group, Inc. and the H.J. Heinz Co. merged in July 2015, the development of Devour began following the combination, Zoghbi said.

“(We) just launched it in the marketplace in the frozen meals segment, and that was done about two months ago,” he said. “And that was a project that we started late last year. So that happened after the merger, and we got to launch the brand, and we are very excited about providing big marketing support to launching that new brand.

“So the reality is some of (our innovations) started before, some of them started after; none of them were affected or disrupted by integrating the two businesses together.”

Net income attributable to Kraft Heinz shareholders for the six months ended July 3 was $1,666 million, or $1.37 per share, up from $744 million, or 63 cents, in the comparable period. Net sales declined to $13,363 million from $13,960 million.

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