Net income of $1,160 million, equal to $0.95 per share on the common stock, in the quarter ended July 1 was up 21 percent from $955 million, or $0.63 per share, in the previous year’s second quarter.
|Bernardo Hees, CEO of Kraft Heinz|
“In terms of our goal to establish industry-leading margins, we remain on track with our cost-savings initiatives,” said Bernardo V. Hees, CEO of Kraft Heinz, in an Aug. 3 earnings call. “Our total savings so far in 2017 have been stronger than expected. Cumulative savings from our integration program were approximately $1.45 billion at the end of the second quarter, and all three areas of our program are contributing: organization structure, ZBB (zero-based budgeting) in procurement and manufacturing footprint.”
Kraft Heinz still is targeting 1.7 percent of cumulative integration program savings by the end of 2017, or $500 million of net incremental savings in 2017 versus 2016, said Paulo Luiz Araujo Basilio, CFO and executive vice president.
|Paulo Luiz Araujo Basilio, CFO and executive vice president of Kraft Heinz|
“As far as the timing of savings is concerned, we've achieved a roughly $280 million of net incremental savings in the first half of the year and expect the remainder in the second half,” Basilio said. “As I mentioned earlier, so far this year savings have come in stronger than anticipated, but at this point, we are not ready to call upside to the $500 million of net incremental savings for the year.”
Net sales for the quarter slipped 1.7 percent to $6,677 million from $6,793 million after an unfavorable impact of a 0.8 percentage point from currency. Organic net sales dropped 0.9 percent, and pricing was lower by a 0.4 percentage point.
The introductions of Devour and Smartmade brands in frozen snacks led growth in the frozen business, said Georges El-Zoghbi, COO of the US commercial business for Kraft Heinz. Sales continued to grow for Kraft American slices, Philadelphia Cream Cheese and Oscar Mayer bacon.
|Georges El-Zoghbi, COO of the US commercial business for Kraft Heinz|
“That's not to say that some consumption challenges remain, but they are concentrated in few categories: natural cheese, mainly due to aggressive competitive pricing in the category; cold cuts as we rebuild our end market distribution and resumed merchandising after the self-imposed restrictions due to capacity constraints during 2016; and finally, ongoing weakness in salad dressings,” he said.
El-Zoghbi said he expects sequential improvement and profitable organic sales growth in the second half of the year.
Currency had a negative impact on Kraft Heinz second-quarter results in Canada, Europe and Rest of the World.
In Canada, adjusted EBITDA dropped 1.2 percent to $189 million while net sales fell 6.4 percent to $597 million. Incremental cost savings were offset partially by the impact of increased promotional activity, Basilio said.
In Europe, adjusted EBITDA dropped 8.6 percent to $202 million while net sales slipped nearly 5 percent to $595 million. Kraft Heinz saw sequential improvement in volume/mix growth, Basilio said.
“Similar to Q1, strong currency headwinds continued to be a factor in the results, and pricing declined due to the timing of promotional activity in the UK, as well as trade investments to address competitive activity in our Italian infant nutritional business,” he said.
“What I would highlight here, however, is that more than 100 percent of the quarter-to-quarter deceleration was due to two factors that we do not expect to repeat going forward,” he said. “One was a negative impact from the general sales tax regime in India that you have heard a number of our global peers talk about recently. Two was a holiday-related shipment timing in Indonesia related to the shift in the Ramadan holiday versus last year, and unfortunately this more than offset strong double-digit gains in China, Brazil and the Middle East, as well as growth in condiments and sauces across most of our other markets.”In the six months ended July 1, Kraft Heinz recorded net income of $2,052 million, or $1.69 per share, which was up 11 percent from $1,846 million, or $1.37 per share, in the same time period of the previous year. Six-month net sales slipped 2.4 percent to $13,041 million from $13,363 million.