Kraft heinz reports first quarter 2018 results
Pittsburgh & chicago--(business wire)--the kraft heinz company (nasdaq: khc) (“kraft heinz” or the “company”) today reported first quarter 2018 financial results that reflected higher input costs, lower net sales in the united states, and investments to enhance capabilities, as well as lower taxes versus the prior year period. “our first-quarter results were consistent with, if not slightly better than, the expectations we expressed in february,” said kraft heinz ceo bernardo hees. “the initial successes we’re seeing in the marketplace, together with the strong investments we’re making in marketing, new product innovation, and capability-building, give us increased confidence in delivering the top- and bottom-line growth we expect in 2018.” q1 2018 financial summary net sales were $6.3 billion, down 0.3 percent versus the year-ago period, including a 1.2 percentage point benefit from currency. organic net sales decreased 1.5 percent versus the year-ago period. pricing increased 1.0 percentage points, driven by price increases in the united states and rest of world markets. volume/mix decreased 2.5 percentage points, primarily driven by lower shipments in the united states and rest of world markets that more than offset solid retail growth in canada and emea(3) as well as foodservice gains in the united states and emea. net income attributable to common shareholders increased to $1.0 billion and diluted eps increased to $0.81, primarily reflecting benefits from u.s. tax reform. adjusted ebitda decreased 2.6 percent versus the year-ago period to $1.8 billion, including a favorable 0.9 percentage point impact from currency. excluding the impact of currency, the decline in adjusted ebitda reflected higher input costs, lower volume/mix and investments in strategic initiatives. adjusted eps increased 6.0 percent to $0.89, mainly reflecting lower taxes versus the prior year period. q1 2018 business segment highlights united states united states net sales were $4.4 billion, down 3.3 percent versus the year-ago period. pricing increased 0.8 percentage points as higher pricing was partially offset by the timing of trade spending versus the prior year period. volume/mix decreased 4.1 percentage points as solid gains in foodservice and a favorable shift in easter-related sales was more than offset by lower shipments of nuts, cold cuts, frozen potatoes and parts of the cheese business. united states segment adjusted ebitda decreased 5.6 percent versus the year-ago period to $1.4 billion, primarily reflecting lower volume/mix, non-key commodity(2) inflation and investments to enhance capabilities that were partially offset by gains from productivity and pricing. canada canada net sales were $484 million, up 9.8 percent versus the year-ago period, including a favorable 4.8 percentage point impact from currency. organic net sales increased 5.0 percent versus the year-ago period. pricing was neutral with the prior year period as higher pricing in several categories was offset by lower pricing in cheese. volume/mix increased 5.0 percentage points reflecting earlier implementation of go-to-market agreements with key retailers that primarily benefited cheese and coffee sales. canada segment adjusted ebitda increased 7.1 percent versus the year-ago period to $134 million, including a favorable 4.4 percentage point impact from currency. excluding the impact of currency, segment adjusted ebitda increased 2.7 percent, primarily driven by volume/mix growth that was partially offset by higher input costs. emea(3) emea net sales were $685 million, up 14.7 percent versus the year-ago period, including a 12.4 percentage point benefit from currency. organic net sales increased 2.3 percent versus the year-ago period. pricing declined 0.5 percentage points, driven by increased promotional activity in infant nutrition, primarily in italy. volume/mix increased 2.8 percentage points, reflecting a strong soup season in the uk and growth in condiments and sauces, as well as gains in foodservice. emea segment adjusted ebitda increased 30.4 percent versus the year-ago period to $182 million, including a positive 14.7 percentage point impact from currency. excluding currency impacts, the increase in segment adjusted ebitda reflected gains from productivity, pension and postretirement cost favorability versus the prior year period, as well as volume/mix growth that was partially offset by lower pricing. rest of world(3)(4) rest of world net sales were $767 million, 0.2 percent lower than the year-ago period, including a negative 3.2 percentage point impact from currency. organic net sales increased 3.0 percent versus the year-ago period. pricing was up 4.3 percentage points, primarily driven by actions to offset higher input costs in local currency, particularly in latin america. volume/mix decreased 1.3 percentage points, driven by a combination of unfavorable impacts from distributor network realignment in select markets and lower shipments in indonesia and brazil that was partially offset by growth in australia. rest of world segment adjusted ebitda decreased 0.7 percent versus the year-ago period to $143 million, including an unfavorable 5.6 percentage point impact from currency. excluding the impact of currency, segment adjusted ebitda increased 4.9 percentage points as organic net sales gains were partially offset by higher input costs in local currency. end notes webcast and conference call information a webcast of the kraft heinz company's first quarter 2018 earnings conference call will be available at ir.kraftheinzcompany.com. the call begins today at 5:00 p.m. eastern time. about the kraft heinz company the kraft heinz company (nasdaq: khc) is the fifth-largest food and beverage company in the world. a globally trusted producer of delicious foods, the kraft heinz company provides high quality, great taste and nutrition for all eating occasions whether at home, in restaurants, or on the go. the company’s iconic brands include kraft, heinz, abc, capri sun, classico, jell-o, kool-aid, lunchables, maxwell house, ore-ida, oscar mayer, philadelphia, planters, plasmon, quero, smart ones and velveeta. the kraft heinz company is dedicated to the sustainable health of our people, our planet and our company. for more information, visit www.kraftheinzcompany.com. 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 the united states and in various other nations in which we operate; 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 we use; exchange rate fluctuations; risks associated with information technology and systems, including service interruptions, misappropriation of data or breaches of security; the company’s ability to protect intellectual property rights; impacts of natural events in the locations in which we or the company’s customers, suppliers or regulators operate; the company’s indebtedness and ability to pay such indebtedness; the company’s ownership structure; the impact of future sales of its common stock in the public markets; the company’s ability to continue to pay a regular dividend; changes in laws and regulations; restatements of the company’s consolidated financial statements; 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 securities and exchange commission (the “sec”). the company disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release, except as required by applicable law or regulation. 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 the united states of america (“gaap”) that are presented in this press release. the non-gaap financial measures presented may differ from similarly titled non-gaap financial measures presented by other companies, and other companies may not define these non-gaap financial measures in the same way. these measures are not substitutes for their comparable gaap financial measures, such as net sales, net income/(loss), diluted earnings per share, or other measures prescribed by gaap, and there are limitations to using non-gaap financial measures. 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 venezuela following the company's june 28, 2015 currency devaluation, for which the company calculates the previous year's results using the current year's exchange rate. organic net sales is a tool that can assist management and investors in comparing the company's performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect the company's underlying operations. 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 venezuela following the company's june 28, 2015 devaluation of the venezuelan bolivar and remeasurement of assets and liabilities of its venezuelan subsidiary, for which it calculates the previous year's results using the current year's exchange rate. adjusted ebitda and constant currency adjusted ebitda are tools that can assist management and investors in comparing the company's performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect the company's underlying operations. 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 schedule 2 schedule 3 schedule 4 schedule 5 • 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). • 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. schedule 6
