Kraft heinz reports fourth quarter and full year 2016 results
Pittsburgh & chicago--(business wire)--the kraft heinz company (nasdaq: khc) (“kraft heinz” or the “company”) today reported fourth quarter and full year 2016 financial results that reflected significant gains from cost savings, the redemption of preferred stock and lower taxes versus the prior year period. “we finished 2016 consistent with our expectations and with good momentum heading into 2017,” said kraft heinz ceo bernardo hees. “looking forward, our objectives and opportunities are clear. but we need to sharpen our focus on profitable sales, and further improve our capabilities and execution to deliver another year of strong, sustainable growth in 2017.” the company now expects its multi-year integration program to deliver $1.7 billion in cumulative, pre-tax savings by the end of 2017, up from $1.5 billion previously. the program is now forecast to result in $2.0 billion of pre-tax costs, up from $1.9 billion previously, and $1.3 billion of capital expenditures, up from $1.1 billion previously. q4 2016 financial summary december 31,2016(13 weeks) january 3,2016(14 weeks) impact ofcurrency impact ofdivestitures impact of53rd week net sales were $6.9 billion, down 3.7 percent versus net sales for the year-ago period, including a negative 4.6 percentage point impact from a 53rd week of shipments in 2015 and an unfavorable 0.7 percentage point impact from currency. organic net sales increased 1.6 percent versus the year-ago period. pricing decreased 0.1 percentage points as price increases to offset input cost inflation in rest of world markets, primarily in latin america, as well as gains in the united states were more than offset by the timing of promotional activities versus the prior year in canada. volume/mix increased 1.7 percentage points with positive contributions from all business segments. net income attributable to common shareholders increased to $944 million and diluted eps increased to $0.77. adjusted ebitda increased 3.3 percent versus the year-ago period to $1.9 billion, despite an approximate 4.5 percentage point negative impact from a 53rd week of shipments in 2015 and an unfavorable 1.5 percentage point impact from currency. excluding these factors, gains from cost savings initiatives(3) and favorable pricing in the united states were partially offset by increased business investments, mainly in the europe and rest of world segments. adjusted eps increased 46.8 percent versus the year-ago period to $0.91, despite an approximate 7.5 percentage point negative impact from a 53rd week of shipments in 2015. this increase reflects a combination of benefits from the refinancing of series a preferred stock and lower taxes as well as growth in adjusted ebitda. q4 2016 business segment highlights united states december 31,2016(13 weeks) january 3,2016(14 weeks) impact ofcurrency impact ofdivestitures impact of53rd week united states net sales were $4.8 billion, down 3.1 percent versus the year-ago period, including a negative 4.8 percentage point impact from a 53rd week of shipments in 2015. organic net sales increased 1.7 percent driven by net pricing gains of 0.3 percentage points and an increase in volume/mix of 1.4 percentage points. volume/mix gains reflected strong growth in coffee as well as innovation across the macaroni and cheese portfolio that were partially offset by lower shipments in foodservice and cold cuts. united states segment adjusted ebitda increased 13.3 percent versus the year-ago period to $1.5 billion, despite an approximate 4.5 percentage point negative impact from a 53rd week of shipments in 2015. growth reflected gains from cost savings initiatives and positive net pricing that were partially offset by the timing of overhead expenses versus the prior year period. canada december 31,2016(13 weeks) january 3,2016(14 weeks) impact ofcurrency impact ofdivestitures impact of53rd week canada net sales were $617 million, down 2.4 percent versus net sales for the year-ago period, including a negative 4.4 percentage point impact from a 53rd week of shipments in 2015 and a favorable 0.8 percentage point impact from currency. organic net sales increased 1.2 percent versus the year-ago period. pricing decreased 3.1 percentage points due to the timing of promotional activities versus the prior year period. volume/mix increased 4.3 percentage points driven by growth in coffee, whitespace gains in foodservice as well as growth in cheese. canada segment adjusted ebitda decreased 9.6 percent versus the year-ago period to $151 million, including an approximate 3.5 percentage point negative impact from a 53rd week of shipments in 2015 and a favorable 0.6 percentage point impact from currency. excluding these factors, segment adjusted ebitda declined as volume/mix gains and incremental cost savings were more than offset by a combination of higher input costs in local currency and timing of promotional activities. europe december 31,2016(13 weeks) january 3,2016(14 weeks) impact ofcurrency impact ofdivestitures impact of53rd week europe net sales were $600 million, down 13.3 percent versus net sales for the year-ago period, including a negative 8.1 percentage point impact from currency and a negative 3.8 percentage point impact from a 53rd week of shipments in 2015. organic net sales were 1.5 percent lower than the year-ago period. pricing was down 2.5 percentage points, reflecting increased promotional support in the uk as well as stepped up investments behind innovation in infant food. volume/mix increased 1.0 percentage points as growth in russia was partially offset by lower shipments in the uk. europe segment adjusted ebitda decreased 27.3 percent versus the year-ago period to $189 million, including an unfavorable 10.0 percentage point impact from currency and an approximate 3.0 percentage point negative impact from a 53rd week of shipments in 2015. excluding these factors, segment adjusted ebitda was lower as manufacturing savings were more than offset by a combination of lower organic net sales and increased investments in overhead and marketing. rest of world(7) december 31,2016(13 weeks) january 3,2016(14 weeks) impact ofcurrency impact ofdivestitures impact of53rd week rest of world net sales were $801 million, down 0.7 percent versus net sales in the year-ago period, including a negative 5.1 percentage point impact from a 53rd week of shipments in 2015 and an unfavorable currency impact of 0.1 percentage points. organic net sales increased 4.5 percent versus the year-ago period. pricing increased 2.8 percentage points, primarily driven by pricing to offset higher input costs in local currency, particularly in latin america. volume/mix increased 1.7 percentage points driven by continued growth in condiments and sauces in latin america. rest of world segment adjusted ebitda decreased 20.9 percent versus the year-ago period to $144 million, including an approximate 3.0 percentage point negative impact from a 53rd week of shipments in 2015 and an unfavorable 1.3 percentage point impact from currency. excluding these impacts, segment adjusted ebitda declined as organic net sales growth was more than offset by higher input costs in local currency as well as investments in new product and whitespace initiatives. end notes webcast and conference call information a webcast of the kraft heinz company's fourth quarter and full year 2016 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, weight watchers 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 “expect,” "momentum," "execute," “improve,” “believe,” “will,” "focus," 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, objectives, initiatives, opportunities, capabilities, investments, execution, growth and integration. 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, increased competition; the company's ability to maintain, extend and expand its reputation and brand image; the company's ability to differentiate its products from other brands; the consolidation of retail customers; 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 inability to realize the anticipated benefits from the company's cost savings initiatives; changes in relationships with significant customers and suppliers; execution of the company's international expansion strategy; changes in laws and regulations; legal claims or other regulatory enforcement actions; product recalls or product liability claims; unanticipated business disruptions; failure to successfully integrate the business and operations of the company in the expected time frame; 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 nations in which the company operates; 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 that the company uses; exchange rate fluctuations; disruptions in information technology networks and systems; the company's inability to protect intellectual property rights; impacts of natural events in the locations in which the company or its customers, suppliers or regulators operate; the company's indebtedness and ability to pay such indebtedness; tax law changes or interpretations; 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. unaudited pro forma condensed combined financial information in the schedules to this release, the company presents unaudited pro forma condensed combined financial information (the “pro forma financial information”), which is intended to illustrate the estimated effects of the merger (the “2015 merger”), consummated on july 2, 2015 (the “2015 merger date”), of kraft foods group, inc. (“kraft”) with and into a wholly-owned subsidiary of h.j. heinz holding corporation (“heinz”), the related equity investments and common stock conversion, the application of the acquisition method of accounting, and conformance of accounting policies. the pro forma financial information is presented as if the 2015 merger had been consummated on dec. 30, 2013, the first business day of the company’s 2014 fiscal year, and combines the historical results of kraft and heinz. for additional information on the 2015 merger, please refer to the company’s filings with the sec. the pro forma financial information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. the company utilized estimated fair values at the 2015 merger date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. such allocation was final as of july 3, 2016. the historical consolidated financial statements have been adjusted in the accompanying pro forma financial information to give effect to unaudited pro forma events that are (1) directly attributable to the 2015 merger, (2) factually supportable and (3) expected to have a continuing impact on the results of operations of the combined company. this pro forma financial information is not necessarily indicative of what the company’s results of operations actually would have been had the 2015 merger been completed as of dec. 30, 2013. in addition, the pro forma financial information is not indicative of future results or current financial conditions and does not reflect any additional anticipated synergies, operating efficiencies, cost savings or any integration costs that may result from the 2015 merger. this pro forma financial information should be read in conjunction with historical financial statements and accompanying notes filed with the sec. certain reclassifications have been made to the historical kraft and heinz results to align accounting policies and eliminate intercompany sales in all periods presented. non-gaap financial measures to supplement the financial information, the company has presented organic net sales, 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, financial measures 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 for any period prior to the 2015 merger date includes the operating results of kraft on a pro forma basis, as if kraft had been acquired as of dec. 30, 2013. 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; in addition to these adjustments, the company excludes, when they occur, the impacts of depreciation and amortization (excluding integration and restructuring expenses) (including amortization of postretirement benefit plans prior service credits), 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). adjusted ebitda for any period prior to the 2015 merger date includes the operating results of kraft on a pro forma basis, as if kraft had been acquired as of dec. 30, 2013. 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 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 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, and nonmonetary currency devaluation (e.g., remeasurement gains and losses), and including when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis. adjusted eps for any period prior to the 2015 merger date includes the operating results of kraft on a pro forma basis, as if kraft had been acquired as of dec. 30, 2013. 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 for the relevant periods. schedule 1 december 31,2016(13 weeks) january 3,2016(14 weeks) december 31,2016(52 weeks) january 3,2016(53 weeks) (a) cash distributions for series a preferred stock totaled $360 million and $900 million for the quarter and year ended jan. 3, 2016, respectively. this reflected one additional dividend payment versus the prior year made during the fourth quarter due to the fact that, in connection with the dec. 8, 2015 common stock dividend declaration, the company was required to accelerate payment of the series a preferred stock dividend from march 7, 2016 to dec. 8, 2015. schedule 2 (in millions, except per share data)(unaudited) (a) integration and restructuring expenses in cost of products sold were $479 million in the full year 2015 ($322 million after-tax). (b) integration and restructuring expenses in selling, general and administrative expenses were $638 million in the full year 2015 ($428 million after-tax). (c) cash distributions for series a preferred stock totaled $360 million and $900 million for the quarter and year ended jan. 3, 2016, respectively. this reflected one additional dividend payment versus the prior year made during the fourth quarter due to the fact that, in connection with the dec. 8, 2015 common stock dividend declaration, the company was required to accelerate payment of the series a preferred stock dividend from march 7, 2016 to dec. 8, 2015. schedule 3 impact ofcurrency impact ofdivestitures impact of53rd week organic netsales january 3, 2016 (14 weeks) % % % % schedule 4 pro formanet sales(a) impact ofcurrency impact ofdivestitures impact of53rd week organic netsales january 3, 2016 (53 weeks) % % % schedule 5 december 31,2016(13 weeks) january 3,2016(14 weeks) december 31,2016(52 weeks) january 3,2016(53 weeks) schedule 6 constant currencyadjusted ebitda 13.3 % 13.3 % 3.3 % 4.8 % schedule 7 constant currencyadjusted ebitda 25.0 % 25.0 % 18.7 % 23.1 % 5.9 % 15.4 % 18.8 % schedule 8 december 31,2016(13 weeks) january 3,2016(14 weeks) december 31,2016(52 weeks) january 3,2016(53 weeks) • • • • • • • • • schedule 9 schedule 10 (in millions, except per share data)(unaudited) historicalkraft(a) pro formaadjustments
