Kraft heinz reports second quarter 2016 results
Pittsburgh & chicago--(business wire)--the kraft heinz company (nasdaq: khc) (“kraft heinz” or the “company”) today reported second quarter 2016 financial results that reflected significant gains from the ongoing integration of kraft and heinz, partially offset by currency translation and a higher tax rate versus the prior year period. “by implementing our integration program and improving our performance in the marketplace, we continued to drive results in the second quarter,” said kraft heinz ceo bernardo hees. “however, to sustain our momentum, we must remain focused on profitable growth, innovations to meet consumer needs in a challenging environment, and improving our operations. we're off to a good start, but there is still much work to be done.” q2 2016 financial summary net sales were $6.8 billion, down 4.7 percent versus pro forma net sales for the year-ago period, due to a negative 4.0 percentage point impact from currency and a negative 0.2 percentage point impact from divestitures. organic net sales decreased 0.5 percent versus the year-ago period. pricing increased 1.6 percentage points driven by the united states, rest of world and canada, despite deflation in key commodities in the united states and canada(3), primarily in dairy and coffee. volume/mix decreased 2.1 percentage points primarily due to lower shipments in several categories, particularly meats and foodservice in the united states, that was partially offset by growth from innovation in lunchables and p3 in the united states as well as gains in condiments and sauces globally. adjusted ebitda increased 17.7 percent versus the year-ago period to $2.1 billion, despite a negative 5.4 percentage point impact from currency, driven by gains from cost savings initiatives(4) and favorable pricing net of key commodity costs. adjusted eps increased 39.3 percent versus the year-ago period to $0.85, mainly reflecting growth in adjusted ebitda that was partially offset by a higher tax rate versus the prior year period. q2 2016 business segment highlights united states united states net sales were $4.7 billion, down 1.9 percent versus pro forma net sales for the year-ago period. pricing increased 1.2 percentage points despite deflation in key commodities, primarily in dairy and coffee. volume/mix decreased 3.1 percentage points, primarily driven by gains from innovation in lunchables and p3 as well as macaroni & cheese that were more than offset by lower shipments versus the prior year, particularly in foodservice, bacon and cold cuts. united states segment adjusted ebitda increased 25.7 percent versus the year-ago period to $1.5 billion. gains from cost savings initiatives and favorable pricing net of key commodity costs were partially offset by volume/mix declines in meats and foodservice. canada canada net sales were $638 million, down 3.9 percent versus pro forma net sales for the year-ago period due to a negative 5.1 percentage point impact from currency. organic net sales increased 1.2 percent versus the year-ago period. pricing increased 3.1 percentage points largely due to significant pricing to offset higher input costs in local currency. volume/mix decreased 1.9 percentage points driven by a decline in cheese due to reduced promotional activity versus the prior year, as well as lower shipments of coffee and ready-to-drink beverages. canada segment adjusted ebitda increased 27.2 percent versus the year-ago period to $192 million, despite a negative 7.2 percentage point impact from currency, as gains from cost savings initiatives and favorable pricing net of higher input costs in local currency were partially offset by unfavorable volume/mix. europe europe net sales were $578 million, down 6.9 percent versus pro forma net sales for the year-ago period, primarily due to a negative 2.5 percentage point impact from divestitures and a negative 2.1 percentage point impact from currency. organic net sales decreased 2.3 percent versus the year-ago period. pricing decreased 2.4 percentage points primarily due to an increased level of promotional activity in uk condiments and sauces versus the prior year period. positive volume/mix of 0.1 percentage points reflected gains from condiments and sauces in most countries offset by lower shipments in the uk across most categories versus the prior year. europe segment adjusted ebitda decreased 5.8 percent versus the year-ago period to $212 million, reflecting manufacturing savings that were more than offset by a combination of lower pricing, a negative 3.1 percentage point impact from currency and increased marketing investments. rest of world(6) rest of world net sales were $885 million, down 16.7 percent versus pro forma net sales for the year-ago period, due to a negative 23.8 percentage point impact from currency that included a negative 17.5 percentage point impact from the devaluation of the venezuelan bolivar. organic net sales increased 7.1 percent versus the year-ago period. pricing increased 5.0 percentage points, primarily driven by pricing to offset higher input costs in local currency in latin america. volume/mix increased 2.1 percentage points due to strong growth in condiments and sauces across all regions. rest of world segment adjusted ebitda decreased 8.8 percent versus the year-ago period to $208 million due to a negative 34.5 percentage point impact from currency that included a negative 27.5 percentage point impact from the devaluation of the venezuelan bolivar. excluding the impact from currency, segment adjusted ebitda growth was primarily driven by organic sales growth. end notes webcast and conference call information a webcast of the kraft heinz company's second quarter 2016 earnings conference call will be available at ir.kraftheinzcompany.com. the call begins today at 4:30 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 “remain,” “expect,” “implement,” “continue,” “sustain,” “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, 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 the unaudited pro forma condensed combined financial information (the “pro forma financial information”) presented in this release illustrates 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 december 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 the issuance date of this report. 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. the pro forma financial information has been prepared based upon currently available information and assumptions deemed appropriate by management. 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 december 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, operating income, 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 core 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 december 30, 2013. organic net sales is a tool intended to assist management 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 core 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, we exclude, 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, 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 december 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 intended to assist management 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 core 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, 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 december 30, 2013. management uses adjusted eps 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 the kraft heinz companycondensed consolidated statements of income(in millions, except per share data)(unaudited) for the three monthsended for the six monthsended july 3,2016 june 28,2015* july 3,2016 june 28,2015* schedule 2 for the three monthsended for the six monthsended july 3,2016* june 28,2015 july 3,2016* june 28,2015 schedule 3 pro forma net sales impact ofcurrency impact ofdivestitures organic netsales — — — — 16 — (5.1 ) pp % (2.1 ) pp (2.5 ) pp (23.8 ) pp % (4.0 ) pp (0.2 ) pp schedule 4 pro formanet sales impact ofcurrency impact ofdivestitures organic netsales (7.3 ) pp % (3.0 ) pp (3.3 ) pp (24.9 ) pp % (4.3 ) pp (0.3 ) pp % schedule 5 for the three monthsended for the six monthsended july 3,2016* june 28,2015 july 3,2016* june 28,2015 1,314 schedule 6 constant currencyadjusted ebitda july 3, 2016* june 28, 2015 year-over-year growth rates % % % (7.2 ) pp % (3.1 ) pp (34.5 ) pp % % % % (5.4 ) pp % schedule 7 constant currencyadjusted ebitda july 3, 2016* june 28, 2015 year-over-year growth rates % % % % % % % % % schedule 8 for the three monthsended for the six monthsended july 3,2016* june 28,2015 july 3,2016* june 28,2015 • • • • (c) nonmonetary currency devaluation includes the following gross expenses: • • schedule 9 the kraft heinz companycondensed consolidated balance sheets(in millions)(unaudited) schedule 10 historicalheinz historicalkraft pro formaadjustments schedule 11 historicalheinz historicalkraft pro formaadjustments
