How Much Did Kraft Heinz’s Operating Margins Benefit?
Did Kraft Heinz End Fiscal 2015 on a Good Note?
EBITDA margins rose
In 4Q15, Kraft Heinz (KHC) delivered growth of $1,287 million in the operating profit—compared to $921 million in 4Q14. The operating margin also rose to 18.1% compared to 12.2% in fiscal 4Q14. Kraft Heinz mentioned in the 4Q15 earnings call that it strategized to achieve the best margins.
The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 10.9% to $1.9 billion—compared to the EBITDA of $1.6 billion in the same period last year. The EBITDA rose despite a -9.4 percentage point impact from currency translation. However, it was partially balanced by a benefit of ~4.5 percentage points from the 53rd week of shipments. Excluding these factors, the profits from cost-saving initiatives and favorable pricing net of commodity costs benefited the EBITDA. These benefits were also partly balanced by an unfavorable volume or mix.
The fourth quarter and full-year EBITDA delivered strong growth. It was also aided by restructuring and integration savings. This helped expand the adjusted EBITDA margins by more than 200 basis points for the full year. The EBITDA margin for 4Q15 was 26%, respectively.
Management’s view
Kraft Heinz’s CEO, Bernardo Hees, stated that “The important integration work and financial results we delivered in 2015 set a solid base on which we can drive sustainable growth across our global business. We are working to implement proven management methodologies, remove inefficient spending and streamline our organization, while investing in our brands and innovation to drive long-term profitable growth. We believe that all of this positions Kraft Heinz for a strong performance in 2016 and beyond.”
Peers’ performance
Kraft Heinz’s peers in the industry include Mead Johnson Nutrition (MJN), McCormick & Company (MKC), and General Mills (GIS). They reported operating margins of 20.2%, 17.6%, and 20.4%, respectively, in their last quarters. To gain exposure to Kraft Heinz, you can invest in ETFs like the Fidelity MSCI Consumer Staples Index ETF (FSTA) and the Vanguard Consumer Staples ETF (VDC). They invest 2.2% and 2.3% of their portfolios in Kraft Heinz.
In the last part of the series, we’ll discuss Kraft Heinz’s recent quarterly dividend. We’ll also discuss the company’s 2016 agenda.
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