What Boosted Kraft Heinz’s Fiscal 1Q16 Earnings?
As we mentioned in the previous part, Kraft Heinz (KHC) operates in four geographic segments—the US, Canada, Europe, and the Rest of World. The US segment’s net sales were $4.7 billion—a rise of 0.17% compared to the same quarter last year. Despite deflation in key input prices—mainly dairy and coffee—pricing improved 0.1 percentage points. Gains from innovation in Lunchables and P3, gains in coffee, and whitespace expansion in foodservice led to the 0.1 percentage point increase in volume or mix.
The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for this segment rose by 33% to $1.5 billion. Also, benefits from cost-saving initiatives and favorable pricing net of commodity costs, mainly in the dairy category, drove the rise in the EBITDA. It was partially compensated by volume declines in ready-to-drink beverages and frozen nutritional meals.
The Canada segment’s net sales were $504 million. The net sales fell by 8.5%—compared to the same quarter last year. It was mainly due to a currency effect of -10%. Organic net sales rose 1.5%—compared to 1Q15. The Canada segment’s adjusted EBITDA rose 34% to $151 million. Gains from cost-saving initiatives and favorable pricing net of higher local input costs drove the increase. It was partially balanced by an unfavorable volume or mix. There was a 14.2 percentage point impact from currency translation.
The Europe segment’s net sales were $553 million. The net sales fell 12%—compared to 1Q15. It was due to a currency impact of -3.9% and a -4.1% effect from divestitures. Organic net sales fell 3.7%—compared to 1Q15. The segment’s adjusted EBITDA fell 17.3% to $177 million. The currency impacted it by -3.7% along with an increase in marketing investments.
Rest of World
The Rest of World segment is comprised of Asia-Pacific, Latin America, Russia, India, the Middle East, and Africa. The segment’s net sales were $798 million—down 15.6% compared to the same quarter a year ago. A currency impact of -26% caused the fall.
Also, a -17% effect from the devaluation of the Venezuelan bolivar, taken in June, partially played a role in the fall. The segment’s adjusted EBITDA fell 12.1% to $167 million. It was mainly due to a -38.2% currency impact. Excluding these factors, the EBITDA performance was led by a favorable volume or mix.
The company’s peers in the industry include Pilgrim’s Pride (PPC), McCormick & Company (MKC), and Snyder’s Lance (LNCE). They reported EBITDA of $235 million, $157 million, and $47 million, respectively, in their last reported quarter. The First Trust NASDAQ-100 Ex-Technology Sector IndexSMFund (QQXT) and the First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) invest 1.5% and 1.0% of their portfolios in Kraft Heinz.
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