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Kraft Heinz Gains Surprise 3rd-Quarter Earnings Win

GuruFocus.com
·3 min read

- By Margaret Moran

On Oct. 29 before the market opened, The Kraft Heinz Co. (NASDAQ:KHC) reported its earnings for the third quarter of 2020. The company managed to beat both earnings and revenue expectations as customers have fallen back on familiar brand names during the Covid-19 pandemic.

Shares gained more than 3% to around $30.27 throughout the day's trading following the news.


Kraft Heinz Gains Surprise 3rd-Quarter Earnings Win
Kraft Heinz Gains Surprise 3rd-Quarter Earnings Win

Overview of the quarter

For the quarter, Kraft Heinz reported revenue of $6.4 billion, which increased 6% compared to the year-ago quarter. Adjusted earnings per share came in at 70 cents compared to last year's 69 cents, while diluted earnings per share were 43 cents compared to 74 cents. Wall Street had been expecting revenue of $6.32 billion and adjusted earnings of 62 cents per share..

CEO Miguel Patricio had the following to say:


"We are building momentum, and we are confidently optimistic about our near-term performance. We are heading into 2021 with our new operating model fully implemented, our platform strategy coming to life in the marketplace, and our growth investments ramping up. And although there are multiple future scenarios we must plan for and manage against, we are in a strong position to both accelerate and exceed the strategic plan we finalized earlier this year."



The company reported year-over-year growth across all six of its segments, attributing the success to a much higher number of customers eating at home more often during the pandemic. Customers are also more frequently returning to cheaper and more familiar brands, resulting in industry consolidation toward older names.

Growth in retail, club and commerce channels more than offset declines in foodservice. Higher pricing provided a 3.7% boost to sales, while volume/mix added approximately 2.6%.

By region, sales in the U.S. were strongest with 7.4% growth. On the other hand, sales in Canada declined 2.2%. Sales in other countries increased 3.9% on average.

Overall, adjusted Ebitda increased 13.5% versus the year-ago period to $1.7 billion, but net income attributable to shareholders declined 33.7% over the same time period due to charges related to the so-called "Cheese Transaction," which is an as-yet-unsettled agreement to sell certain assets of its global cheese businesses, including the licensing of certain trademarks (namely the Kraft and Velveeta cheese brands), for approximately $3.3 billion.

Year to date, the company has issued $3.5 billion in new debt and repaid $4.3 billion in old debt, likely taking advantage of the lower interest rates to refinance. As of the quarter's end, cash, cash equivalents and restricted cash totaled $2.7 billion compared to last year's $2.3 billion.

Looking forward

Following the optimistic results for the third quarter, Kraft Heinz raised its expectations for the fourth quarter. On a non-GAAP basis, the company now guides for Ebitda growth in the low single digits and organic net sales growth in the mid-single digits, with constant currency Ebitda predicted to achieve high-single-digit growth for full fiscal 2020.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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This article first appeared on GuruFocus.