Kraft Heinz (KHC) Q3 Earnings Beat Estimates, Sales Rise Y/Y
The Kraft Heinz Company KHC posted third-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year.
Management remains encouraged about sales growth in its segments. This was driven by its three growth pillars — GROW platforms in North America, Foodservice and Emerging Markets. The company’s focus on consumers is also working well.
Management reiterated its organic net sales view for 2022 while pulling up the lower end of its adjusted EBITDA guidance.
Quarter in Detail
Kraft Heinz posted adjusted earnings of 63 cents a share, beating the Zacks Consensus Estimate of 55 cents. However, quarterly earnings declined 3.1% year over year, mainly due to reduced adjusted EBITDA. The impact of divestitures and other expenses/(income) was a downside, somewhat offset by reduced interest costs.
The Kraft Heinz Company Price, Consensus and EPS Surprise
The Kraft Heinz Company price-consensus-eps-surprise-chart | The Kraft Heinz Company Quote
The company generated net sales of $6,505 million, up 2.9% year over year. Net sales included an adverse impact of 6.4 percentage points from divestitures net of acquisitions and an unfavorable currency impact of 2.3 percentage points. Net sales beat the Zacks Consensus Estimate of $6,276 million.
Organic net sales increased 11.6% year over year. KHC stated that pricing rose 15.4 percentage points year over year, reflecting growth in both segments. The upside can be attributed to measures undertaken to counter increasing input costs. The volume/mix fell 3.8 percentage points due to supply restrictions and the elasticity effect of pricing actions in company segments.
The gross profit of $1,843 million declined by 9.1% from the $2,028 million reported in the year-ago quarter. Adjusted EBITDA fell 5.5% to $1,398 million, reflecting the adverse impact of divestitures and unfavorable currency translation.
Management highlighted that adjusted EBITDA reflected increased pricing and efficiency gains. These were countered by escalated commodity costs (particularly across dairy, soybean, packaging materials, energy and vegetable oils), supply-chain costs (including inflation across logistics, procurement and manufacturing costs) and an adverse volume/mix.
Segment Discussion
North America: Net sales of $5,016 million increased 1.5% year over year. During the quarter, pricing moved up 15.3 percentage points, but the volume/mix fell 4.4 percentage points.
International: Net sales of $1,489 million were up 7.7% year over year. Pricing moved up 15.7 percentage points, but the volume/mix slipped 1.8 percentage points.
Other Financial Aspects
Kraft Heinz ended the quarter with cash and cash equivalents of $997 million, long-term debt of $19,296 million and total shareholders’ equity of $48,148 million. Net cash provided by operating activities was $1,517 million for the year-to-date period. The company generated free cash flow of $885 million during this time.
In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Dec 30, 2022, to shareholders of record as of Nov 25.
Guidance
Kraft Heinz continues to expect to deliver a robust financial performance in 2022. For the full-year 2022, management still expects organic net sales to be up in the high-single-digit percent compared with the year-ago period.
Management pulled up the lower end of its adjusted EBITDA guidance, which is now expected in the $5.9-$6 billion range compared with the prior band of $5.8-$6 billion. Kraft Heinz expects to come in at the lower end of this guidance range due to the potential effects of supply-chain headwinds across the industry.
The adjusted EBITDA view reflects the 53rd week in 2022, increased currency woes, the effect of divestitures and solid organic net sales. The view also reflects Kraft Heinz’s continuing efforts to manage inflationary pressures.
This Zacks Rank #3 (Hold) stock has increased 2% in the past three months against the industry’s 0.8% decline.
Staple Stocks to Consider
Some better-ranked stocks from the sector are Lamb Weston LW, TreeHouse Foods THS and Lancaster Colony LANC.
Lamb Weston, a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 14.6% and 45.7%, respectively, from the year-ago reported numbers.
TreeHouse Foods, which manufactures and distributes private label food and beverages, sports a Zacks Rank #1 at present. TreeHouse Foods has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for THS’ current financial-year sales and earnings suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported numbers.
Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently carries a Zacks Rank of 2 (Buy). LANC delivered an earnings surprise of 170% in the last reported quarter.
The Zacks Consensus Estimate for Lancaster Colony’s current financial-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.
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