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Kraft Heinz (KHC) Q3 Earnings Surpass Estimates, Sales Up

Zacks Equity Research
·4 min read

The Kraft Heinz Company KHC reported robust third-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, sales and earnings increased year over year. Results gained from solid performance in the United States and the International business segments.

Q3 in Detail

Adjusted earnings per share of 70 cents surpassed the consensus mark of 63 cents. Moreover, the bottom line inched up 1.4% year over year on the back of higher adjusted EBITDA.

Net sales increased 6% year over year to $6,441 million. Also, the figure surpassed the Zacks Consensus Estimate of $6,375.1 million. Net sales growth included 0.3 and 1.2 percentage point impact from unfavorable impacts of currency and divestitures, respectively. Organic sales rose 6.3%.

Pricing was up 3.7 percentage points, driven by reduced promotional activities. Volume/mix increased 2.6 percentage points on the back of higher demand in the retail segment, e-commerce business as well as club channels stemming from increased at-home consumption amid the pandemic. However, reduced sales from foodservice channels were a deterrent.

The Kraft Heinz Company Price, Consensus and EPS Surprise

The Kraft Heinz Company Price, Consensus and EPS Surprise
The Kraft Heinz Company Price, Consensus and EPS Surprise

The Kraft Heinz Company price-consensus-eps-surprise-chart | The Kraft Heinz Company Quote

Operating Highlights

Gross profit of $2,344 million increased 20.4% year over year and gross margin came in at 36.4% in the reported quarter.

Adjusted EBITDA was up 13.5% to $1,667 million in the quarter. The upside can be attributed to balanced pricing, impressive volumes, favorable mix along with procurement savings in the United States.

Segment Discussion

United States: Net sales of $4,710 million increased 7.4% year over year. During the quarter, pricing moved up 4 percentage points, while volume/mix increased 3.4 percentage points. The segment’s adjusted EBITDA increased 17.5% to $1,363 million.

Canada: Net sales of $406 million declined 2.2% year over year. During the quarter, pricing moved up 4.6 percentage points but volume/mix declined 5.6 percentage points. Segment adjusted EBITDA declined 3.7% to $103 million.

International: Net sales of $1,325 million were up 3.9% year over year. During the quarter, pricing moved up 2.1 percentage points, while volume/mix increased 2.5 percentage points. Adjusted EBITDA increased 6.5% to $277 million on higher organic net sales.

Financials

Kraft Heinz ended the quarter with cash and cash equivalents of $2,720 million, long-term debt of $27,882 million as well as total shareholders’ equity of $49,218 million. Further, the company generated $3,326 million as cash from operating activities for nine months ended Sep 26, 2020.

In a separate press release, the company announced a quarterly dividend of 40 cents per share, which is payable on Dec 18 to shareholders of record as of Nov 27.

Outlook

Based on the year-to-date performance, Kraft Heinz expects organic net sales to grow by mid-single-digit during the fourth quarter. Further, the company anticipates high-single-digit constant currency adjusted EBITDA growth during the quarter.

For 2020 management projects organic net sales to grow by mid-single-digit. Constant currency adjusted EBITDA is now envisioned increase by high-single-digit in 2020. Earlier, management expected the metric to grow mid-single-digit for 2020.  

Price Performance

We note that the Zacks Rank #3 (Hold) stock has lost 9.1% year to date compared with the industry’s decline of 8.7%.

Solid Food Stocks

United Natural Foods UNFI, with a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 4.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flowers Foods FLO with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 8.2%, on average.

Lamb Weston LW, with a Zacks Rank #2, has a long-term earnings growth rate of 7%.

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