Kraft Heinz Co. reported stronger-than-expected profit in its latest quarter, despite currency headwinds, in part because of aggressive cost-cutting.
Shares of the company rose 4.4% to $89.28 in after-hours trading.
Kraft Heinz was formed in July 2015 by the merger of Kraft Foods Group and H.J. Heinz, with the goal of improving profitability by contracting department budgets, slashing jobs and increasing the efficiency of manufacturing its plethora of packaged-food brands, from its namesake ketchup to Velveeta cheese.
The company’s revenue in the second quarter fell 4.7% from a year ago, assuming the companies were merged then, but earnings rose because of cost-cutting efforts.
Kraft Heinz Chief Executive Bernardo Hees credited the company’s integration program but said that “to sustain our momentum, we must remain focused on profitable growth, innovations to meet consumer needs in a challenging environment.”
Food companies have scrambled to keep in step with changing preferences as more people avoid processed food in favor of fresher ingredients.
Some of Kraft Heinz’s brands, like Kool-Aid and Smart Ones frozen dinners, have struggle to remain relevant. In the last quarter, the company removed artificial colors from its iconic bright-yellow mac-and-cheese and launched a new organic Capri Sun juice pack. A latest bet is a new frozen dinner called Devour, which is marketed toward millennials.
Kraft Heinz, among the largest food makers in the world, is run by Brazilian private-equity firm 3G, which is known for its zero-base budgeting philosophy that calls for departments to justify every cent they spend every year. In the latest quarter, the company managed to trim back general and administrative expenses by 19% to $895 million, on a pro forma basis, assuming the companies were merged a year ago.
Some analysts have expressed concern that heavy reliance on cost-cutting may not only limit the downside for results but also cap growth.
For the quarter ended July 3, Kraft Heinz earned $950 million, or 63 cents a share. A year ago, assuming Kraft and Heinz were a merged company, the company earned $366 million, or 15 cents a share. Excluding items like merger costs and impairment losses, Kraft Heinz’s adjusted per-share earnings rose to 85 cents from 61 cents.
Kraft Heinz reported revenue of $6.79 billion, down from $7.13 billion a year ago, assuming the companies had been combined. The decline reflects a negative 4% impact from currency and negative 0.2% impact from divestitures, the company said.
Analysts surveyed by Thomson Reuters expected earnings of 72 cents a share on revenue of $6.79 billion.
In the latest quarter, net sales declined 6.9% in Europe and 16.7% in the rest of the world, on a pro forma basis, assuming the companies were merged. Net sales in the U.S. retreated 1.9%.
By: Ezequiel Minaya (The Wall Street Journal).
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