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Kraft Heinz' Earnings Beats Estimates as Budget Cuts Fuel Profit

Published on Aug 7 2016 1:00 PM in A-Brands tagged: Featured Post / Food / FMCG / Kraft Heinz

Kraft Heinz' Earnings Beats Estimates as Budget Cuts Fuel Profit

Kraft Heinz Co., formed by a merger of two U.S. food giants last year, posted second-quarter earnings that topped estimates after budget cuts helped bolster margins.

Profit was 85 cents a share in the period, excluding some items, the company said in a statement Thursday. Analysts had projected 71 cents on average, according to data compiled by Bloomberg. Revenue for the quarter was $6.79 billion, in line with the $6.8 billion estimate.

Kraft Heinz, run by the famously thrifty private equity firm 3G Capital, is trimming costs, following a playbook used at H.J. Heinz before the two food makers merged. The company also made a push into mustard and barbecue sauce over the past year and took steps to update its product portfolio. That included releasing an organic version of Capri Sun juice and removing artificial colors and flavors from Kraft Macaroni and Cheese.

“To sustain our momentum, we must remain focused on profitable growth, innovations to meet consumer needs in a challenging environment, and improving our operations,” Chief Executive Officer Bernardo Hees said in the statement. “We’re off to a good start, but there is still much work to be done.”

The stock climbed as much as 5.1 percent to $89.93 in New York, the biggest intraday gain in three months. Kraft Heinz had advanced 18 percent this year through the close of trading Thursday.

Dividend Increase

Kraft also boosted its quarterly dividend 4.3 percent to 60 cents a share on Thursday, up from 57.5 cents. The payout will come on Oct. 7 to shareholders of record as of Aug. 26.

Kraft Heinz, which generates more than 70 percent of its sales in the U.S., has relied on staff reductions and other belt-tightening measures to cope with an industrywide slowdown. The strategy is a hallmark of 3G, which was founded by Brazilian billionaire Jorge Paulo Lemann.

The investment firm teamed up with Warren Buffett in 2013 in a buyout deal that took Heinz private. They got together again last year to engineer the merger that created Kraft Heinz.

Hees, who ran Heinz before heading up the combined company, cut more than 7,000 jobs in the 20 months after taking over at the ketchup maker. Since the 2015 merger, Kraft Heinz announced factory closings and more than 5,000 job cuts. The company has said it will eliminate $1.5 billion in annual expenses by the end of 2017.

3G’s record of boosting margins at Heinz, and the assumption the company will do the same at the new combined company, has ramped up pressure among food-industry rivals to slash costs. There’s also speculation that 3G will look to buy another food company. In May, David Driscoll, an analyst at Citigroup Inc., said that Kraft Heinz could buy General Mills Inc. and increase the cereal maker’s operating margins by 7.7 percentage points to 25 percent.

“We’re always going to be looking for further opportunities,” Hees said on a conference call Thursday, when asked about potential acquisitions. “But outside of that, we really don’t comment.”

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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