Kraft Heinz ends 2017 on low as US demand dwindles, but hints at M&A

By Gill Hyslop

- Last updated on GMT

Kraft Heinz - producer of Planters nuts, Heinz tromato ketchup and Velveeta cheese, among others - has posted disappointing FY2017 results.
Kraft Heinz - producer of Planters nuts, Heinz tromato ketchup and Velveeta cheese, among others - has posted disappointing FY2017 results.

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Planters nut producer Kraft Heinz posted a decline in sales for its full year, mirroring those of rivals like Campbell Soup as more Americans opt for healthier meals.

“There is no question our financial results in 2017 did not meet our potential,”​ Bernardo Vieira Hees, CEO of the Kraft Heinz Co. told analysts.

However, he noted the 3G Capital backed company had “made significant improvements in many of our businesses, and were able to accelerate some important business investments at the end of the year”, ​hinting at possible M&A splashes.

 “As our industry is undergoing a period of change, this will increase the pressure for further consolidation,” ​he said.

“With our global presence and financial strength, I think that we’ll continue to generate opportunities for us to expand our portfolio and our company.”

US declines

For the 52 weeks to December 30 2017, Kraft Heinz posted a 1% overall sales decline to $26.2bn compared to the same period a year ago of $26.4bn.

Operating income was up to $6.7bn from $6.1bn.

For Q4 2017, net sales were $6.87bn, up 0.3% versus the year prior of $6.85bn, while organic net sales decreased 0.6% versus the year-ago period, which the Group cited was the result of weak demand for its products.

Volumes also declined, by 1.9%.

The company cited higher prices and lower shipments across categories such as nuts, cheese and cold cuts saw sales decrease by 1.1% to $4.79bn in the US – which accounts for more than 70% of company sales.

This was the seventh straight quarter decline and missed analysts’ estimate of $4.81bn.

In Canada, sales were down 4.1% to $591m versus $617 a year prior.

In Europe, sales were up by 9.3% – to $656m – and by 5.2% in the Rest of World – to $843m – the latter primarily driven by an improved showing in China and Indonesia.

Cost cutting on track

Kraft-Heinz reported it had achieved its target of cutting $1.7bn in costs by the end of 2017.

Q4 2017 highlights

  • Net sales were $6.97bn, up 0.3% versus the year-ago period.
  • Organic net sales decreased 0.6% percent versus the year-ago period.
  • Net income increased to $8.0bn and diluted EPS increased to $6.52, primarily reflecting benefits from US Tax Reform.
  • Adjusted EBITDA increased 4.0% versus the year-ago period to $2bn.

The world’s fifth-largest F&B company implemented several cost-saving initiatives to combat weak sales, primarily through work-force reduction along with factory closures and consolidations.

Conversely, Rees reported the company had invested around $1bn in expanding manufacturing capabilities around the world to enhance innovation capacity and product quality last year, including two new factories in the US, one in China and another in Brazil.

Open to acquisitions

It has been more than two years since Kraft Heinz’s last deal, its acquisition of Heinz in 2015.

Its $163bn attempt to acquire Unilever early last year fell flat.

However, in his report, Hees said the company is “cautiously optimistic”​ in making acquisitions to “aggressively drive sales and growth in both the near and long term”,​ noting the interest in companies with strong brands, international reach and scale.

Kraft Heinz was formed in 2015 in a $100bn deal masterminded by Warren Buffett and Brazilian firm 3G Capital.

The company’s iconic brands include Kraft, Heinz, ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Maxwell House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Smart Ones and Velveeta.

Related topics Manufacturers Snacks Kraft Foods

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