The Kraft Heinz Company (Nasdaq: KHC) (“Kraft Heinz” or the
“Company”) today reported preliminary financial results for the
first half of 2019 that reflected lower net sales despite improving
consumer takeaway trends in key markets, as well as the adverse
impacts of ongoing cost inflation, greater investments, and higher
depreciation and amortization expenses. Results also included
preliminary non-cash impairment charges related to goodwill and
intangible assets that more than offset a one-time gain on the sale
of the Company's India nutritional beverages business.
“The level of decline we experienced in the first half of this
year is nothing we should find acceptable moving forward," said
Kraft Heinz CEO Miguel Patricio. "We have significant work ahead of
us to set our strategic priorities and change the trajectory of our
business. But in my short time with the company, I have developed a
strong appreciation for the affinity consumers around the world
continue to have for our brands, the talent and determination of
our employees, as well as the commitment of our customers. We have
a lot to work with and build upon, and our team is motivated by the
opportunity to drive the next phase of growth and profitability for
Kraft Heinz and our shareholders."
H1 2019 Financial Summary
For the Six Months
Ended
Year-over-year Change
June 29, 2019
June 30, 2018
Actual
Currency
Acquisitions and
Divestitures
Organic
(in millions, except per share
data)
Net sales
$
12,365
$
12,994
(4.8
)%
(2.6) pp
(0.7) pp
(1.5
)%
Operating income/(loss)
1,296
2,857
(54.6
)%
Net income/(loss) attributable to common
shareholders
854
1,757
(51.4
)%
Diluted EPS
$
0.70
$
1.43
(51.0
)%
Adjusted EBITDA(1)
3,031
3,756
(19.3
)%
(3.3) pp
Adjusted EPS(1)
$
1.44
$
1.89
(23.8
)%
For the six months ended June 29, 2019, net sales were $12.4
billion, down 4.8 percent versus the year-ago period, including an
unfavorable 2.6 percentage point impact from currency and a net 0.7
percentage point negative impact from acquisitions and
divestitures. Organic Net Sales(1) decreased 1.5 percent versus the
year-ago period. Pricing was down 1.3 percentage points versus the
prior year period, primarily reflecting unfavorable promotional
timing in North America, as well as price reductions to reflect
lower key commodity(2) costs in the United States. This more than
offset higher pricing in certain Rest of World markets. Volume/mix
decreased 0.2 percentage points as unfavorable changes in retail
inventory levels in North America and lower shipments in EMEA and
Rest of World markets more than offset solid consumption growth in
the United States and Canada.
In connection with the preparation of the first and second
quarter financial statements, which occurred concurrently due to
the delayed filing of the 2018 Form 10-K, the Company concluded
that the fair values of certain goodwill and intangible assets were
below their carrying amounts. As a result, the Company recorded
non-cash impairment charges(3) to lower the carrying amount of
goodwill in certain reporting units (EMEA East, Brazil, United
States Refrigerated, and Latin America Exports) by approximately
$744 million, primarily based on new five-year operating forecasts
for several international businesses that establish revised
expectations and priorities for the coming years in response to
current market factors. In addition, the Company recorded non-cash
impairment charges(3) of approximately $474 million to lower the
carrying amount of certain intangible assets, primarily driven by
the application of a higher discount rate to reflect the markets'
perceived risk in the Company's valuation.
Net income attributable to common shareholders decreased to $854
million and diluted EPS decreased to $0.70, primarily reflecting a
$0.89 negative impact from non-cash impairment charges, as well as
lower Adjusted EBITDA. Adjusted EBITDA decreased 19.3 percent
versus the year-ago period to $3.0 billion, including a negative
3.3 percentage point impact from currency. Excluding the impact of
currency, the reduction in Adjusted EBITDA reflected lower organic
net sales, higher supply chain costs, and spending behind strategic
initiatives. Adjusted EPS decreased 23.8 percent to $1.44, as a
combination of lower Adjusted EBITDA and higher depreciation and
amortization expenses more than offset lower taxes on adjusted
earnings versus the prior year period and higher other income.
H1 2019 Business Segment Highlights
United States
For the Six Months
Ended
Year-over-year Change
June 29, 2019
June 30, 2018
Actual
Currency
Acquisitions and
Divestitures
Organic
(in millions)
Net sales
$
8,713
$
8,881
(1.9
)%
0.0 pp
0.0 pp
(1.9
)%
Segment Adjusted EBITDA
2,384
2,793
(14.6
)%
0.0 pp
United States net sales were $8.7 billion, down 1.9 percent
versus the year-ago period. Pricing decreased 1.8 percentage
points, driven by a 0.9 percentage point unfavorable impact from
promotional timing versus the prior year period, increased in-store
activity behind Lunchables and certain frozen food categories, as
well as price reductions to reflect lower key commodity(2) costs in
nuts, dairy and coffee. These factors more than offset price
increases implemented in select categories, as well as higher
commodity-driven prices in bacon. Volume/mix decreased 0.1
percentage points due to unfavorable changes in retail inventory
levels and lower foodservice shipments that more than offset
innovation-driven gains in frozen meals and dairy snacking, as well
as underlying consumption growth across several areas including
nuts, refrigerated meal combinations, and cream cheese.
United States Segment Adjusted EBITDA decreased 14.6 percent
versus the year-ago period to $2.4 billion, due to lower net sales,
cost inflation in procurement, manufacturing and logistics, as well
as strategic investments in e-commerce, marketing and people.
Canada
For the Six Months
Ended
Year-over-year Change
June 29, 2019
June 30, 2018
Actual
Currency
Acquisitions and
Divestitures
Organic
(in millions)
Net sales
$
1,010
$
1,048
(3.6
)%
(4.0) pp
0.0 pp
0.4
%
Segment Adjusted EBITDA
264
307
(14.1
)%
(3.5) pp
Canada net sales were $1.0 billion, 3.6 percent lower than the
year-ago period, including a negative 4.0 percentage point impact
from currency. Organic Net Sales increased 0.4 percent versus the
year-ago period. Pricing declined 2.3 percentage points, reflecting
the timing of promotional costs versus the year-ago period and
increased in-store activity to support summer programming.
Volume/mix increased 2.7 percentage points as retail consumption
growth of nearly 4.0 percent, driven by cheese, condiments and
sauces, more than offset retailer inventory de-stocking.
Canada Segment Adjusted EBITDA decreased 14.1 percent versus the
year-ago period to $264 million, including a negative 3.5
percentage point impact from currency, driven by the combination of
lower pricing and higher input costs, including tariff-related cost
increases.
EMEA
For the Six Months
Ended
Year-over-year Change
June 29, 2019
June 30, 2018
Actual
Currency
Acquisitions and
Divestitures
Organic
(in millions)
Net sales
$
1,250
$
1,392
(10.2
)%
(6.1) pp
(1.5) pp
(2.6
)%
Segment Adjusted EBITDA
314
388
(19.1
)%
(5.3) pp
EMEA net sales were $1.3 billion, down 10.2 percent versus the
year-ago period, including a negative 6.1 percentage point impact
from currency and a negative 1.5 percentage point impact from the
divestiture of a joint venture in South Africa. Organic Net Sales
were 2.6 percent lower than the year-ago period. Pricing was down
0.1 percentage points as lower pricing in Italy infant nutrition as
well as Russia offset higher pricing in the UK. Volume/mix declined
2.5 percentage points, driven by the adverse impact of extended
retailer negotiations in Germany and France and, to a lesser
extent, lower soup sales in the UK due to an exceptionally strong
prior year comparison. These factors more than offset continued
foodservice growth and consumption gains in condiments and sauces,
particularly in the UK and the Netherlands.
In the first six months, EMEA Segment Adjusted EBITDA decreased
19.1 percent versus the year-ago period to $314 million, including
a negative 5.3 percentage point impact from currency. Excluding the
impact of currency, the reduction in Segment Adjusted EBITDA
reflected a combination of higher supply chain costs that included
adverse transactional currency impacts, lower Organic Net Sales,
unfavorable pension and postretirement costs versus the prior year
period, and investments in marketing and people.
Rest of World(4)
For the Six Months
Ended
Year-over-year Change
June 29, 2019
June 30, 2018
Actual
Currency
Acquisitions and
Divestitures
Organic
(in millions)
Net sales
$
1,392
$
1,673
(16.8
)%
(12.7) pp
(4.7) pp
0.6
%
Segment Adjusted EBITDA
203
357
(43.0
)%
(26.3) pp
Rest of World net sales of $1.4 billion decreased 16.8 percent
versus the year-ago period, including a negative 12.7 percentage
point impact from currency and a 4.7 percentage point negative
impact from the India nutritional beverages divestiture, net of
gains from the Cerebos acquisition. Organic Net Sales increased 0.6
percent versus the year-ago period. Pricing increased 1.6
percentage points, primarily driven by higher pricing in Brazil.
Volume/mix decreased 1.0 percentage points, as strong growth across
several categories in Brazil was more than offset by lower
shipments of infant nutrition products in China and declines in New
Zealand.
Rest of World Segment Adjusted EBITDA decreased 43.0 percent
versus the year-ago period to $203 million, which included a
negative 26.3 percentage point impact from currency and an 11.1
percentage point impact from the divestiture of the Company's India
nutritional beverages business. Excluding these factors, the
decline in Segment Adjusted EBITDA reflected higher supply chain
costs and lower sales in Asia Pacific.
End Notes
- Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted
EBITDA and Adjusted EPS are non-GAAP financial measures. Please see
discussion of non-GAAP financial measures and the reconciliations
at the end of this press release for more information.
- The Company's key commodities in the United States and Canada
are dairy, meat, coffee and nuts.
- Impairment charges for the first half of 2019 are preliminary
and subject to finalization of control procedures.
- Rest of World comprises two operating segments: Latin America
and Asia Pacific.
Webcast, Conference Call, and Filing Information
A webcast of The Kraft Heinz Company's first half 2019 earnings
conference call will be available at ir.kraftheinzcompany.com. The
call begins today at 8:30 a.m. Eastern Daylight Time.
The Company is also filing a Form 12b-25 with the SEC today,
disclosing that while the Company is unable to file its Quarterly
Report on Form 10-Q for the fiscal quarter ended June 29, 2019 (the
“Q2 Form 10-Q”) by the prescribed due date, the Company expects to
file the Q2 Form 10-Q on or before the fifth calendar day following
the prescribed due date.
ABOUT THE KRAFT HEINZ COMPANY
For 150 years, we have produced some of the world’s most beloved
products at The Kraft Heinz Company (Nasdaq: KHC). Our Vision is To
Be the Best Food Company, Growing a Better World. We are one of the
largest global food and beverage companies, with 2018 net sales of
approximately $26 billion. Our portfolio is a diverse mix of iconic
and emerging brands. As the guardians of these brands and the
creators of innovative new products, we are dedicated to the
sustainable health of our people and our planet. To learn more,
visit www.kraftheinzcompany.com or follow us on LinkedIn and
Twitter.
Forward-Looking Statements
This press release contains a number of forward-looking
statements. Words such as “commit,” “plan,” "believe,"
"anticipate," "reflect," "invest," "make," "expect," "deliver,"
“develop,” "drive," "assess," "evaluate," “establish,” “focus,”
“build,” “turn,” “expand,” “leverage,” "grow," "remain," "will,"
and variations of such words and similar future or conditional
expressions are intended to identify forward-looking statements.
Examples of forward-looking statements include, but are not limited
to, statements regarding the Company's plans, costs and cost
savings, legal matters, taxes, expectations, investments,
innovations, opportunities, capabilities, execution, initiatives,
pipeline, and growth. These forward-looking statements are not
guarantees of future performance and are subject to a number of
risks and uncertainties, many of which are difficult to predict and
beyond the Company's control.
Important factors that may affect the Company's business and
operations and that may cause actual results to differ materially
from those in the forward-looking statements include, but are not
limited to, operating in a highly competitive industry; the
Company’s ability to correctly predict, identify, and interpret
changes in consumer preferences and demand, to offer new products
to meet those changes, and to respond to competitive innovation;
changes in the retail landscape or the loss of key retail
customers; changes in the Company's relationships with significant
customers, suppliers and other business relationships; the
Company’s ability to maintain, extend, and expand its reputation
and brand image; the Company’s ability to leverage its brand value
to compete against private label products; the Company’s ability to
drive revenue growth in its key product categories, increase its
market share, or add products that are in faster-growing and more
profitable categories; product recalls or product liability claims;
unanticipated business disruptions; the Company’s ability to
identify, complete or realize the benefits from strategic
acquisitions, alliances, divestitures, joint ventures or other
investments; the Company’s ability to realize the anticipated
benefits from prior or future streamlining actions to reduce fixed
costs, simplify or improve processes, and improve its
competitiveness; the Company’s ability to successfully execute its
strategic initiatives; the impacts of the Company’s international
operations; economic and political conditions in the United States
and in various other nations where the Company does business;
changes in the Company’s management team or other key personnel and
the Company’s ability to hire or retain key personnel or a highly
skilled and diverse global workforce; risks associated with
information technology and systems, including service
interruptions, misappropriation of data or breaches of security;
impacts of natural events in the locations in which we or the
Company’s customers, suppliers, distributors, or regulators
operate; the Company’s ownership structure; the Company’s
indebtedness and ability to pay such indebtedness; additional
impairments of the carrying amounts of goodwill or other
indefinite-lived intangible assets; exchange rate fluctuations;
volatility in commodity, energy, and other input costs; volatility
in the market value of all or a portion of the derivatives we use;
increased pension, labor and people-related expenses; compliance
with laws, regulations, and related interpretations and related
legal claims or other regulatory enforcement actions, , including
additional risks and uncertainties related to the Company’s
restatement and any potential actions resulting from the Securities
and Exchange Commission’s (“SEC”) ongoing investigation, as well as
potential additional subpoenas, litigation, and regulatory
proceedings; an inability to remediate the material weaknesses in
the Company’s internal control over financial reporting or
additional material weaknesses or other deficiencies in the future
or the failure to maintain an effective system of internal
controls; the Company’s failure to prepare and timely file its
periodic reports; the restatement of certain of the Company’s
previously issued consolidated financial statements, which resulted
in unanticipated costs and may affect investor confidence and raise
reputational issues; the Company’s ability to protect intellectual
property rights; tax law changes or interpretations; the impact of
future sales of the Company's common stock in the public markets;
the Company’s ability to continue to pay a regular dividend and the
amounts of any such dividends; volatility of capital markets and
other macroeconomic factors; and other factors. For additional
information on these and other factors that could affect the
Company's forward-looking statements, see the Company's risk
factors, as they may be amended from time to time, set forth in its
filings with the SEC. The Company disclaims and does not undertake
any obligation to update or revise any forward-looking statement in
this press release, except as required by applicable law or
regulation.
Non-GAAP Financial Measures
The non-GAAP financial measures provided should be viewed in
addition to, and not as an alternative for, results prepared in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”) that are presented in this press
release.
To supplement the financial information, the Company has
presented Organic Net Sales, Adjusted EBITDA, Constant Currency
Adjusted EBITDA, and Adjusted EPS, which are considered non-GAAP
financial measures. The non-GAAP financial measures presented may
differ from similarly titled non-GAAP financial measures presented
by other companies, and other companies may not define these
non-GAAP financial measures in the same way. These measures are not
substitutes for their comparable GAAP financial measures, such as
net sales, net income/(loss), diluted earnings per share, or other
measures prescribed by GAAP, and there are limitations to using
non-GAAP financial measures.
Management uses these non-GAAP financial measures to assist in
comparing the Company's performance on a consistent basis for
purposes of business decision making by removing the impact of
certain items that management believes do not directly reflect the
Company's underlying operations. Management believes that
presenting the Company's non-GAAP financial measures (i.e., Organic
Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA, and
Adjusted EPS) is useful to investors because it (i) provides
investors with meaningful supplemental information regarding
financial performance by excluding certain items, (ii) permits
investors to view performance using the same tools that management
uses to budget, make operating and strategic decisions, and
evaluate historical performance, and (iii) otherwise provides
supplemental information that may be useful to investors in
evaluating the Company's results. The Company believes that the
presentation of these non-GAAP financial measures, when considered
together with the corresponding GAAP financial measures and the
reconciliations to those measures, provides investors with
additional understanding of the factors and trends affecting the
Company's business than could be obtained absent these
disclosures.
Organic Net Sales is defined as net sales excluding, when they
occur, the impact of currency, acquisitions and divestitures, and a
53rd week of shipments. The Company calculates the impact of
currency on net sales by holding exchange rates constant at the
previous year's exchange rate, with the exception of Venezuela, for
which the Company calculates the previous year's results using the
current year's exchange rate. Organic Net Sales is a tool that can
assist management and investors in comparing the Company's
performance on a consistent basis by removing the impact of certain
items that management believes do not directly reflect the
Company's underlying operations.
Adjusted EBITDA is defined as net income/(loss) from continuing
operations before interest expense, other expense/(income), net,
provision for/(benefit from) income taxes, and depreciation and
amortization (excluding integration and restructuring expenses); in
addition to these adjustments, the Company excludes, when they
occur, the impacts of integration and restructuring expenses, deal
costs, unrealized losses/(gains) on commodity hedges, impairment
losses, losses/(gains) on the sale of a business, other
losses/(gains) related to acquisitions and divestitures (e.g., tax
and hedging impacts), nonmonetary currency devaluation (e.g.,
remeasurement gains and losses), and equity award compensation
expense (excluding integration and restructuring expenses). The
Company also presents Adjusted EBITDA on a constant currency basis.
The Company calculates the impact of currency on Adjusted EBITDA by
holding exchange rates constant at the previous year's exchange
rate, with the exception of Venezuela, for which it calculates the
previous year's results using the current year's exchange rate.
Adjusted EBITDA and Constant Currency Adjusted EBITDA are tools
that can assist management and investors in comparing the Company's
performance on a consistent basis by removing the impact of certain
items that management believes do not directly reflect the
Company's underlying operations.
Adjusted EPS is defined as diluted earnings per share excluding,
when they occur, the impacts of integration and restructuring
expenses, deal costs, unrealized losses/(gains) on commodity
hedges, impairment losses, losses/(gains) on the sale of a
business, other losses/(gains) related to acquisitions and
divestitures (e.g., tax and hedging impacts), nonmonetary currency
devaluation (e.g., remeasurement gains and losses), and U.S. Tax
Reform discrete income tax expense/(benefit), and including when
they occur, adjustments to reflect preferred stock dividend
payments on an accrual basis. The Company believes Adjusted EPS
provides important comparability of underlying operating results,
allowing investors and management to assess operating performance
on a consistent basis.
See the attached schedules for supplemental financial data,
which includes the financial information, the non-GAAP financial
measures and corresponding reconciliations to the comparable GAAP
financial measures for the relevant periods.
Schedule
1
The Kraft Heinz Company
Condensed Consolidated Statements
of Income
(in millions, except per share
data)
(Unaudited)
For the Three Months
Ended
March 30, 2019
March 31, 2018
Net sales
$
5,959
$
6,304
Cost of products sold
3,948
4,040
Gross profit
2,011
2,264
Selling, general and administrative
expenses, excluding impairment losses
829
764
Goodwill impairment losses
620
—
Intangible asset impairment losses
—
—
Selling, general and administrative
expenses
1,449
764
Operating income/(loss)
562
1,500
Interest expense
321
317
Other expense/(income)
(380
)
(90
)
Income/(loss) before income taxes
621
1,273
Provision for/(benefit from) income
taxes
217
270
Net income/(loss)
404
1,003
Net income/(loss) attributable to
noncontrolling interest
(1
)
—
Net income/(loss) attributable to common
shareholders
$
405
$
1,003
Basic shares outstanding
1,220
1,219
Diluted shares outstanding
1,224
1,228
Per share data applicable to common
shareholders:
Basic earnings/(loss) per share
$
0.33
$
0.82
Diluted earnings/(loss) per share
0.33
0.82
Schedule
2
The Kraft Heinz Company
Condensed Consolidated Statements
of Income
(in millions, except per share
data)
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
June 29, 2019
June 30, 2018
June 29, 2019
June 30, 2018
Net sales
$
6,406
$
6,690
$
12,365
$
12,994
Cost of products sold
4,324
4,343
8,272
8,383
Gross profit
2,082
2,347
4,093
4,611
Selling, general and administrative
expenses, excluding impairment losses
750
756
1,579
1,520
Goodwill impairment losses
124
133
744
133
Intangible asset impairment losses
474
101
474
101
Selling, general and administrative
expenses
1,348
990
2,797
1,754
Operating income/(loss)
734
1,357
1,296
2,857
Interest expense
316
316
637
633
Other expense/(income)
(133
)
(20
)
(513
)
(110
)
Income/(loss) before income taxes
551
1,061
1,172
2,334
Provision for/(benefit from) income
taxes
103
308
320
578
Net income/(loss)
448
753
852
1,756
Net income/(loss) attributable to
noncontrolling interest
(1
)
(1
)
(2
)
(1
)
Net income/(loss) attributable to common
shareholders
$
449
$
754
$
854
$
1,757
Basic shares outstanding
1,220
1,219
1,220
1,219
Diluted shares outstanding
1,222
1,226
1,223
1,227
Per share data applicable to common
shareholders:
Basic earnings/(loss) per share
$
0.37
$
0.62
$
0.70
$
1.44
Diluted earnings/(loss) per share
0.37
0.62
0.70
1.43
Schedule
3
The Kraft Heinz Company
Reconciliation of Net Sales to
Organic Net Sales
For the Three Months Ended
(dollars in millions)
(Unaudited)
Net Sales
Currency
Acquisitions and
Divestitures
Organic Net Sales
Price
Volume/Mix
March 30, 2019
United States
$
4,202
$
—
$
—
$
4,202
Canada
450
(21)
—
471
EMEA
607
(49)
—
656
Rest of World
700
(44)
51
693
$
5,959
$
(114)
$
51
$
6,022
March 31, 2018
United States
$
4,368
$
—
$
—
$
4,368
Canada
484
—
—
484
EMEA
685
—
10
675
Rest of World
767
39
58
670
$
6,304
$
39
$
68
$
6,197
Year-over-year growth rates
United States
(3.8)%
0.0 pp
0.0 pp
(3.8)%
(3.3) pp
(0.5) pp
Canada
(7.0)%
(4.5) pp
0.0 pp
(2.5)%
(2.2) pp
(0.3) pp
EMEA
(11.5)%
(7.2) pp
(1.4) pp
(2.9)%
0.0 pp
(2.9) pp
Rest of World
(8.7)%
(10.8) pp
(1.3) pp
3.4%
1.1 pp
2.3 pp
Kraft Heinz
(5.5)%
(2.4) pp
(0.3) pp
(2.8)%
(2.4) pp
(0.4) pp
Schedule
4
The Kraft Heinz Company
Reconciliation of Net Sales to
Organic Net Sales
For the Three Months Ended
(dollars in millions)
(Unaudited)
Net Sales
Currency
Acquisitions and
Divestitures
Organic Net Sales
Price
Volume/Mix
June 29, 2019
United States
$
4,511
$
—
$
—
$
4,511
Canada
560
(21)
—
581
EMEA
643
(36)
—
679
Rest of World
692
(34)
—
726
$
6,406
$
(91)
$
—
$
6,497
June 30, 2018
United States
$
4,513
$
—
$
—
$
4,513
Canada
564
—
—
564
EMEA
707
—
11
696
Rest of World
906
101
63
742
$
6,690
$
101
$
74
$
6,515
Year-over-year growth rates
United States
(0.1)%
0.0 pp
0.0 pp
(0.1)%
(0.4) pp
0.3 pp
Canada
(0.7)%
(3.6) pp
0.0 pp
2.9%
(2.4) pp
5.3 pp
EMEA
(8.9)%
(5.0) pp
(1.6) pp
(2.3)%
(0.2) pp
(2.1) pp
Rest of World
(23.6)%
(13.9) pp
(7.7) pp
(2.0)%
2.0 pp
(4.0) pp
Kraft Heinz
(4.2)%
(2.8) pp
(1.1) pp
(0.3)%
(0.3) pp
0.0 pp
Schedule
5
The Kraft Heinz Company
Reconciliation of Net Sales to
Organic Net Sales
For the Six Months Ended
(dollars in millions)
(Unaudited)
Net Sales
Currency
Acquisitions and
Divestitures
Organic Net Sales
Price
Volume/Mix
June 29, 2019
United States
$
8,713
$
—
$
—
$
8,713
Canada
1,010
(42)
—
1,052
EMEA
1,250
(85)
—
1,335
Rest of World
1,392
(78)
51
1,419
$
12,365
$
(205)
$
51
$
12,519
June 30, 2018
United States
$
8,881
$
—
$
—
$
8,881
Canada
1,048
—
—
1,048
EMEA
1,392
—
21
1,371
Rest of World
1,673
140
121
1,412
$
12,994
$
140
$
142
$
12,712
Year-over-year growth rates
United States
(1.9 )%
0.0 pp
0.0 pp
(1.9)%
(1.8) pp
(0.1) pp
Canada
(3.6)%
(4.0) pp
0.0 pp
0.4%
(2.3) pp
2.7 pp
EMEA
(10.2)%
(6.1) pp
(1.5) pp
(2.6)%
(0.1) pp
(2.5) pp
Rest of World
(16.8)%
(12.7) pp
(4.7) pp
0.6%
1.6 pp
(1.0) pp
Kraft Heinz
(4.8)%
(2.6) pp
(0.7) pp
(1.5)%
(1.3) pp
(0.2) pp
Schedule
6
The Kraft Heinz Company
Reconciliation of Net
Income/(Loss) to Adjusted EBITDA
(dollars in millions)
(Unaudited)
For the Three Months
Ended
March 30, 2019
March 31, 2018
Net income/(loss)
$
404
$
1,003
Interest expense
321
317
Other expense/(income)
(380
)
(90
)
Provision for/(benefit from) income
taxes
217
270
Operating income/(loss)
562
1,500
Depreciation and amortization (excluding
integration and restructuring expenses)
234
199
Integration and restructuring expenses
27
90
Deal costs
8
9
Unrealized losses/(gains) on commodity
hedges
(29
)
2
Impairment losses
620
—
Equity award compensation expense
(excluding integration and restructuring expenses)
9
7
Adjusted EBITDA
$
1,431
$
1,807
Segment Adjusted EBITDA:
United States
$
1,133
$
1,392
Canada
121
134
EMEA
143
182
Rest of World
101
144
General corporate expenses
(67
)
(45
)
Adjusted EBITDA
$
1,431
$
1,807
Schedule
7
The Kraft Heinz Company
Reconciliation of Net
Income/(Loss) to Adjusted EBITDA
(dollars in millions)
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
June 29, 2019
June 30, 2018
June 29, 2019
June 30, 2018
Net income/(loss)
$
448
$
753
$
852
$
1,756
Interest expense
316
316
637
633
Other expense/(income)
(133
)
(20
)
(513
)
(110
)
Provision for/(benefit from) income
taxes
103
308
320
578
Operating income/(loss)
734
1,357
1,296
2,857
Depreciation and amortization (excluding
integration and restructuring expenses)
253
235
487
434
Integration and restructuring expenses
14
93
41
183
Deal costs
5
7
13
16
Unrealized losses/(gains) on commodity
hedges
(10
)
3
(39
)
5
Impairment losses
598
234
1,218
234
Equity award compensation expense
(excluding integration and restructuring expenses)
6
20
15
27
Adjusted EBITDA
$
1,600
$
1,949
$
3,031
$
3,756
Segment Adjusted EBITDA:
United States
$
1,251
$
1,401
$
2,384
$
2,793
Canada
143
173
264
307
EMEA
171
206
314
388
Rest of World
102
213
203
357
General corporate expenses
(67
)
(44
)
(134
)
(89
)
Adjusted EBITDA
$
1,600
$
1,949
$
3,031
$
3,756
Schedule
8
The Kraft Heinz Company
Reconciliation of Adjusted EBITDA
to Constant Currency Adjusted EBITDA
For the Three Months Ended
(dollars in millions)
(Unaudited)
Adjusted EBITDA
Currency
Constant Currency Adjusted
EBITDA
March 30, 2019
United States
$
1,133
$
—
$
1,133
Canada
121
(6)
127
EMEA
143
(12)
155
Rest of World
101
(5)
106
General corporate expenses
(67)
2
(69)
$
1,431
$
(21)
$
1,452
March 31, 2018
United States
$
1,392
$
—
$
1,392
Canada
134
—
134
EMEA
182
—
182
Rest of World
144
25
119
General corporate expenses
(45)
—
(45)
$
1,807
$
25
$
1,782
Year-over-year
growth rates
United States
(18.6)%
0.0 pp
(18.6)%
Canada
(10.3)%
(4.3) pp
(6.0)%
EMEA
(21.4)%
(6.1) pp
(15.3)%
Rest of World
(29.4)%
(18.8) pp
(10.6)%
General corporate expenses
48.2%
(2.5) pp
50.7%
Kraft Heinz
(20.8)%
(2.3) pp
(18.5)%
Schedule
9
The Kraft Heinz Company
Reconciliation of Adjusted EBITDA
to Constant Currency Adjusted EBITDA
For the Three Months Ended
(dollars in millions)
(Unaudited)
Adjusted EBITDA
Currency
Constant Currency Adjusted
EBITDA
June 29, 2019
United States
$
1,251
$
—
$
1,251
Canada
143
(5)
148
EMEA
171
(9)
180
Rest of World
102
(5)
107
General corporate expenses
(67)
1
(68)
$
1,600
$
(18)
$
1,618
June 30, 2018
United States
$
1,401
$
—
$
1,401
Canada
173
—
173
EMEA
206
—
206
Rest of World
213
76
137
General corporate expenses
(44)
—
(44)
$
1,949
$
76
$
1,873
Year-over-year
growth rates
United States
(10.7)%
0.0 pp
(10.7)%
Canada
(17.0)%
(2.8) pp
(14.2)%
EMEA
(17.1)%
(4.6) pp
(12.5)%
Rest of World
(52.1)%
(30.2) pp
(21.9)%
General corporate expenses
51.9%
(2.7) pp
54.6%
Kraft Heinz
(17.9)%
(4.3) pp
(13.6)%
Schedule
10
The Kraft Heinz Company
Reconciliation of Adjusted EBITDA
to Constant Currency Adjusted EBITDA
For the Six Months Ended
(dollars in millions)
(Unaudited)
Adjusted EBITDA
Currency
Constant Currency Adjusted
EBITDA
June 29, 2019
United States
$
2,384
$
—
$
2,384
Canada
264
(11)
275
EMEA
314
(21)
335
Rest of World
203
(10)
213
General corporate expenses
(134)
3
(137)
$
3,031
$
(39)
$
3,070
June 30, 2018
United States
$
2,793
$
—
$
2,793
Canada
307
—
307
EMEA
388
—
388
Rest of World
357
101
256
General corporate expenses
(89)
—
(89)
$
3,756
$
101
$
3,655
Year-over-year
growth rates
United States
(14.6)%
0.0 pp
(14.6)%
Canada
(14.1)%
(3.5) pp
(10.6)%
EMEA
(19.1)%
(5.3) pp
(13.8)%
Rest of World
(43.0)%
(26.3) pp
(16.7)%
General corporate expenses
50.0%
(2.6) pp
52.6%
Kraft Heinz
(19.3)%
(3.3) pp
(16.0)%
Schedule
11
The Kraft Heinz Company
Reconciliation of Diluted EPS to
Adjusted EPS
(Unaudited)
For the Three Months
Ended
March 30, 2019
March 31, 2018
Diluted EPS
$
0.33
$
0.82
Integration and restructuring
expenses(a)
0.02
0.05
Deal costs(b)
—
0.01
Unrealized losses/(gains) on commodity
hedges(c)
(0.02
)
—
Impairment losses(d)
0.49
—
Losses/(gains) on sale of business(e)
(0.16
)
—
Nonmonetary currency devaluation(f)
—
0.04
U.S. Tax Reform discrete income tax
expense/(benefit)(g)
—
(0.02
)
Adjusted EPS
$
0.66
$
0.90
- Gross expenses included in integration and restructuring
expenses were $27 million for the three months ended March 30, 2019
($20 million after-tax) and $90 million for the three months ended
March 31, 2018 ($72 million after-tax) and were recorded in the
following income statement line items:
- Cost of products sold included $9 million for the three months
ended March 30, 2019 and $78 million for the three months ended
March 31, 2018; and
- SG&A included $18 million for the three months ended March
30, 2019 and $12 million for the three months ended March 31,
2018;
- Gross expenses included in deal costs were $8 million for the
three months ended March 30, 2019 ($6 million after-tax) and $9
million for the three months ended March 31, 2018 ($7 million
after-tax) and were recorded in SG&A.
- Gross expenses/(income) included in unrealized losses/(gains)
on commodity hedges were income of $29 million for the three months
ended March 30, 2019 ($21 million after-tax) and expenses of $2
million for the three months ended March 31, 2018 ($1 million
after-tax) and were recorded in cost of products sold.
- Gross expenses included in impairment losses, all of which
related to goodwill, were $620 million for the three months ended
March 30, 2019 ($594 million after-tax) and were recorded in
SG&A.
- Gross income included in losses/(gains) on sale of business was
$246 million for the three months ended March 30, 2019 ($191
million after-tax) and were recorded in other
expense/(income).
- Gross expenses included in nonmonetary currency devaluation
were $4 million for the three months ended March 30, 2019 ($4
million after tax) and $47 million for the three months ended March
31, 2018 ($47 million after-tax) and were recorded in other
expense/(income).
- U.S. Tax Reform discrete income tax expense/(benefit) included
a benefit of $20 million for the three months ended March 31,
2018.
Schedule
12
The Kraft Heinz Company
Reconciliation of Diluted EPS to
Adjusted EPS
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
June 29, 2019
June 30, 2018
June 29, 2019
June 30, 2018
Diluted EPS
$
0.37
$
0.62
$
0.70
$
1.43
Integration and restructuring
expenses(a)
0.01
0.11
0.02
0.17
Deal costs(b)
—
0.01
0.01
0.01
Unrealized losses/(gains) on commodity
hedges(c)
(0.01
)
—
(0.02
)
—
Impairment losses(d)
0.41
0.17
0.89
0.17
Losses/(gains) on sale of business(e)
—
0.01
(0.16
)
0.01
Nonmonetary currency devaluation(f)
—
0.02
—
0.06
U.S. Tax Reform discrete income tax
expense/(benefit)(g)
—
0.05
—
0.04
Adjusted EPS
$
0.78
$
0.99
$
1.44
$
1.89
- Gross expenses included in integration and restructuring
expenses were $14 million ($8 million after-tax) for the three
months and $41 million ($29 million after-tax) for the six months
ended June 29, 2019 and $157 million ($135 million after-tax) for
the three months and $247 million ($207 million after-tax) for the
six months ended June 30, 2018 and were recorded in the following
income statement line items:
- Cost of products sold included $6 million for the three months
and $15 million for the six months ended June 29, 2019 and $79
million for the three months and $157 million for the six months
ended June 30, 2018;
- SG&A included $8 million for the three months and $26
million for the six months ended June 29, 2019 and $14 million for
the three months and $26 million for the six months ended June 30,
2018; and
- Other expense/(income) included expenses of $64 million for the
three and six months ended June 30, 2018.
- Gross expenses included in deal costs were $5 million ($5
million after-tax) for the three months and $13 million ($11
million after-tax) for the six months ended June 29, 2019 and $7
million ($6 million after-tax) for the three months and $16 million
($13 million after-tax) for the six months ended June 30, 2018 and
were recorded in the following income statement line items:
- Cost of products sold included $4 million for the three and six
months ended June 30, 2018.
- SG&A included $5 million for the three months and $13
million for the six months ended June 29, 2019 and $3 million for
the three months and $12 million for the six months ended June 30,
2018.
- Gross expenses/(income) included in unrealized losses/(gains)
on commodity hedges were income of $10 million ($8 million
after-tax) for the three months and $39 million ($29 million
after-tax) for the six months ended June 29, 2019 and expenses of
$3 million ($3 million after-tax) for the three months and $5
million ($4 million after-tax) for the six months ended June 30,
2018 and were recorded in cost of products sold.
- Gross impairment losses, which were recorded in SG&A,
included the following:
- Goodwill impairment losses of $124 million ($123 million
after-tax) for the three months and $744 million ($717 million
after-tax) for the six months ended June 29, 2019 and $133 million
($133 million after-tax) for the three and six months ended June
30, 2018; and
- Intangible asset impairment losses of $474 million ($374
million after-tax) for the three and six months ended June 29, 2019
and $101 million ($80 million after-tax) for the three and six
months ended June 30, 2018.
- Gross expenses/(income) included in losses/(gains) on sale of
business were income of $246 million ($190 million after-tax) for
the six months ended June 29, 2019 and expenses of $15 million ($15
million after-tax) for the three and six months ended June 30, 2018
and were recorded in other expense/(income).
- Gross expenses included in nonmonetary currency devaluation
were $2 million ($2 million after-tax) for the three months and $6
million ($6 million after-tax) for the six months ended June 29,
2019 and $20 million ($20 million after-tax) for the three months
and $67 million ($67 million after-tax) for the six months ended
June 30, 2018 and were recorded in other expense/(income).
- U.S. Tax Reform discrete income tax expense/(benefit) included
expenses of $64 million for the three months and $44 million for
the six months ended June 30, 2018.
Schedule
13
The Kraft Heinz Company
Consolidated Balance Sheets
(in millions, except per share
data)
(Unaudited)
June 29, 2019
December 29, 2018
ASSETS
Cash and cash equivalents
$
1,452
$
1,130
Trade receivables, net
2,049
2,129
Income taxes receivable
105
152
Inventories
3,074
2,667
Prepaid expenses
395
400
Other current assets
1,058
1,221
Assets held for sale
1,035
1,376
Total current assets
9,168
9,075
Property, plant and equipment, net
7,023
7,078
Goodwill
35,989
36,503
Intangible assets, net
48,943
49,468
Other non-current assets
2,078
1,337
TOTAL ASSETS
$
103,201
$
103,461
LIABILITIES AND EQUITY
Commercial paper and other short-term
debt
$
1
$
21
Current portion of long-term debt
1,298
377
Trade payables
4,153
4,153
Accrued marketing
508
722
Interest payable
384
408
Other current liabilities
1,446
1,767
Liabilities held for sale
7
55
Total current liabilities
7,797
7,503
Long-term debt
29,832
30,770
Deferred income taxes
12,128
12,202
Accrued postemployment costs
308
306
Other non-current liabilities
1,459
902
TOTAL LIABILITIES
51,524
51,683
Redeemable noncontrolling interest
2
3
Equity:
Common stock, $0.01 par value
12
12
Additional paid-in capital
57,769
58,723
Retained earnings/(deficit)
(4,140
)
(4,853
)
Accumulated other comprehensive
income/(losses)
(1,807
)
(1,943
)
Treasury stock, at cost
(291
)
(282
)
Total shareholders' equity
51,543
51,657
Noncontrolling interest
132
118
TOTAL EQUITY
51,675
51,775
TOTAL LIABILITIES AND EQUITY
$
103,201
$
103,461
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190808005407/en/
Michael Mullen (media) Michael.Mullen@kraftheinz.com
Christopher Jakubik, CFA (investors) ir@kraftheinz.com
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