- Q3 net sales increased 6.0%; Organic Net Sales(1) increased
6.3%
- Q3 gross profit increased 20.4%
- Q3 operating income declined 2.8%, net income attributable
to common shareholders decreased 33.7%, and diluted EPS decreased
33.8% due to charges related to the pending Cheese
Transaction(2)
- Adjusted EBITDA(1) increased 13.5% and Adjusted EPS(1)
increased 1.4%
- Full-year outlook raised to mid-single-digit Organic Net
Sales(3) growth and high-single-digit Constant Currency Adjusted
EBITDA(1)(3) growth
The Kraft Heinz Company (Nasdaq: KHC) (“Kraft Heinz” or the
“Company”) today reported financial results for the third quarter
of 2020 that reflected net sales growth across all six Consumer
Platforms due to sustained at-home consumption momentum.
“The continuation of our strong growth into the third quarter is
a reflection of the agility we are creating as an organization and
because of that, we are raising our outlook for the full year,”
said Kraft Heinz CEO Miguel Patricio. “We are building momentum,
and we are confidently optimistic about our near-term performance.
We are heading into 2021 with our new operating model fully
implemented, our platform strategy coming to life in the
marketplace, and our growth investments ramping up. And although
there are multiple future scenarios we must plan for and manage
against, we are in a strong position to both accelerate and exceed
the strategic plan we finalized earlier this year.”
Net Sales
In millions
Net Sales
Organic Net Sales(1)
Growth
September 26,
2020
September 28,
2019
% Chg vs
PY
YoY Growth
Rate
Price
Volume/Mix
For the Three Months Ended
United States(4)
$
4,710
$
4,385
7.4%
7.4%
4.0 pp
3.4 pp
International(4)
1,325
1,276
3.9%
4.6%
2.1 pp
2.5 pp
Canada
406
415
(2.2)%
(1.0)%
4.6 pp
(5.6) pp
Kraft Heinz
$
6,441
$
6,076
6.0%
6.3%
3.7 pp
2.6 pp
For the Nine Months Ended
United States(4)
$
14,122
$
13,142
7.5%
7.5%
2.9 pp
4.6 pp
International(4)
3,931
3,874
1.5%
5.7%
2.2 pp
3.5 pp
Canada
1,193
1,425
(16.3)%
1.0%
0.1 pp
0.9 pp
Kraft Heinz
$
19,246
$
18,441
4.4%
6.7%
2.6 pp
4.1 pp
Net Income/(Loss) Attributable to
Common Shareholders and Diluted EPS
In millions, except per share
data
For the Three Months
Ended
For the Nine Months
Ended
September 26,
2020
September 28,
2019
% Chg vs
PY
September 26,
2020
September 28,
2019
% Chg vs
PY
Gross profit
$
2,344
$
1,947
20.4%
$
6,654
$
6,040
10.2%
Operating income/(loss)
1,147
1,180
(2.8)%
578
2,476
(76.7)%
Net income/(loss) attributable to common
shareholders
597
899
(33.7)%
(676)
1,753
(138.6)%
Diluted EPS
$
0.49
$
0.74
(33.8)%
$
(0.55)
$
1.43
(138.5)%
Adjusted EPS(1)
0.70
0.69
1.4%
2.09
2.13
(1.9)%
Adjusted EBITDA(1)
$
1,667
$
1,469
13.5%
$
4,881
$
4,500
8.5%
Q3 2020 Financial Summary
- Net sales increased 6.0 percent versus the year-ago
period to $6.4 billion, including an unfavorable 0.3 percentage
point impact from currency. Organic Net Sales increased 6.3
percent despite a negative 1.2 percentage point impact from exiting
the McCafé licensing agreement. Pricing was up 3.7 percentage
points versus the prior year period, with positive pricing in each
business segment. Higher pricing primarily resulted from reduced
promotional activity compared to the year-ago period, with gains
also reflecting planned pricing actions in select categories and
markets and pricing to offset dairy inflation. Volume/mix was up
2.6 percentage points versus the year-ago period, driven by strong
growth in retail, e-commerce, and club channels supported by
continued growth of at-home consumption due, in part, to the
COVID-19 pandemic. This growth more than offset lower but improving
foodservice sales, and the negative impact from exiting the McCafé
licensing agreement.
- Net income attributable to common shareholders decreased
33.7 percent versus the year-ago period to $597 million and
Diluted EPS decreased to $0.49, down 33.8 percent versus the
prior year driven by charges related to the pending Cheese
Transaction(2) in the current period and a gain on sale of the
Canadian natural cheese business in the year-ago period.
- Adjusted EPS increased to $0.70, up 1.4 percent versus
the prior year as Adjusted EBITDA growth more than offset a higher
effective tax rate, unfavorable changes in other income, and higher
non-cash equity award compensation expenses versus the year-ago
period.
- Adjusted EBITDA increased 13.5 percent versus the
year-ago period to $1.7 billion, including an unfavorable 0.1
percentage point impact from currency. Excluding the impact of
currency, Adjusted EBITDA growth was driven by pricing gains,
volume growth, and favorable mix versus the year-ago period, as
well as procurement savings in the United States. This growth more
than offset higher variable compensation, unfavorable key
commodity(5) costs, specifically in dairy, as well as increased
marketing investment in the United States and incremental
COVID-19-related operating expenses globally.
- Year-to-date net cash provided by operating activities
increased to $3.3 billion, up 67.0% versus the comparable prior
year period, primarily driven by Adjusted EBITDA growth, reduced
cash outflows resulting from lower payments related to the timing
of promotional activity, and favorable changes in inventory,
primarily due to reduced inventory levels from COVID-19-related
demand. Free Cash Flow(1) for the first nine months of 2020
increased to $2.9 billion, up 107.8% versus the comparable prior
year period, from a combination of the previously mentioned items
and lower capital expenditures versus the prior year period.
Outlook
Based on performance to date, the Company believes
mid-single-digit Organic Net Sales(3) growth and high-single-digit
Constant Currency Adjusted EBITDA(3) growth versus the prior year
period are reasonable expectations for fourth-quarter performance.
This would result in mid-single-digit Organic Net Sales(3) growth
and high-single-digit Constant Currency Adjusted EBITDA(3) growth
for the full year.
End Notes
(1)
Organic Net Sales, Adjusted
EBITDA, Constant Currency Adjusted EBITDA, Adjusted EPS, and Free
Cash Flow 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.
(2)
In September 2020, the Company
entered into a definitive agreement to sell certain assets in the
Company’s global cheese businesses, as well as to license certain
trademarks, for total consideration of approximately $3.3 billion,
including $3.2 billion of cash consideration (the “Cheese
Transaction”). The Company has allocated $1.5 billion of the total
consideration to perpetual licenses that will be granted to the
buyer for the Kraft and Velveeta brands. The Company has allocated
the remainder of the total consideration, currently $1.8 billion,
to the net assets to be transferred (the “Disposal Group”). The
Company determined that the Disposal Group, which included
allocated goodwill, had an aggregate carrying amount above its $1.8
billion estimated fair value. Accordingly, a non-cash impairment
loss of $300 million was recorded in the third quarter of 2020.
Upon closing of the Cheese Transaction, we may recognize a gain or
loss, depending on a number of factors, including changes in the
fair values of certain assets in the Disposal Group. Additionally,
the license income related to the Kraft and Velveeta brands will be
recognized in the future as a reduction to SG&A.
(3)
Fourth quarter and 2020 full year
guidance for Organic Net Sales and Constant Currency Adjusted
EBITDA are provided on a non-GAAP basis only because certain
information necessary to calculate the most comparable GAAP measure
is unavailable due to the uncertainty and inherent difficulty of
predicting the occurrence and the future financial statement impact
of such items impacting comparability, including, but not limited
to, the impact of currency, acquisitions and divestitures,
integration and restructuring expenses, deal costs, unrealized
losses/(gains) on commodity hedges, impairment losses, and equity
award compensation expense, among other items. Therefore, as a
result of the uncertainty and variability of the nature and amount
of future adjustments, which could be significant, the Company is
unable to provide a reconciliation of these measures without
unreasonable effort.
(4)
In the first quarter of 2020, the
Company’s internal reporting and reportable segments changed. The
Puerto Rico business was moved from the Latin America zone to the
United States zone to consolidate and streamline the management of
the Company's product categories and supply chain. The Company also
combined its Europe, Middle East, and Africa (“EMEA”), Latin
America, and Asia Pacific (“APAC”) zones to form the International
zone. Therefore, effective in the first quarter of 2020, the
Company manages and reports its operating results through three
reportable segments defined by geographic region: United States,
International, and Canada. The Company has reflected these changes
in all historical periods presented.
(5)
The Company's key commodities in
the United States and Canada are dairy, meat, coffee and nuts.
Webcast Information
A webcast of The Kraft Heinz Company's third quarter 2020
earnings conference call will be available at
ir.kraftheinzcompany.com. The call begins today at 8:30 a.m.
Eastern Daylight Time.
ABOUT THE KRAFT HEINZ COMPANY
We are driving transformation at The Kraft Heinz Company
(Nasdaq: KHC), inspired by our Purpose, Let’s Make Life Delicious.
Consumers are at the center of everything we do. With 2019 net
sales of approximately $25 billion, we are committed to growing our
iconic and emerging food and beverage brands on a global scale. We
leverage our scale and agility to unleash the full power of Kraft
Heinz across a portfolio of six consumer-driven product platforms.
As global citizens, we’re dedicated to making a sustainable,
ethical impact while helping feed the world in healthy, responsible
ways. Learn more about our journey by visiting
www.kraftheinzcompany.com or following us on LinkedIn and
Twitter.
Forward-Looking Statements
This press release contains a number of forward-looking
statements. Words such as “plan,” "believe," "anticipate,"
"reflect," "invest," "make," "expect," "drive," “improve,”
“intend,” "assess," "evaluate," “establish,” “focus,” “build,”
“turn,” “expand,” “leverage,” "grow," "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, impacts of accounting
standards and guidance, costs and cost savings, legal matters,
taxes, impairments, dividends, 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, the impact of COVID-19; 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, as well as the
Company's ability to comply with covenants under its debt
instruments; the Company's liquidity, capital resources and capital
expenditures, as well as its ability to raise capital; additional
impairments of the carrying amounts of goodwill or other
indefinite-lived intangible assets; foreign exchange rate
fluctuations; volatility in commodity, energy, and other input
costs; volatility in the market value of all or a portion of the
commodity 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 any potential actions resulting from the
Securities and Exchange Commission’s (“SEC”) ongoing investigation,
as well as potential additional subpoenas, litigation, and
regulatory proceedings; potential future material weaknesses in the
Company's internal control over financial reporting or other
deficiencies or the Company’s failure to maintain an effective
system of internal controls; the Company’s failure to prepare and
timely file its periodic reports; 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; a downgrade in the
Company's credit rating; 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, revise or withdraw 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 provided, the Company
has presented Organic Net Sales, Adjusted EBITDA, Constant Currency
Adjusted EBITDA, Adjusted EPS, and Free Cash Flow 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,
Adjusted EPS, and Free Cash Flow) 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 highly
inflationary subsidiaries, 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),
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, 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 highly inflationary subsidiaries, 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), debt prepayment
and extinguishment costs, 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.
Free Cash Flow is defined as net cash provided by/(used for)
operating activities less capital expenditures. The Company
believes Free Cash Flow provides a measure of the Company's core
operating performance, the cash-generating capabilities of the
Company's business operations, and is one factor used in
determining the amount of cash available for debt repayments,
dividends, acquisitions, share repurchases, and other corporate
purposes. The use of this non-GAAP measure does not imply or
represent the residual cash flow for discretionary expenditures
since the Company has certain non-discretionary obligations such as
debt service that are not deducted from the measure.
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
For the Nine Months
Ended
September 26,
2020
September 28,
2019
September 26,
2020
September 28,
2019
Net sales
$
6,441
$
6,076
$
19,246
$
18,441
Cost of products sold
4,097
4,129
12,592
12,401
Gross profit
2,344
1,947
6,654
6,040
Selling, general and administrative
expenses, excluding impairment losses
897
762
2,677
2,341
Goodwill impairment losses
300
—
2,343
744
Intangible asset impairment losses
—
5
1,056
479
Selling, general and administrative
expenses
1,197
767
6,076
3,564
Operating income/(loss)
1,147
1,180
578
2,476
Interest expense
314
398
1,066
1,035
Other expense/(income)
(73)
(380)
(232)
(893)
Income/(loss) before income taxes
906
1,162
(256)
2,334
Provision for/(benefit from) income
taxes
308
264
417
584
Net income/(loss)
598
898
(673)
1,750
Net income/(loss) attributable to
noncontrolling interest
1
(1)
3
(3)
Net income/(loss) attributable to common
shareholders
$
597
$
899
$
(676)
$
1,753
Basic shares outstanding
1,223
1,221
1,222
1,220
Diluted shares outstanding
1,229
1,223
1,222
1,223
Per share data applicable to common
shareholders:
Basic earnings/(loss) per share
$
0.49
$
0.74
$
(0.55)
$
1.44
Diluted earnings/(loss) per share
0.49
0.74
(0.55)
1.43
Schedule
2
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
September 26, 2020
United States
$
4,710
$
—
$
—
$
4,710
International
1,325
(4)
—
1,329
Canada
406
(4)
—
410
$
6,441
$
(8)
$
—
$
6,449
September 28, 2019
United States
$
4,385
$
—
$
—
$
4,385
International
1,276
6
—
1,270
Canada
415
—
1
414
$
6,076
$
6
$
1
$
6,069
Year-over-year growth rates United States
7.4%
0.0 pp
0.0 pp
7.4%
4.0 pp
3.4 pp
International
3.9%
(0.7) pp
0.0 pp
4.6%
2.1 pp
2.5 pp
Canada
(2.2)%
(1.0) pp
(0.2) pp
(1.0)%
4.6 pp
(5.6) pp
Kraft Heinz
6.0%
(0.3) pp
0.0 pp
6.3%
3.7 pp
2.6 pp
Schedule
3
The Kraft Heinz Company
Reconciliation of Net Sales to Organic Net Sales For the Nine
Months Ended (dollars in millions) (Unaudited)
Net Sales
Currency
Acquisitions
and
Divestitures
Organic Net
Sales
Price
Volume/Mix
September 26, 2020
United States
$
14,122
$
—
$
—
$
14,122
International
3,931
(128)
—
4,059
Canada
1,193
(25)
—
1,218
$
19,246
$
(153)
$
—
$
19,399
September 28, 2019
United States
$
13,142
$
—
$
—
$
13,142
International
3,874
20
13
3,841
Canada
1,425
—
219
1,206
$
18,441
$
20
$
232
$
18,189
Year-over-year growth rates
United States
7.5%
0.0 pp
0.0 pp
7.5%
2.9 pp
4.6 pp
International
1.5%
(3.8) pp
(0.4) pp
5.7%
2.2 pp
3.5 pp
Canada
(16.3)%
(1.8) pp
(15.5) pp
1.0%
0.1 pp
0.9 pp
Kraft Heinz
4.4%
(0.9) pp
(1.4) pp
6.7%
2.6 pp
4.1 pp
Schedule
4
The Kraft Heinz Company
Reconciliation of Net Income/(Loss) to Adjusted EBITDA (dollars in
millions) (Unaudited)
For the Three Months
Ended
For the Nine Months
Ended
September 26,
2020
September 28,
2019
September 26,
2020
September 28,
2019
Net income/(loss)
$
598
$
898
$
(673)
$
1,750
Interest expense
314
398
1,066
1,035
Other expense/(income)
(73)
(380)
(232)
(893)
Provision for/(benefit from) income
taxes
308
264
417
584
Operating income/(loss)
1,147
1,180
578
2,476
Depreciation and amortization (excluding
integration and restructuring expenses)
232
243
722
730
Integration and restructuring expenses
8
15
12
56
Deal costs
9
6
9
19
Unrealized losses/(gains) on commodity
hedges
(70)
9
47
(30)
Impairment losses
300
5
3,399
1,223
Equity award compensation expense
(excluding integration and restructuring expenses)
41
11
114
26
Adjusted EBITDA
$
1,667
$
1,469
$
4,881
$
4,500
Segment Adjusted EBITDA:
United States
$
1,363
$
1,160
$
4,050
$
3,556
International
277
260
797
765
Canada
103
107
268
371
General corporate expenses
(76)
(58)
(234)
(192)
Adjusted EBITDA
$
1,667
$
1,469
$
4,881
$
4,500
Schedule
5
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
September 26, 2020
United States
$
1,363
$
—
$
1,363
International
277
3
274
Canada
103
(2)
105
General corporate expenses
(76)
—
(76)
$
1,667
$
1
$
1,666
September 28, 2019
United States
$
1,160
$
—
$
1,160
International
260
2
258
Canada
107
—
107
General corporate expenses
(58)
—
(58)
$
1,469
$
2
$
1,467
Year-over-year growth rates
United States
17.5%
0.0 pp
17.5%
International
6.6%
(0.2) pp
6.8%
Canada
(3.9)%
(0.9) pp
(3.0)%
General corporate expenses
31.6%
0.9 pp
30.7%
Kraft Heinz
13.5%
(0.1) pp
13.6%
Schedule
6
The Kraft Heinz Company
Reconciliation of Adjusted EBITDA to Constant Currency Adjusted
EBITDA For the Nine Months Ended (dollars in millions)
(Unaudited)
Adjusted EBITDA
Currency
Constant Currency
Adjusted EBITDA
September 26, 2020
United States
$
4,050
$
—
$
4,050
International
797
(17)
814
Canada
268
(7)
275
General corporate expenses
(234)
1
(235)
$
4,881
$
(23)
$
4,904
September 28, 2019
United States
$
3,556
$
—
$
3,556
International
765
9
756
Canada
371
—
371
General corporate expenses
(192)
—
(192)
$
4,500
$
9
$
4,491
Year-over-year growth rates
United States
13.9%
0.0 pp
13.9%
International
4.1%
(3.6) pp
7.7%
Canada
(27.7)%
(1.8) pp
(25.9)%
General corporate expenses
22.0%
(0.2) pp
22.2%
Kraft Heinz
8.5%
(0.7) pp
9.2%
Schedule
7
The Kraft Heinz Company
Reconciliation of Diluted EPS to Adjusted EPS (Unaudited)
For the Three Months
Ended
For the Nine Months
Ended
September 26,
2020
September 28,
2019
September 26,
2020
September 28,
2019
Diluted EPS
$
0.49
$
0.74
$
(0.55)
$
1.43
Integration and restructuring
expenses(a)
0.01
0.01
0.01
0.04
Deal costs(b)
—
0.01
—
0.01
Unrealized losses/(gains) on commodity
hedges(c)
(0.04)
0.01
0.03
(0.02)
Impairment losses(d)
0.24
—
2.60
0.90
Losses/(gains) on sale of business(e)
—
(0.13)
—
(0.29)
Nonmonetary currency devaluation(f)
—
—
—
0.01
Debt prepayment and extinguishment
costs(g)
—
0.05
0.07
0.05
U.S. Tax Reform discrete income tax
expense/(benefit)(h)
—
—
(0.07)
—
Adjusted EPS
$
0.70
$
0.69
$
2.09
$
2.13
(a)
Gross expenses included in
integration and restructuring expenses were $9 million ($7 million
after-tax) for the three months and $13 million ($10 million
after-tax) for the nine months ended September 26, 2020 and $15
million ($15 million after-tax) for the three months and $56
million ($44 million after-tax) for the nine months ended September
28, 2019 and were recorded in the following income statement line
items:
•
Cost of products sold included
income of $3 million for the three months and $4 million for the
nine months ended September 26, 2020 and expenses of $12 million
for the three months and $27 million for the nine months ended
September 28, 2019;
•
SG&A included expenses of $11
million for three months and $16 million for the nine months ended
September 26, 2020 and $3 million for the three months and $29
million for the nine months ended September 28, 2019; and
•
Other expense/(income) included
expenses of $1 million for the three and nine months ended
September 26, 2020.
(b)
Gross expenses included in deal
costs were $9 million ($7 million after-tax) for the three and nine
months ended September 26, 2020 and $6 million ($7 million
after-tax) for the three months and $19 million ($18 million
after-tax) for the nine months ended September 28, 2019 and were
recorded in SG&A.
(c)
Gross expenses/(income) included
in unrealized losses/(gains) on commodity hedges were income of $70
million ($54 million after-tax) for the three months and expenses
of $47 million ($35 million after-tax) for the nine months ended
September 26, 2020 and expenses of $9 million ($7 million
after-tax) for the three months and income of $30 million ($22
million after-tax) for the nine months ended September 28, 2019 and
were recorded in cost of products sold.
(d)
Gross impairment losses, which
were recorded in SG&A, included the following:
•
Goodwill impairment losses of
$300 million ($300 million after-tax) for the three months and $2.3
billion ($2.3 billion after-tax) for the nine months ended
September 26, 2020 and $744 million ($717 million after-tax) for
the nine months ended September 28, 2019; and
•
Intangible asset impairment
losses of $1.1 billion ($829 million after-tax) for the nine months
ended September 26, 2020 and $5 million ($7 million after-tax) for
the three months and $479 million ($381 million after-tax) for the
nine months ended September 28, 2019.
(e)
Gross expenses/(income) included
in losses/(gains) on sale of business were expenses of $2 million
($2 million after-tax) for the nine months ended September 26, 2020
and income of $244 million ($158 million after-tax) for the three
months and $490 million ($348 million after-tax) for the nine
months ended September 28, 2019 and were recorded in other
expense/(income).
(f)
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 nine months ended September 26, 2020 and $4
million ($4 million after-tax) for the three months and $10 million
($10 million after-tax) for the nine months ended September 28,
2019 and were recorded in other expense/(income).
(g)
Gross expenses included in debt
prepayment and extinguishment costs were $109 million ($82 million
after-tax) for the nine months ended September 26, 2020 and $88
million ($62 million after-tax) for the three and nine months ended
September 28, 2019 and were recorded in interest expense.
(h)
U.S. Tax Reform discrete income
tax expense/(benefit) was a benefit of $81 million for the nine
months ended September 26, 2020. The benefit primarily relates to
the revaluation of our deferred tax balances due to changes in
state tax laws following U.S. Tax Reform and subsequent
clarification or interpretation of state tax laws.
Schedule
8
The Kraft Heinz Company Condensed
Consolidated Balance Sheets (in millions, except per share data)
(Unaudited)
September 26, 2020
December 28, 2019
ASSETS
Cash and cash equivalents
$
2,720
$
2,279
Trade receivables, net
1,979
1,973
Inventories
2,661
2,721
Prepaid expenses
382
384
Other current assets
401
618
Assets held for sale
1,922
122
Total current assets
10,065
8,097
Property, plant and equipment, net
6,558
7,055
Goodwill
32,861
35,546
Intangible assets, net
46,418
48,652
Other non-current assets
2,220
2,100
TOTAL ASSETS
$
98,122
$
101,450
LIABILITIES AND EQUITY
Commercial paper and other short-term
debt
$
6
$
6
Current portion of long-term debt
529
1,022
Trade payables
4,052
4,003
Accrued marketing
1,001
647
Interest payable
333
384
Other current liabilities
1,755
1,804
Liabilities held for sale
18
9
Total current liabilities
7,694
7,875
Long-term debt
27,882
28,216
Deferred income taxes
11,461
11,878
Accrued postemployment costs
250
273
Other non-current liabilities
1,496
1,459
TOTAL LIABILITIES
48,783
49,701
Redeemable noncontrolling interest
(2)
—
Equity:
Common stock, $0.01 par value
12
12
Additional paid-in capital
55,544
56,828
Retained earnings/(deficit)
(3,739)
(3,060)
Accumulated other comprehensive
income/(losses)
(2,258)
(1,886)
Treasury stock, at cost
(341)
(271)
Total shareholders' equity
49,218
51,623
Noncontrolling interest
123
126
TOTAL EQUITY
49,341
51,749
TOTAL LIABILITIES AND EQUITY
$
98,122
$
101,450
Schedule
9
The Kraft Heinz Company Condensed
Consolidated Statements of Cash Flow (in millions) (Unaudited)
For the Nine Months
Ended
September 26,
2020
September 28,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)
$
(673)
$
1,750
Adjustments to reconcile net income/(loss)
to operating cash flows:
Depreciation and amortization
722
737
Amortization of postretirement benefit
plans prior service costs/(credits)
(92)
(229)
Equity award compensation expense
114
26
Deferred income tax
provision/(benefit)
(343)
(140)
Postemployment benefit plan
contributions
(20)
(23)
Goodwill and intangible asset impairment
losses
3,399
1,223
Nonmonetary currency devaluation
6
10
Loss/(gain) on sale of business
2
(490)
Other items, net
143
(34)
Changes in current assets and
liabilities:
Trade receivables
(6)
138
Inventories
(455)
(637)
Accounts payable
62
113
Other current assets
(15)
(73)
Other current liabilities
482
(381)
Net cash provided by/(used for) operating
activities
3,326
1,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
(397)
(581)
Payments to acquire business, net of cash
acquired
—
(199)
Proceeds from sale of business, net of
cash disposed
—
1,875
Other investing activities, net
35
16
Net cash provided by/(used for) investing
activities
(362)
1,111
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt
(4,395)
(3,272)
Proceeds from issuance of long-term
debt
3,500
2,967
Debt prepayment and extinguishment
costs
(101)
(91)
Proceeds from revolving credit
facility
4,000
—
Repayments of revolving credit
facility
(4,000)
—
Proceeds from issuance of commercial
paper
—
377
Repayments of commercial paper
—
(377)
Dividends paid
(1,467)
(1,464)
Other financing activities, net
(46)
(21)
Net cash provided by/(used for) financing
activities
(2,509)
(1,881)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
(14)
(40)
Cash, cash equivalents, and restricted
cash
Net increase/(decrease)
441
1,180
Balance at beginning of period
2,280
1,136
Balance at end of period
$
2,721
$
2,316
Schedule
10
The Kraft Heinz Company
Reconciliation of Net Cash Provided By/(Used For) Operating
Activities to Free Cash Flow (in millions) (Unaudited)
For the Nine Months
Ended
September 26,
2020
September 28,
2019
Net cash provided by/(used for) operating
activities
$
3,326
$
1,990
Capital expenditures
(397)
(581)
Free Cash Flow
$
2,929
$
1,409
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201029005362/en/
Michael Mullen (media) Michael.Mullen@kraftheinz.com
Christopher Jakubik, CFA (investors) ir@kraftheinz.com
Kraft Heinz (NASDAQ:KHC)
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