Yahoo Finance Kraft Heinz (KHC) Q1 Earnings Top Estimates Despite Lower Sales
The Kraft Heinz Company KHC posted first-quarter 2024 results, wherein the bottom line increased year over year and beat the Zacks Consensus Estimate despite the top line declining from the year-ago period.
The first-quarter show came in tandem with management’s expectations, including growth in each of the company’s three strategic pillars — Global Away From Home, Emerging Markets and North America Retail ACCELERATE Platforms. Additionally, KHC witnessed continued sequential volume improvement and operating income growth.
The efficient execution of the Agile@Scale methodology continues to support business reinvestments, which facilitates innovation, brand strength, unique marketing, sales effectiveness and enhanced productivity to foster growth.
Quarter in Detail
Kraft Heinz posted adjusted earnings of 69 cents per share, which beat the Zacks Consensus Estimate of 68 cents. Quarterly earnings increased 1.5% year over year, mainly backed by higher adjusted operating income and reduced shares outstanding, partly negated by elevated taxes.
Kraft Heinz Company Price, Consensus and EPS Surprise
Kraft Heinz Company price-consensus-eps-surprise-chart | Kraft Heinz Company Quote
The company generated net sales of $6,411 million, down 1.2% year over year. Net sales included an unfavorable currency impact of 0.6 percentage points and an adverse impact of 0.1 percentage points from divestitures. Net sales missed the Zacks Consensus Estimate of $6,419 million.
Organic net sales fell 0.5% year over year. Pricing rose 2.7 percentage points year over year, reflecting growth in all segments. The upside can be attributed to higher list prices to counter escalated input costs. However, the volume/mix fell 3.2 percentage points due to declines in North America and International Developed Markets segments stemming from the elasticity effect of pricing actions and lower SNAP benefits in the United States. This was partly made up by the higher volume/mix in the Emerging Markets segment. Our model suggested pricing to be up 3.5% and volumes to decline 4% in the first quarter.
The adjusted gross profit of $2,210 million increased from the $2,130 million reported in the year-ago quarter. The adjusted gross margin expanded 170 basis points to 34.5%. We had expected an adjusted gross margin expansion of about 140 basis points to 34.2%.
Adjusted operating income grew 1.7% to $1,265 million, mainly on elevated pricing. This was partly negated by the adverse volume/mix, currency headwinds and investments related to marketing, technology, and research and development.
Segment Discussion
North America: Net sales of $4,828 million declined 1.2% year over year. Organic sales also fell 1.2%. During the quarter, pricing moved up 2.5 percentage points, but the volume/mix fell 3.7 percentage points.
International Developed Markets: Net sales of $855 million were down 0.6% year over year. Organic sales fell 1.3%, with pricing up 2.5 percentage points, but the volume/mix down by 3.8 percentage points.
Emerging Markets: Net sales of $728 million were down 2.1% year over year. Organic sales rose 5.5%, with pricing up 4.1 percentage points and volume/mix increase of 1.4 percentage points.
Other Financial Aspects
Kraft Heinz ended the quarter with cash and cash equivalents of $1,626 million, long-term debt of $19,923 million and total shareholders’ equity of $49,653 million. Net cash provided by operating activities was $771 million for the first quarter, and free cash flow amounted to $477 million.
During the quarter, Kraft Heinz paid cash dividends worth $486 million and made share buybacks worth $329 million. As of Mar 30, 2024, the company had shares worth $2.6 billion remaining under its buyback plan.
In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Jun 28, 2024, to shareholders of record as of Jun 6.
In another release, Kraft Heinz and TGI Fridays announced an exclusive extension of their existing licensing agreement. Under this agreement, Kraft Heinz will continue producing restaurant-inspired, TGI Fridays branded frozen appetizers for retail distribution throughout North America. Kraft Heinz is committed to enhancing TGI Fridays’ frozen appetizers and snacks by focusing on high-quality ingredients, introducing new flavors and varieties and exploring innovative ways to improve the overall product experience.
Guidance
Management expects 2024 organic net sales growth to come in the range of flat to increase 2%. Pricing is likely to have a positive impact on organic net sales throughout the year, while volumes are expected to be positive in the second half of the year.
Management expects a modest adjusted gross margin expansion in the 50-100 basis point band. This is likely to drive adjusted operating income, which is expected to increase 2-4% from the year-ago period.
The adjusted EPS for 2024 is envisioned to grow 1-3% to the band of $3.01-$3.07.
The adjusted effective tax rate is anticipated to be 20-22%. The company also anticipates an adverse effect of around $45 million in interest expenses and other income or expenses compared to the previous year. This is mainly due to currency fluctuations and the refinancing of debt at a higher interest rate. Management does not expect to make any additional share buybacks in 2024.
Shares of this Zacks Rank #4 (Sell) company have dropped 2.1% in the past year compared with the industry’s decline of 9%.
Some Better-Ranked Staple Bets
Here, we have highlighted three better-ranked stocks, namely Colgate-Palmolive CL, Vital Farms Inc. VITL and Celsius Holdings, Inc. CELH.
Colgate-Palmolive, which manufactures and sells consumer products, currently carries a Zacks Rank #2 (Buy). CL delivered a positive earnings surprise of 4.4% in the trailing four quarters, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Colgate-Palmolive’s current fiscal-year sales and earnings calls for growth of 3.6% and nearly 11.7%, respectively, from the year-ago reported numbers.
Vital Farms offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 155.4%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 15% and nearly 43.8%, respectively, from the year-ago reported numbers.
Celsius Holdings, which develops, processes, markets, distributes and sells functional energy drinks and liquid supplements, currently carries a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 67.4%, on average.
The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings implies growth of 41.6% each from the year-ago reported numbers.
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Colgate-Palmolive Company (CL) : Free Stock Analysis Report
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