Why Kraft Heinz’s 1Q17 Earnings Fell Short of Expectations
Weak consumption to blame
Kraft Heinz (KHC), which reported its 1Q17 results on May 3, 2017, joined the long list of packaged food manufacturers who have disappointed with their performances.
The company’s adjusted EPS (earnings per share) of $0.84 fell short of analysts’ consensus estimate of $0.86 as weak consumption, mainly in the United States (SPY), took a toll on its financials.
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Cost savings cushioned bottom line
Although the company’s adjusted EPS remained shy of Wall Street’s expectations, they rose 15.1% YoY (year-over-year) thanks to its stringent cost-cutting measures and its preferred stock refinancing. As sales remain sluggish amid weak consumer uptake, packaged food manufacturers are relying heavily upon lowering costs and generating productivity savings to drive bottom line growth.
The company’s peers, including The Kellogg Company (K), Conagra Brands (CAG), and Mondelēz International (MDLZ), have adopted restructuring initiatives to drive down costs and boost profitability as accelerating sales growth remains out of reach. Kellogg, which reported its 1Q17 results on May 4, marked a 10.4% improvement in its adjusted EPS due to a reduction in costs.
The road ahead
Given the slow start to the year and other persisting challenges, which aren’t likely to abate in the near term, the company’s bottom line is expected to be negatively impacted by lower sales and adverse currency movements.
However, cost-saving initiatives and new product launches could benefit the company’s profitability in the coming quarters. Management anticipates sales and cost-saving initiatives to pick up the pace in 2H17, which is expected to boost the company’s EPS.