What’s Behind Kraft Heinz’s Strong 2Q17 Earnings?
EPS versus estimate
Kraft Heinz (KHC) posted better-than-expected 2Q17 bottom line results on August 3, 2017. Its adjusted EPS (earnings per share) of $0.98 surpassed the Wall Street estimate of $0.95 and rose 15.3% YoY (year-over-year). The company’s strong double-digit EPS growth comes on the back of increased cost and productivity savings.
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Factors driving double-digit growth
The company’s strong bottom line growth also benefited from the redemption of preferred stock in the prior year. A lower effective tax rate also helped it offset the negative impact of lower sales.
Kellogg (K), General Mills (GIS), Conagra Brands (CAG), and Mondelēz International (MDLZ) are also focusing on lowering costs to drive EPS growth amid a slowdown in consumption, primarily in the United States (SPY) (SPX-INDEX). Almost all of these companies reported double-digit bottom-line growth despite lower sales, thanks to their cost-saving measures.
Kraft Heinz’s EPS is likely to be negatively impacted by lower sales and adverse currency movements. The softness in demand for packaged foods will continue to affect the company’s sales in the coming quarters and, in turn, its profitability.
However, Kraft Heinz’s second half results are expected to benefit from innovation-led, newly launched products and cost-saving initiatives. Management anticipates sequential improvement in sales as the year progresses, which should boost its EPS growth rate.