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Kraft Heinz Focuses on Higher Margins and Superior Returns

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Jan. 7 2016, Updated 10:05 a.m. ET

Best-in-class margins

The two key drivers of the Kraft Heinz Company’s (KHC) best-in-class margins have been its ZBB (zero-based budgeting) and its efficient manufacturing and distribution footprint.

Under the manufacturing and distribution initiative, Kraft Heinz has planned to close seven manufacturing facilities and several distribution centers in North America. The company has taken the move to cut out excess capacity and reduce repetitive operations for the new combined company. The company plans to invest heavily in upgrading its manufacturing facilities with state-of-art production lines to further improve product quality and to support innovation.

The company is also consolidating North American supply chain network, and it expects to complete the integration of supply chain in coming two years. In August 2015, the company also announced a cost-saving initiative in the form of the reduction in corporate headcount.

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Superior returns of capital

To provide better returns to shareholders, Kraft Heinz is committed to maintaining its current dividend policy. Kraft Heinz plans to maintain the dividend per share and expects to increase it over time. The company does not plan any share repurchases in coming two years to speed up deleveraging to its specified target.

At the end of 3Q15, which ended on September 27 for the company, Kraft Heinz declared a quarterly dividend of about $0.58 per share, with an increase of 4.5%. The declared dividend is payable on January 15, 2016.

By comparison, Keurig Green Mountain (GMCR), one of Kraft Heinz’s peers in the food industry (XLP), paid a quarterly dividend of $0.29 per share in fiscal 2015, which ended September 26. Mondelēz International (MDLZ) increased its quarterly dividend by 13.3% to $0.17 per share in 3Q15. Hain Celestial Group (HAIN) pays no dividend to its shareholders.

In the next part of this series, we’ll make further key comparisons of Kraft Heinz with its industry competitors.

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