Operating margins rose

In fiscal 1Q16, Kraft Heinz (KHC) delivered an increase of $773 million in the operating profit—compared to 1Q15. The operating margin also rose to 23.3%—compared to 18.7% in fiscal 1Q15. Kraft Heinz mentioned in the 1Q16 earnings call that it strategized to achieve the best margins.

Did Kraft Heinz’s Operating Margins Benefit in 1Q16?

The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 21.3% to $2 billion—compared to 1Q15. The EBITDA rose despite a -6.0 percentage point impact from currency translation. Strong cost-saving performance, favorable pricing related to key commodity costs over the prior year, and profitable top line growth drove the increase in EBITDA. The EBITDA margin for 1Q16 also rose to 30%—compared to 19% in 1Q15.

Management’s view

Kraft Heinz’s CEO, Bernardo Hees, stated that “We’ve had a solid start to the year. Our savings are coming in faster than anticipated, and we’re performing better where it matters most, with our customers and consumers in the marketplace. But we still have a lot of work ahead. Consumption trends in a number of our core categories remain challenging, and we’re entering a critical phase in our North American supply chain integration. As we implement our plans, we will keep our focus on profitable growth while continuing to put our consumers first.”

Peers’ performance

Kraft Heinz’s peers in the industry include Mead Johnson Nutrition (MJN), McCormick & Company (MKC), and General Mills (GIS). They reported operating margins of 15.6%, 12.5%, and 14.6%, respectively, in their last quarters. To gain exposure to Kraft Heinz, you can invest in ETFs like the WisdomTree U.S. Quality Dividend Growth Fund (DGRW) and the iShares Morningstar Large Value ETF (JKF). They invest 1.1% and 0.87% of their portfolios in Kraft Heinz.

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