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Kraft Heinz: Why Did Its 2Q16 Earnings Rise 39%?

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Earnings beat estimates

Kraft Heinz (KHC) reported fiscal 2Q16 net earnings of $996 million—compared to net earnings of $331 million in 2Q15. The adjusted EPS (earnings per share) for fiscal 2Q16 was $0.85—an increase of 39% compared to EPS of $0.61 in fiscal 2Q15. The rise in earnings for the quarter is due to 17% growth in the adjusted EBITDA (earnings before interest, tax, depreciation, and amortization).

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The company started off fiscal 2016 with high growth of 38% in earnings in the first quarter—showing the successful integration of the Kraft Heinz merger. The company even continued surpassing estimates in 2Q16. The EPS was 18% above analysts’ estimates of $0.72. Analysts who follow the company expect its earnings to rise in all of the quarters in fiscal 2016. The earnings for fiscal 2016 are also projected to grow by 46%.

Recent dividend increase

On August 4, when Kraft Heinz (KHC) declared its 2Q16 results, it also announced a 4.3% increase in its regular quarterly dividend to $0.60 per share from $0.58 per share of common stock. This dividend will be payable on October 7, 2016, to shareholders of record as of August 26, 2016. Kraft Heinz has a dividend yield of 2.7% as of August 8.

Earlier, the company increased its quarterly dividend by 4.5% on November 5 to $0.58. It was paid on November 20, 2015, to shareholders of record as of November 16, 2015. The company has paid $1.15 per share in the dividend in 2016 to date.

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Kraft-Heinz merger

Kraft Heinz was formed when Kraft Foods was acquired by the Pittsburgh-based and privately owned H.J. Heinz Holding Corporation in October 2014. The company changed its name to Kraft Heinz after the merger.

Peers’ earnings

Kraft Heinz’s rivals in the industry include Hormel Foods (HRL), Flowers Foods (FLO), and Cal-Maine Foods (CALM). Hormel reported positive earnings growth of 19%, while Flowers Foods and Cal-Maine Foods’ earnings fell by 4% and 101%, respectively, in their last reported quarters. The First Trust NASDAQ-100 Ex-Technology Sector ETF (QQXT) invests 1.5% of its portfolio in Kraft Heinz.

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