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Kraft Heinz in Fiscal 2Q16: How Did Its Segments Perform?

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US segment

As we mentioned in Part 3 of the series, Kraft Heinz (KHC) operates through its four geographic segments—the US, Canada, Europe, and the Rest of World. The US segment’s net sales were $4.69 billion—a fall of 3.6% compared to the same quarter last year. Despite deflation in the major input prices—mainly dairy and coffee—pricing improved 1.2 percentage points. Gains from innovation in Lunchables and macaroni & cheese led to the 3.1 percentage point decline in the volume or mix. However, this was balanced with lower shipments in foodservice, bacon, and cold cuts.

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The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for this segment rose by 26% to $1.5 billion. Also, benefits from cost-saving initiatives and favorable pricing drove the increase in the EBITDA. It was partially compensated by volume or mix declines in meats and foodservice.

Canada

The Canada segment’s net sales were $638 million. The net sales fell by 3.9%—compared to the same quarter last year. It was mainly due to a currency effect of -5%. Organic net sales rose 1.2%—compared to 2Q15. The Canada segment’s adjusted EBITDA rose 27% to $192 million. Gains from cost-saving initiatives and favorable pricing net of higher local input costs drove the increase. It was partially balanced by an unfavorable volume or mix. There was a 7.2 percentage point impact from currency translation.

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Europe

The Europe segment’s net sales were $578 million. The net sales fell 7%—compared to 2Q15. It was due to a currency impact of -2.1% and a -2.5% effect from divestitures. Organic net sales fell 2.3%—compared to 2Q15. The segment’s adjusted EBITDA fell 5.8% to $212 million. The currency impacted it by -3.1% along with an increase in marketing investments.

Rest of World

The Rest of World segment is comprised of Asia-Pacific, Latin America, Russia, India, the Middle East, and Africa. The segment’s net sales were $885 million—down 16.7% compared to the same quarter a year ago. A currency impact of -24% caused the decline.

The currency impact included a -17% effect from the devaluation of the Venezuelan bolivar taken in June. The segment’s adjusted EBITDA fell 8.8% to $208 million. It was mainly due to a -34.5% currency impact. Excluding these factors, the EBITDA performance was led by organic sales growth.

The company’s peers in the industry include Pilgrim’s Pride (PPC), McCormick & Company (MKC), and Snyder’s Lance (LNCE). They reported EBITDA of $289 million, $152 million, and -$11 million, respectively, in their last reported quarter. The First Trust NASDAQ-100 Ex-Technology Sector IndexSMFund (QQXT) and the First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) invest 1.5% and 0.94% of their portfolios in Kraft Heinz.

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