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What Affected Kraft Heinz’s 4Q17 Earnings?

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Nov. 20 2020, Updated 3:19 p.m. ET

Kraft Heinz misses estimate

The Kraft Heinz Company (KHC) reported weaker-than-expected 4Q17 earnings on February 16, 2018. Kraft Heinz’s adjusted EPS (earnings per share) of $0.90 came in well below analysts’ consensus estimate of $0.95 and fell 1.1% on a YoY (year-over-year) basis.

Cost pressures and a YoY rise in the tax rate took a toll on the company’s bottom line performance in 4Q17 and more than offset the benefits of its cost-saving measures.

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Factors that impacted 4Q EPS

Kraft Heinz’s 4Q17 earnings benefited from its cost-saving initiatives. Favorable pricing and lower overhead costs further supported its quarterly EPS. However, lower shipments across multiple categories, increased marketing spending, and higher-than-expected freight costs remained a drag. Moreover, inflation in commodity prices—especially in dairy and nuts—and a 3% YoY rise in the adjusted effective tax rate lowered the company’s EPS.

In comparison, margin headwinds stemming from weak volumes in the United States, inflation in commodity prices, and higher packaging, manufacturing, and freight costs also dented the bottom line performances of other major packaged food manufacturers. However, a lower tax rate and cost and productivity savings initiatives positively impacted their EPS.

For instance, the Hershey Company’s (HSY) 4Q17 EPS fell on a YoY basis, reflecting increased manufacturing and freight costs. Moreover, the Kellogg Company (K), Mondelēz (MDLZ), and the J. M. Smucker Company’s (SJM) earnings were also negatively impacted by higher transportation expenses. However, increased cost savings drove their EPS higher during their most recent reported quarters.

Outlook

The company’s management expects its EPS to register a YoY rise in 2018 driven by the combination of cost-saving initiatives and a lower tax rate. However, inflation in commodity prices, near-term sales headwinds, and higher freight costs are expected to remain a drag. Moreover, increased interest expenses and investments in growth initiatives could further lower its earnings.

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