Kraft Heinz Reports Fourth Quarter and Full Year 2018 Results
- Q4 net sales increased 0.7%; Organic Net Sales(1) increased
2.4%
- Q4 diluted earnings per share were $(10.34); Adjusted EPS(1) was
$0.84
The Kraft Heinz Company (NASDAQ: KHC) (“Kraft Heinz” or the “Company”) today reported fourth quarter and full year 2018
financial results reflecting solid organic net sales growth in all segments that was more than offset by higher operating costs, as
well as non-cash impairment charges related to goodwill and intangible assets.
“Our fourth quarter and full year 2018 results reflect our commitment to re-establish commercial growth of our iconic brands,
turn around consumption trends in several key categories, and expand into new category and geographic whitespaces," said Kraft
Heinz CEO Bernardo Hees. "We are pleased with those actions, the returns on our investments, and the momentum built for 2019.
However, profitability fell short of our expectations due to a combination of unanticipated cost inflation and lower-than-planned
savings. Going forward, our global focus will remain on leveraging our in-house capabilities, developing our talented people, and
delivering top-tier growth at industry-leading margins."
Q4 2018 Financial Summary
|
For the Three Months Ended |
|
Year-over-year Change |
|
December 29,
2018
|
|
December 30,
2017
|
|
Actual |
|
Currency |
|
Acquisitions
and
Divestitures
|
|
Organic |
|
(in millions, except per share data) |
|
|
|
|
|
|
|
|
Net sales |
$ |
6,891 |
|
$ |
6,844 |
|
0.7% |
|
(2.2) pp |
|
0.5 pp |
|
2.4% |
Operating income/(loss) |
(14,073) |
|
1,522 |
|
(1,024.2)% |
|
|
|
|
|
|
Net income/(loss) attributable to common shareholders |
(12,608) |
|
8,003 |
|
(257.6)% |
|
|
|
|
|
|
Diluted EPS |
$ |
(10.34) |
|
$ |
6.52 |
|
(258.6)% |
|
|
|
|
|
|
Adjusted EBITDA(1) |
1,699 |
|
1,973 |
|
(13.9)% |
|
(2.4) pp |
|
|
|
|
Adjusted EPS(1) |
$ |
0.84 |
|
$ |
0.90 |
|
(6.7)% |
|
|
|
|
|
|
Net sales were $6.9 billion, up 0.7 percent versus the year-ago period, including an unfavorable 2.2 percentage point impact
from currency and a net 0.5 percentage point benefit from acquisitions and divestitures. Organic Net Sales(1) increased
2.4 percent versus the year-ago period. Pricing was down 1.6 percentage points, as increased promotional activity and pricing to
reflect lower key commodity(2) costs in North America, particularly the United States, more than offset higher pricing
in EMEA and Rest of World markets. Volume/mix increased 4.0 percentage points, driven by a combination of strong consumption gains
in North America and condiments and sauces growth across Latin America, North America, and EMEA.
During the fourth quarter, as part of the Company's normal quarterly reporting procedures and planning processes, the Company
concluded that, based on several factors that developed during the fourth quarter, the fair values of certain goodwill and
intangible assets were below their carrying amounts. As a result, the Company recorded non-cash impairment charges of $15.4 billion
to lower the carrying amount of goodwill in certain reporting units, primarily U.S. Refrigerated and Canada Retail, and certain
intangible assets, primarily the Kraft and Oscar Mayer trademarks. These charges resulted in a net loss
attributable to common shareholders of $12.6 billion and diluted loss per share of $10.34.
Adjusted EBITDA decreased 13.9 percent versus the year-ago period to $1.7 billion, including a negative 2.4 percentage point
impact from currency. Excluding the impact of currency, lower Adjusted EBITDA reflected a decline in the United States that more
than offset Constant Currency Adjusted EBITDA(1) growth in all other business segments. Adjusted EPS decreased 6.7
percent to $0.84, as lower Adjusted EBITDA, higher depreciation and amortization expenses, as well as higher interest expense more
than offset lower taxes on adjusted earnings in the current period.
Q4 2018 Business Segment Highlights
United States
|
For the Three Months Ended |
|
Year-over-year Change |
|
December 29,
2018 |
|
December 30,
2017 |
|
Actual |
|
Currency |
|
Acquisitions
and
Divestitures
|
|
Organic |
|
(in millions) |
|
|
|
|
|
|
|
|
Net sales |
$ |
4,810 |
|
$ |
4,760 |
|
1.1% |
|
0.0 pp |
|
0.0 pp |
|
1.1% |
Segment Adjusted EBITDA |
1,264 |
|
1,510 |
|
(16.3)% |
|
0.0 pp |
|
|
|
|
United States net sales were $4.8 billion, up 1.1 percent versus the year-ago period. Pricing was 2.8 percentage points lower,
driven by a combination of commodity-driven pricing actions in dairy and coffee, increased promotional activity in ready-to-drink
beverages and natural cheese, as well as timing of promotional activity versus the prior year in Lunchables. Volume/mix
increased 3.9 percentage points due to gains across a majority of categories including nuts, meats, refrigerated meal combinations,
cream cheese, and frozen potatoes.
United States Segment Adjusted EBITDA decreased 16.3 percent versus the year-ago period to $1.3 billion, as the benefits from
favorable key commodity costs and volume/mix growth were more than offset by a combination of lower pricing, higher costs net of
savings, and investments to build strategic capabilities.
Canada
|
For the Three Months Ended |
|
Year-over-year Change |
|
December 29,
2018 |
|
December 30,
2017 |
|
Actual |
|
Currency |
|
Acquisitions and Divestitures |
|
Organic |
|
(in millions) |
|
|
|
|
|
|
|
|
Net sales |
$ |
600 |
|
$ |
589 |
|
1.8 |
% |
|
(4.2) pp |
|
0.0 pp |
|
6.0% |
Segment Adjusted EBITDA |
163 |
|
161 |
|
1.1 |
% |
|
(4.4) pp |
|
|
|
|
Canada net sales were $600 million, increasing 1.8 percent versus the year-ago period, despite a negative 4.2 percentage point
impact from currency. Organic Net Sales were up 6.0 percent versus the year-ago period. Pricing declined 1.7 percentage points as
increased in-store activity behind cheese, as well as macaroni and cheese, was partially offset by higher foodservice pricing.
Volume/mix increased 7.7 percentage points, driven by a combination of consumption-led growth across several categories, including
cheese, as well as favorable comparisons with retailer inventory de-stocking that occurred in the prior year period.
Canada Segment Adjusted EBITDA increased 1.1 percent versus the year-ago period to $163 million, despite a negative 4.4
percentage point impact from currency, as volume/mix gains and lower input costs were partially offset by lower pricing and higher
overhead costs.
EMEA(3)
|
For the Three Months Ended |
|
Year-over-year Change |
|
December 29,
2018 |
|
December 30,
2017 |
|
Actual |
|
Currency |
|
Acquisitions and Divestitures |
|
Organic |
|
(in millions) |
|
|
|
|
|
|
|
|
Net sales |
$ |
692 |
|
$ |
699 |
|
(1.1)% |
|
(4.3) pp |
|
(1.9) pp |
|
5.1% |
Segment Adjusted EBITDA |
171 |
|
175 |
|
(2.6)% |
|
(4.3) pp |
|
|
|
|
EMEA net sales were $692 million, down 1.1 percent versus the year-ago period, including a negative 4.3 percentage point impact
from currency and a negative 1.9 percentage point impact from the divestiture of a joint venture in South Africa. Organic Net Sales
increased 5.1 percent versus the year-ago period. Pricing was up 2.6 percentage points, primarily due to favorable timing of
promotional activity versus the prior year in the UK as well as in the Middle East and Africa that was partially offset by lower
pricing in Eastern Europe. Volume/mix increased 2.5 percentage points as growth from condiments and sauces, as well as foodservice
gains across a majority of regions, more than offset lower shipments in the Middle East and Africa.
EMEA Segment Adjusted EBITDA decreased 2.6 percent versus the year-ago period to $171 million, including a negative 4.3
percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 1.7 percentage points,
primarily reflecting gains from Organic Net Sales growth that were partially offset by higher overhead costs.
Rest of World(3)(4)
|
For the Three Months Ended |
|
Year-over-year Change |
|
December 29,
2018 |
|
December 30,
2017 |
|
Actual |
|
Currency |
|
Acquisitions
and
Divestitures
|
|
Organic |
|
(in millions) |
|
|
|
|
|
|
|
|
Net sales |
$ |
789 |
|
$ |
796 |
|
(0.8)% |
|
(12.6) pp |
|
6.5 pp |
|
5.3% |
Segment Adjusted EBITDA |
134 |
|
142 |
|
(6.0)% |
|
(31.8) pp |
|
|
|
|
Rest of World net sales of $789 million decreased 0.8 percent versus the year-ago period, reflecting a negative 12.6 percentage
point impact from currency that more than offset a 6.5 percentage point contribution from the Cerebos acquisition and Organic Net
Sales growth of 5.3 percent versus the year-ago period. Pricing increased 1.8 percentage points, primarily driven by highly
inflationary environments in certain markets within Latin America that more than offset lower pricing in China. Volume/mix
increased 3.5 percentage points, driven by growth in condiments and sauces in Latin America that more than offset lower shipments
in Asia Pacific.
Rest of World Segment Adjusted EBITDA decreased 6.0 percent versus the year-ago period to $134 million due to a negative 31.8
percentage point impact from currency. Excluding the impact of currency, Segment Adjusted EBITDA increased 25.8 percentage points,
reflecting gains from Organic Net Sales growth that were partially offset by higher input costs in local currency.
Supplemental Information
The Company received a subpoena in October 2018 from the U.S. Securities and Exchange Commission (the "SEC") associated with an
investigation into the Company's procurement area, more specifically the Company's accounting policies, procedures, and
internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or
modifications to its agreements with its vendors.
Following this initial SEC document request, the Company together with external counsel launched an investigation into the
procurement area. In the fourth quarter of 2018, as a result of findings from the investigation, the Company recorded a $25 million
increase to costs of products sold as an out of period correction as the Company determined the amounts were immaterial to the
fourth quarter of 2018 and its previously reported 2018 and 2017 interim and year to date periods. Additionally, the Company is in
the process of implementing certain improvements to its internal controls to mitigate the likelihood of this occurring in the
future and has taken other remedial measures. The Company continues to cooperate fully with the U.S. Securities and Exchange
Commission.
At this time, the Company does not expect the matters subject to the investigation to be material to its current period or any
prior period financial statements.
End Notes
|
|
(1) |
|
Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA and Adjusted
EPS are non-GAAP financial measures. Please see discussion of non-GAAP financial measures and the reconciliations at the end of
this press release for more information. |
|
|
|
(2) |
|
The Company's key commodities in the United States and Canada are dairy, meat, coffee
and nuts. |
|
|
|
(3) |
|
In the first quarter of the Company's fiscal year 2018, the Company reorganized
certain of its international businesses to better align the Company's global geographies. As a result, Middle East and Africa
businesses were moved from the historical Asia Pacific, Middle East, and Africa (“AMEA”) operating segment into the historical
Europe reportable segment, forming the new Europe, Middle East, and Africa (“EMEA”) reportable segment. The remaining
businesses from the AMEA operating segment became the Asia Pacific (“APAC”) operating segment. This change has been reflected
in all historical periods presented. |
|
|
|
(4) |
|
Rest of World comprises two operating segments: Latin America and APAC. |
Webcast and Conference Call Information
|
|
|
|
Date: |
|
Thursday, February 21, 2019 |
|
|
|
Time: |
|
5:30 pm - 6:30 pm Eastern Standard Time |
|
|
|
Webcast: |
|
Live audio webcast is available at
ir.kraftheinzcompany.com
|
|
|
|
Dial-in: |
|
(844) 347-3924 in the U.S. |
|
|
(918) 398-4553 outside the U.S. |
|
|
Conference ID # 3399483 |
ABOUT THE KRAFT HEINZ COMPANY
For 150 years, we have produced some of the world’s most beloved products at The Kraft Heinz Company (NASDAQ: KHC). Our Vision
is To Be the Best Food Company, Growing a Better World. We are one of the largest global food and beverage companies, with
2018 net sales of approximately $26 billion. Our portfolio is a diverse mix of iconic and emerging brands. As the guardians of
these brands and the creators of innovative new products, we are dedicated to the sustainable health of our people and our
planet. To learn more, visit
www.kraftheinzcompany.com or follow us on LinkedIn and Twitter.
Forward-Looking Statements
This press release contains a number of forward-looking statements. Words such as “commit,” “plan,” "pleased," "believe,"
"anticipate," "reflect," "invest," "make," "expect," "deliver," “develop,” "drive," "assess," "evaluate," “establish,”
“re-establish,” “focus,” “build,” “turn,” “expand,” “leverage,” "grow," "remain," "will," and variations of such words and similar
future or conditional expressions are intended to identify forward-looking statements. Examples of forward-looking statements
include, but are not limited to, statements regarding the Company's plans, costs and cost savings, legal matters, taxes,
expectations, investments, innovations, opportunities, capabilities, execution, initiatives, pipeline, and growth. These
forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of
which are difficult to predict and beyond the Company's control.
Important factors that may affect the Company's business and operations and that may cause actual results to differ materially
from those in the forward-looking statements include, but are not limited to, operating in a highly competitive industry; the
Company’s ability to predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet
those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers;
changes in relationships with significant customers or suppliers; the Company’s ability to maintain, extend, and expand its
reputation and brand image; the Company’s ability to leverage its brand value to compete against private label products; the
Company’s ability to drive revenue growth in its key product categories, increase its market share, or add products that are in
faster-growing and more profitable categories; product recalls or product liability claims; unanticipated business disruptions; the
Company’s ability to identify, complete or realize the benefits from strategic acquisitions, alliances, divestitures, joint
ventures or other investments; the Company’s ability to realize the anticipated benefits from prior or future streamlining actions
to reduce fixed costs, simplify or improve processes, and improve its competitiveness; the execution of the Company’s international
strategic initiatives; the impacts of the Company’s international operations; economic and political conditions in the United
States and in various other nations in which the Company does business; changes in the Company’s management team or other key
personnel and the Company’s ability to hire or retain key personnel or a highly skilled and diverse global workforce; risks
associated with information technology and systems, including service interruptions, misappropriation of data or breaches of
security; impacts of natural events in the locations in which we or the Company’s customers, suppliers, distributors, or regulators
operate; the Company’s ownership structure; the Company’s indebtedness and ability to pay such indebtedness; an impairment of the
carrying value of goodwill or other indefinite-lived intangible assets; exchange rate fluctuations; volatility in commodity,
energy, and other input costs; volatility in the market value of all or a portion of the derivatives we use; increased pension,
labor and people-related expenses; compliance with laws, regulations, and related interpretations and related legal claims or other
regulatory enforcement actions; the Company’s ability to protect intellectual property rights; tax law changes or interpretations;
the impact of future sales of the Company's common stock in the public markets; the Company’s ability to continue to pay a regular
dividend and the amounts of any such dividends; volatility of capital markets and other macroeconomic factors; and other factors.
For additional information on these and other factors that could affect the Company's forward-looking statements, see the Company's
risk factors, as they may be amended from time to time, set forth in its filings with the Securities and Exchange Commission. The
Company disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release,
except as required by applicable law or regulation.
Non-GAAP Financial Measures
The non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in
accordance with accounting principles generally accepted in the United States of America (“GAAP”) that are presented in this press
release.
To supplement the financial information, the Company has presented Organic Net Sales, Adjusted EBITDA, Constant Currency
Adjusted EBITDA, and Adjusted EPS, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may
differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these
non-GAAP financial measures in the same way. These measures are not substitutes for their comparable GAAP financial measures, such
as net sales, net income/(loss), diluted earnings per share, or other measures prescribed by GAAP, and there are limitations to
using non-GAAP financial measures.
Management uses these non-GAAP financial measures to assist in comparing the Company's performance on a consistent basis for
purposes of business decision making by removing the impact of certain items that management believes do not directly reflect the
Company's underlying operations. Management believes that presenting the Company's non-GAAP financial measures (i.e., Organic Net
Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA, and Adjusted EPS) is useful to investors because it (i) provides
investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits
investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and
evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in
evaluating the Company's results. The Company believes that the presentation of these non-GAAP financial measures, when considered
together with the corresponding GAAP financial measures and the reconciliations to those measures, provides investors with
additional understanding of the factors and trends affecting the Company's business than could be obtained absent these
disclosures.
Organic Net Sales is defined as net sales excluding, when they occur, the impact of currency, acquisitions and divestitures, and
a 53rd week of shipments. The Company calculates the impact of currency on net sales by holding exchange rates constant at the
previous year's exchange rate, with the exception of Venezuela, for which the Company calculates the previous year's results using
the current year's exchange rate. Organic Net Sales is a tool that can assist management and investors in comparing the Company's
performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect the
Company's underlying operations.
Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), net,
provision for/(benefit from) income taxes, and depreciation and amortization (excluding integration and restructuring expenses); in
addition to these adjustments, the Company excludes, when they occur, the impacts of integration and restructuring expenses, deal
costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business, other
losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation (e.g.,
remeasurement gains and losses), and equity award compensation expense (excluding integration and restructuring expenses). The
Company also presents Adjusted EBITDA on a constant currency basis. The Company calculates the impact of currency on Adjusted
EBITDA by holding exchange rates constant at the previous year's exchange rate, with the exception of Venezuela, for which it
calculates the previous year's results using the current year's exchange rate. Adjusted EBITDA and Constant Currency Adjusted
EBITDA are tools that can assist management and investors in comparing the Company's performance on a consistent basis by removing
the impact of certain items that management believes do not directly reflect the Company's underlying operations.
Adjusted EPS is defined as diluted earnings per share excluding, when they occur, the impacts of integration and restructuring
expenses, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, losses/(gains) on the sale of a business,
other losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation
(e.g., remeasurement gains and losses), and U.S. Tax Reform discrete income tax expense/(benefit), and including when they occur,
adjustments to reflect preferred stock dividend payments on an accrual basis. The Company believes Adjusted EPS provides important
comparability of underlying operating results, allowing investors and management to assess operating performance on a consistent
basis.
See the attached schedules for supplemental financial data, which includes the financial information, the non-GAAP financial
measures and corresponding reconciliations to the comparable GAAP financial measures for the relevant periods.
|
|
|
|
|
|
|
Schedule 1
|
The Kraft Heinz Company |
Consolidated Statements of Income |
(in millions, except per share data) |
(Unaudited) |
|
For the Three Months Ended |
|
For the Year Ended |
|
December 29,
2018 |
|
December 30,
2017 |
|
December 29,
2018 |
|
December 30,
2017 |
Net sales |
$ |
6,891 |
|
|
$ |
6,844 |
|
|
$ |
26,259 |
|
|
$ |
26,085 |
|
Cost of products sold |
4,658 |
|
|
4,542 |
|
|
17,309 |
|
|
16,948 |
|
Gross profit |
2,233 |
|
|
2,302 |
|
|
8,950 |
|
|
9,137 |
|
Selling, general and administrative expenses, excluding impairment losses |
866 |
|
|
780 |
|
|
3,204 |
|
|
2,951 |
|
Goodwill impairment losses |
7,108 |
|
|
— |
|
|
7,272 |
|
|
— |
|
Intangible asset impairment losses |
8,332 |
|
|
— |
|
|
8,667 |
|
|
49 |
|
Selling, general and administrative expenses |
16,306 |
|
|
780 |
|
|
19,143 |
|
|
3,000 |
|
Operating income/(loss) |
(14,073 |
) |
|
1,522 |
|
|
(10,193 |
) |
|
6,137 |
|
Interest expense |
326 |
|
|
308 |
|
|
1,288 |
|
|
1,234 |
|
Other expense/(income), net |
13 |
|
|
(117 |
) |
|
(183 |
) |
|
(627 |
) |
Income/(loss) before income taxes |
(14,412 |
) |
|
1,331 |
|
|
(11,298 |
) |
|
5,530 |
|
Provision for/(benefit from) income taxes |
(1,744 |
) |
|
(6,665 |
) |
|
(1,006 |
) |
|
(5,460 |
) |
Net income/(loss) |
(12,668 |
) |
|
7,996 |
|
|
(10,292 |
) |
|
10,990 |
|
Net income/(loss) attributable to noncontrolling interest |
(60 |
) |
|
(7 |
) |
|
(63 |
) |
|
(9 |
) |
Net income/(loss) attributable to common shareholders |
$ |
(12,608 |
) |
|
$ |
8,003 |
|
|
$ |
(10,229 |
) |
|
$ |
10,999 |
|
|
|
|
|
|
|
|
|
Basic shares outstanding |
1,220 |
|
|
1,219 |
|
|
1,219 |
|
|
1,218 |
|
Diluted shares outstanding |
1,220 |
|
|
1,228 |
|
|
1,219 |
|
|
1,228 |
|
|
|
|
|
|
|
|
|
Per share data applicable to common shareholders: |
|
|
|
|
|
|
|
Basic earnings/(loss) per share |
$ |
(10.34 |
) |
|
$ |
6.57 |
|
|
$ |
(8.39 |
) |
|
$ |
9.03 |
|
Diluted earnings/(loss) per share |
(10.34 |
) |
|
6.52 |
|
|
(8.39 |
) |
|
8.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 2
|
The Kraft Heinz Company |
Reconciliation of Net Sales to Organic Net Sales |
For the Three Months Ended |
(dollars in millions) |
(Unaudited) |
|
Net Sales |
|
Currency |
|
Acquisitions
and
Divestitures
|
|
Organic Net
Sales
|
|
Price |
|
Volume/Mix |
December 29, 2018 |
|
|
|
|
|
|
|
|
|
|
|
United States |
$ |
4,810 |
|
$ |
— |
|
$ |
— |
|
$ |
4,810 |
|
|
|
|
Canada |
600 |
|
(24) |
|
— |
|
624 |
|
|
|
|
EMEA |
692 |
|
(31) |
|
— |
|
723 |
|
|
|
|
Rest of World |
789 |
|
(42) |
|
48 |
|
783 |
|
|
|
|
|
$ |
6,891 |
|
$ |
(97) |
|
$ |
48 |
|
$ |
6,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
United States |
$ |
4,760 |
|
$ |
— |
|
$ |
— |
|
$ |
4,760 |
|
|
|
|
Canada |
589 |
|
— |
|
— |
|
589 |
|
|
|
|
EMEA |
699 |
|
— |
|
13 |
|
686 |
|
|
|
|
Rest of World |
796 |
|
53 |
|
— |
|
743 |
|
|
|
|
|
$ |
6,844 |
|
$ |
53 |
|
$ |
13 |
|
$ |
6,778 |
|
|
|
|
Year-over-year growth rates |
|
|
|
|
|
|
|
|
|
|
|
United States |
1.1% |
|
0.0 pp |
|
0.0 pp |
|
1.1% |
|
(2.8) pp |
|
3.9 pp |
Canada |
1.8% |
|
(4.2) pp |
|
0.0 pp |
|
6.0% |
|
(1.7) pp |
|
7.7 pp |
EMEA |
(1.1)% |
|
(4.3) pp |
|
(1.9) pp |
|
5.1% |
|
2.6 pp |
|
2.5 pp |
Rest of World |
(0.8)% |
|
(12.6) pp |
|
6.5 pp |
|
5.3% |
|
1.8 pp |
|
3.5 pp |
Kraft Heinz |
0.7% |
|
(2.2) pp |
|
0.5 pp |
|
2.4% |
|
(1.6) pp |
|
4.0 pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 3
|
The Kraft Heinz Company |
Reconciliation of Net Sales to Organic Net Sales |
For the Year Ended |
(dollars in millions) |
(Unaudited) |
|
Net Sales |
|
Currency |
|
Acquisitions
and
Divestitures
|
|
Organic Net
Sales
|
|
Price |
|
Volume/Mix |
December 29, 2018 |
|
|
|
|
|
|
|
|
|
|
|
United States |
$ |
18,122 |
|
$ |
— |
|
$ |
— |
|
$ |
18,122 |
|
|
|
|
Canada |
2,173 |
|
(5) |
|
— |
|
2,178 |
|
|
|
|
EMEA |
2,709 |
|
66 |
|
19 |
|
2,624 |
|
|
|
|
Rest of World |
3,255 |
|
(75) |
|
158 |
|
3,172 |
|
|
|
|
|
$ |
26,259 |
|
$ |
(14) |
|
$ |
177 |
|
$ |
26,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
United States |
$ |
18,230 |
|
$ |
— |
|
$ |
— |
|
$ |
18,230 |
|
|
|
|
Canada |
2,177 |
|
— |
|
— |
|
2,177 |
|
|
|
|
EMEA |
2,594 |
|
— |
|
56 |
|
2,538 |
|
|
|
|
Rest of World |
3,084 |
|
144 |
|
— |
|
2,940 |
|
|
|
|
|
$ |
26,085 |
|
$ |
144 |
|
$ |
56 |
|
$ |
25,885 |
|
|
|
|
Year-over-year growth rates |
|
|
|
|
|
|
|
|
|
|
|
United States |
(0.6)% |
|
0.0 pp |
|
0.0 pp |
|
(0.6)% |
|
(0.9) pp |
|
0.3 pp |
Canada |
(0.2)% |
|
(0.3) pp |
|
0.0 pp |
|
0.1% |
|
(0.6) pp |
|
0.7 pp |
EMEA |
4.4% |
|
2.5 pp |
|
(1.5) pp |
|
3.4% |
|
0.2 pp |
|
3.2 pp |
Rest of World |
5.6% |
|
(7.6) pp |
|
5.3 pp |
|
7.9% |
|
5.4 pp |
|
2.5 pp |
Kraft Heinz |
0.7% |
|
(0.6) pp |
|
0.5 pp |
|
0.8% |
|
(0.1) pp |
|
0.9 pp |
|
|
|
|
|
|
|
Schedule 4
|
The Kraft Heinz Company |
Reconciliation of Net Income/(Loss) to Adjusted EBITDA |
(dollars in millions) |
(Unaudited) |
|
For the Three Months Ended |
|
For the Year Ended |
|
December 29,
2018 |
|
December 30,
2017 |
|
December 29,
2018 |
|
December 30,
2017 |
Net income/(loss) |
$ |
(12,668 |
) |
|
$ |
7,996 |
|
|
$ |
(10,292 |
) |
|
$ |
10,990 |
|
Interest expense |
326 |
|
|
308 |
|
|
1,288 |
|
|
1,234 |
|
Other expense/(income), net |
13 |
|
|
(117 |
) |
|
(183 |
) |
|
(627 |
) |
Provision for/(benefit from) income taxes |
(1,744 |
) |
|
(6,665 |
) |
|
(1,006 |
) |
|
(5,460 |
) |
Operating income/(loss) |
(14,073 |
) |
|
1,522 |
|
|
(10,193 |
) |
|
6,137 |
|
Depreciation and amortization (excluding integration and restructuring expenses) |
248 |
|
|
227 |
|
|
950 |
|
|
910 |
|
Integration and restructuring expenses |
81 |
|
|
218 |
|
|
296 |
|
|
606 |
|
Deal costs |
4 |
|
|
— |
|
|
23 |
|
|
— |
|
Unrealized losses/(gains) on commodity hedges |
10 |
|
|
(5 |
) |
|
21 |
|
|
19 |
|
Impairment losses |
15,440 |
|
|
— |
|
|
15,939 |
|
|
49 |
|
Losses/(gains) on sale of business |
— |
|
|
— |
|
|
15 |
|
|
— |
|
Equity award compensation expense (excluding integration and restructuring
expenses) |
(11 |
) |
|
11 |
|
|
33 |
|
|
49 |
|
Adjusted EBITDA |
$ |
1,699 |
|
|
$ |
1,973 |
|
|
$ |
7,084 |
|
|
$ |
7,770 |
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA: |
|
|
|
|
|
|
|
United States |
$ |
1,264 |
|
|
$ |
1,510 |
|
|
$ |
5,279 |
|
|
$ |
5,964 |
|
Canada |
163 |
|
|
161 |
|
|
613 |
|
|
636 |
|
EMEA |
171 |
|
|
175 |
|
|
715 |
|
|
681 |
|
Rest of World |
134 |
|
|
142 |
|
|
638 |
|
|
597 |
|
General corporate expenses |
(33 |
) |
|
(15 |
) |
|
(161 |
) |
|
(108 |
) |
Adjusted EBITDA |
$ |
1,699 |
|
|
$ |
1,973 |
|
|
$ |
7,084 |
|
|
$ |
7,770 |
|
|
|
|
|
|
|
|
Schedule 5
|
The Kraft Heinz Company |
Reconciliation of Adjusted EBITDA to Constant Currency Adjusted
EBITDA |
For the Three Months Ended |
(dollars in millions) |
(Unaudited) |
|
Adjusted EBITDA |
|
Currency |
|
Constant Currency
Adjusted EBITDA
|
December 29, 2018 |
|
|
|
|
|
United States |
$ |
1,264 |
|
$ |
— |
|
$ |
1,264 |
Canada |
163 |
|
(7) |
|
170 |
EMEA |
171 |
|
(8) |
|
179 |
Rest of World |
134 |
|
(6) |
|
140 |
General corporate expenses |
(33) |
|
— |
|
(33) |
|
$ |
1,699 |
|
$ |
(21) |
|
$ |
1,720 |
|
|
|
|
|
|
December 30, 2017 |
|
|
|
|
|
United States |
$ |
1,510 |
|
$ |
— |
|
$ |
1,510 |
Canada |
161 |
|
— |
|
161 |
EMEA |
175 |
|
— |
|
175 |
Rest of World |
142 |
|
31 |
|
111 |
General corporate expenses |
(15) |
|
— |
|
(15) |
|
$ |
1,973 |
|
$ |
31 |
|
$ |
1,942 |
Year-over-year growth rates
|
|
|
|
|
|
United States |
(16.3)% |
|
0.0 pp |
|
(16.3)% |
Canada |
1.1% |
|
(4.4) pp |
|
5.5% |
EMEA |
(2.6)% |
|
(4.3) pp |
|
1.7% |
Rest of World |
(6.0)% |
|
(31.8) pp |
|
25.8% |
General corporate expenses |
116.4% |
|
(1.5) pp |
|
117.9% |
Kraft Heinz |
(13.9)% |
|
(2.4) pp |
|
(11.5)% |
|
|
|
|
|
|
|
Schedule 6
|
The Kraft Heinz Company |
Reconciliation of Adjusted EBITDA to Constant Currency Adjusted
EBITDA |
For the Year Ended |
(dollars in millions) |
(Unaudited) |
|
Adjusted EBITDA |
|
Currency |
|
Constant Currency
Adjusted EBITDA
|
December 29, 2018 |
|
|
|
|
|
United States |
$ |
5,279 |
|
$ |
— |
|
$ |
5,279 |
Canada |
613 |
|
(2) |
|
615 |
EMEA |
715 |
|
22 |
|
693 |
Rest of World |
638 |
|
(7) |
|
645 |
General corporate expenses |
(161) |
|
(2) |
|
(159) |
|
$ |
7,084 |
|
$ |
11 |
|
$ |
7,073 |
|
|
|
|
|
|
December 30, 2017 |
|
|
|
|
|
United States |
$ |
5,964 |
|
$ |
— |
|
$ |
5,964 |
Canada |
636 |
|
— |
|
636 |
EMEA |
681 |
|
— |
|
681 |
Rest of World |
597 |
|
56 |
|
541 |
General corporate expenses |
(108) |
|
— |
|
(108) |
|
$ |
7,770 |
|
$ |
56 |
|
$ |
7,714 |
Year-over-year growth rates
|
|
|
|
|
|
United States |
(11.5)% |
|
0.0 pp |
|
(11.5)% |
Canada |
(3.6)% |
|
(0.3) pp |
|
(3.3)% |
EMEA |
4.9% |
|
3.2 pp |
|
1.7% |
Rest of World |
6.8% |
|
(12.4) pp |
|
19.2% |
General corporate expenses |
48.6% |
|
1.9 pp |
|
46.7% |
Kraft Heinz |
(8.8)% |
|
(0.5) pp |
|
(8.3)% |
|
|
|
|
|
Schedule 7
|
The Kraft Heinz Company |
Reconciliation of Diluted EPS to Adjusted EPS |
(Unaudited) |
|
For the Three Months Ended |
|
December 29,
2018 |
|
December 30,
2017 |
Diluted EPS |
$ |
(10.34) |
|
$ |
6.52 |
Integration and restructuring expenses(a) |
0.14 |
|
0.11 |
Unrealized losses/(gains) on commodity hedges(b) |
0.01 |
|
— |
Impairment losses(c) |
11.00 |
|
— |
Other losses/(gains) related to acquisitions and divestitures(d) |
0.02 |
|
— |
Nonmonetary currency devaluation(e) |
0.01 |
|
— |
U.S. Tax Reform discrete income tax expense/(benefit)(f) |
— |
|
(5.73) |
Adjusted EPS |
$ |
0.84 |
|
$ |
0.90 |
(a) |
|
Gross expenses included in integration and restructuring expenses were $181 million
for the three months ended December 29, 2018 ($173 million after-tax) and $220 million for the three months ended December 30,
2017 ($160 million after-tax) and were recorded in the following income statement line items: |
|
|
• Cost of products sold included $19 million for the three months ended December 29, 2018 and $199
million for the three months ended December 30, 2017;
|
|
|
• SG&A included $62 million for the three months ended December 29, 2018 and $19 million for the
three months ended December 30, 2017; and
|
|
|
• Other expense/(income), net, included $100 million for the three months ended December 29, 2018
and $2 million for the three months ended December 30, 2017.
|
(b) |
|
Gross expenses/(income) included in unrealized losses/(gains) on commodity hedges
were expenses of $10 million for the three months ended December 29, 2018 ($6 million after-tax) and income of $5 million for
the three months ended December 30, 2017 ($4 million after-tax) and were recorded in cost of products sold. |
(c) |
|
Gross expenses included in impairment losses were $15.4 billion for the three months
ended December 29, 2018 ($13.5 billion after-tax) and were recorded in SG&A. |
(d) |
|
Gross expenses included in other losses/(gains) related to acquisitions and
divestitures were $27 million for the three months ended December 29, 2018 ($15 million after-tax) and were recorded in the
following income statement line items: |
|
|
• Interest expense included $3 million for the three months ended December 29, 2018;
|
|
|
• Other expense/(income), net, included $17 million for the three months ended December 29, 2018;
and
|
|
|
• Provision for/(benefit from) income taxes included $7 million for the three months ended December
29, 2018.
|
(e) |
|
Gross expenses included in nonmonetary currency devaluation were $15 million for the
three months ended December 29, 2018 ($15 million after-tax) and were recorded in other expense/(income), net. |
(f) |
|
U.S. Tax Reform discrete income tax expense/(benefit) included expense of $2 million
for the three months ended December 29, 2018 and benefit of $7.0 billion for the three months ended December 30, 2017. Expenses
in 2018 primarily related to changes in estimates of certain 2017 U.S. income tax deductions and changes in U.S. tax reserves.
These expenses were partially offset by U.S. Tax Reform measurement period adjustments and the release of valuation allowances
related to foreign tax credits. The benefit for the three months ended December 30, 2017 was related to the enactment of U.S.
Tax Reform. |
|
|
|
|
|
Schedule 8
|
The Kraft Heinz Company |
Reconciliation of Diluted EPS to Adjusted EPS |
(Unaudited) |
|
For the Year Ended |
|
December 29,
2018 |
|
December 30,
2017 |
Diluted EPS |
$ |
(8.39) |
|
$ |
8.95 |
Integration and restructuring expenses(a) |
0.33 |
|
0.26 |
Deal costs(b) |
0.02 |
|
— |
Unrealized losses/(gains) on commodity hedges(c) |
0.01 |
|
0.01 |
Impairment losses(d) |
11.34 |
|
0.03 |
Losses/(gains) on sale of business(e) |
0.01 |
|
— |
Other losses/(gains) related to acquisitions and divestitures(f) |
0.02 |
|
— |
Nonmonetary currency devaluation(g) |
0.12 |
|
0.03 |
U.S. Tax Reform discrete income tax expense/(benefit)(h) |
0.07 |
|
(5.73) |
Adjusted EPS |
$ |
3.53 |
|
$ |
3.55 |
(a) |
|
Gross expenses/(income) included in integration and restructuring expenses were $459
million in 2018 ($408 million after-tax) and $457 million in 2017 ($330 million after-tax) and were recorded in the following
income statement line items: |
|
|
• Cost of products sold included $194 million in 2018 and $463 million in 2017;
|
|
|
• SG&A included $102 million in 2018 and $143 million in 2017; and
|
|
|
• Other expense/(income), net, included expenses of $163 million in 2018 and income of $149 million
in 2017.
|
(b) |
|
Gross expenses included in deal costs were $23 million in 2018 ($19 million
after-tax) and were recorded in the following income statement line items: |
|
|
• Cost of products sold included $4 million in 2018; and
|
|
|
• SG&A included $19 million in 2018.
|
(c) |
|
Gross expenses/(income) included in unrealized losses/(gains) on commodity hedges
were expenses of $21 million in 2018 ($16 million after-tax) and expenses of $19 million in 2017 ($12 million after-tax) and
were recorded in cost of products sold. |
(d) |
|
Gross expenses included in impairment losses were $15.9 billion in 2018 ($13.9
billion after-tax) and $49 million in 2017 ($35 million after-tax) and were included in SG&A. |
(e) |
|
Gross expenses included in losses/(gains) on sale of business were $15 million in
2018 ($14 million after-tax) and were recorded in SG&A. |
(f) |
|
Gross expenses included in other losses/(gains) related to acquisitions and
divestitures were $27 million in 2018 ($15 million after-tax) and were recorded in the following income statement line
items: |
|
|
• Interest expense included $3 million in 2018;
|
|
|
• Other expense/(income), net, included $17 million in 2018; and
|
|
|
• Provision for/(benefit from) income taxes included $7 million in 2018.
|
(g) |
|
Gross expenses included in nonmonetary currency devaluation were $146 million in 2018
($146 million after tax) and $36 million in 2017 ($36 million after-tax) and were recorded in other expense/(income), net. |
(h) |
|
U.S. Tax Reform discrete income tax expense/(benefit) was an expense of $81 million
in 2018 and a benefit of $7.0 billion in 2017. Expenses in 2018 primarily related to the revaluation of our deferred tax
balances due to changes in state tax laws following U.S. Tax Reform. These expenses were partially offset by net benefits
related to changes in U.S. tax reserves, U.S. Tax Reform measurement period adjustments, changes in estimates of certain 2017
U.S. income tax deductions, and the release of valuation allowances related to foreign tax credits. The benefit in 2017 was
related to the enactment of U.S. Tax Reform. |
|
|
|
|
|
Schedule 9
|
The Kraft Heinz Company |
Consolidated Balance Sheets |
(in millions, except per share data) |
(Unaudited) |
|
December 29, 2018 |
|
December 30, 2017 |
ASSETS |
|
|
|
Cash and cash equivalents |
$ |
1,130 |
|
|
$ |
1,629 |
|
Trade receivables, net |
2,129 |
|
|
921 |
|
Sold receivables |
— |
|
|
353 |
|
Income taxes receivable |
152 |
|
|
582 |
|
Inventories |
2,683 |
|
|
2,815 |
|
Prepaid expenses |
400 |
|
|
345 |
|
Other current assets |
1,240 |
|
|
621 |
|
Assets held for sale |
1,357 |
|
|
— |
|
Total current assets |
9,091 |
|
|
7,266 |
|
Property, plant and equipment, net |
7,212 |
|
|
7,120 |
|
Goodwill |
36,240 |
|
|
44,824 |
|
Intangible assets, net |
49,746 |
|
|
59,449 |
|
Other non-current assets |
1,338 |
|
|
1,573 |
|
TOTAL ASSETS |
$ |
103,627 |
|
|
$ |
120,232 |
|
LIABILITIES AND EQUITY |
|
|
|
Commercial paper and other short-term debt |
$ |
2 |
|
|
$ |
460 |
|
Current portion of long-term debt |
410 |
|
|
2,743 |
|
Trade payables |
4,153 |
|
|
4,449 |
|
Accrued marketing |
722 |
|
|
680 |
|
Interest payable |
408 |
|
|
419 |
|
Other current liabilities |
1,682 |
|
|
1,381 |
|
Liabilities held for sale |
55 |
|
|
— |
|
Total current liabilities |
7,432 |
|
|
10,132 |
|
Long-term debt |
30,873 |
|
|
28,333 |
|
Deferred income taxes |
12,298 |
|
|
14,076 |
|
Accrued postemployment costs |
306 |
|
|
427 |
|
Other non-current liabilities |
812 |
|
|
1,017 |
|
TOTAL LIABILITIES |
51,721 |
|
|
53,985 |
|
Redeemable noncontrolling interest |
3 |
|
|
6 |
|
Equity: |
|
|
|
Common stock, $0.01 par value |
12 |
|
|
12 |
|
Additional paid-in capital |
58,800 |
|
|
58,711 |
|
Retained earnings/(deficit) |
(4,796 |
) |
|
8,589 |
|
Accumulated other comprehensive income/(losses) |
(1,949 |
) |
|
(1,054 |
) |
Treasury stock, at cost |
(282 |
) |
|
(224 |
) |
Total shareholders' equity |
51,785 |
|
|
66,034 |
|
Noncontrolling interest |
118 |
|
|
207 |
|
TOTAL EQUITY |
51,903 |
|
|
66,241 |
|
TOTAL LIABILITIES AND EQUITY |
$ |
103,627 |
|
|
$ |
120,232 |
|
![](https://cts.businesswire.com/ct/CT?id=bwnews&sty=20190221005988r1&sid=mstr3&distro=nx&lang=en)
Michael Mullen (media)
Michael.Mullen@kraftheinz.com
Christopher Jakubik, CFA (investors)
ir@kraftheinz.com
View source version on businesswire.com: https://www.businesswire.com/news/home/20190221005988/en/