Kraft Heinz 4Q earnings slip on restructuring costs

| Thursday, Feb. 25, 2016, 4:51 p.m.

Profit declined at Kraft Heinz Co. in the fourth quarter as the food giant racked up restructuring costs from its merger last year and as the elimination of unprofitable promotions weighed on sales.

Those steps may hurt the bottom line in the short term, but they are setting a foundation for the Pittsburgh-based company to produce profitable growth over the long term, CEO Bernardo Hees told analysts on a conference call Thursday.

“Not everything starts to deliver at once,” Hees said. “The important integration work and financial results we delivered in 2015 set a solid base on which we can drive sustainable growth across our global business.”

The world's fifth-largest food and beverage company, known for its iconic grocery store staples such as Heinz ketchup and Kraft macaroni and cheese, was expected to slash costs to grow profits since Hees and his executive team took those steps following the takeover of H.J. Heinz in 2013. After Warren Buffet's Berkshire Hathaway and Brazilian investment firm 3G Capital bought Heinz, Hees cut thousands of jobs, closed factories and reduced overhead throughout the company by trimming employee perks.

Since the July merger that formed Kraft Heinz, Hees has announced the closure of seven factories and layoffs of about 5,000 office and production workers. The company plans to wring out $1.5 billion in expenses by the end of 2017.

But the strategy isn't all about cost-cutting. Kraft Heinz is investing in new products and marketing to boost sales. It also is addressing a major trend that has been a drag on sales at packaged food companies: consumers' desire for fresher, more healthful food.

Hees said the company is introducing organic Capri-Sun juices and removing artificial preservatives and other additives from Kraft macaroni and cheese.

“They seem to be meeting what the consumer wants,” said Brittany Weissman, an analyst with Edward Jones in St. Louis.

To get a bigger bang for its investments in new products, Hees said, the company is focusing on launching fewer products that can be more thoroughly tested with consumers and more heavily advertised after hitting store shelves.

“We need to be much more robust on the testing, design and understanding consumers,” Hees said. “If you do all the steps prior to the launch ... you can really move the needle from a sales standpoint.”

Meanwhile, the elimination of unprofitable promotions hurt sales at the end of the year for Kraft Heinz, the company said. But Weissman said she expects the declines to be short-lived.

“They've taken the pain of reducing promotions in the fourth quarter, so there shouldn't be as much of an effect on sales going forward,” she said.

The company reported net income of $285 million, or 23 cents a share, in the 14 weeks ended Jan. 3. The result compared with net income of $323 million, or 26 cents a share, in the 13 weeks ended Dec. 28, 2014. The year-ago financial results were set by the company by combining separate Kraft and Heinz statements for comparison purposes.

Excluding one-time costs related to the merger and restructuring, Kraft Heinz produced adjusted net income of 62 cents a share. The adjusted figure topped analysts' prediction of 58 cents a share, according to data from Bloomberg.

Sales in the quarter were $7.1 billion, down 5 percent from $7.5 billion a year earlier. The company said sales were up slightly in the United States but down in Europe, Canada and the rest of the world.

Kraft Heinz reported financial results after markets closed Thursday. The company's stock ended the day up $1.97, or nearly 3 percent, at $74.96.

Alex Nixon is a staff writer for the Tribune-Review. He can be reached at 412-320-7928 or anixon@tribweb.com.

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