The Kraft Heinz Company KHC posted third-quarter 2024 results, wherein the bottom line increased year over year and beat the Zacks Consensus Estimate, while the top line came in soft. Sales continued to be pressurized by volatile consumer behavior stemming from economic uncertainty. Management now expects its organic sales, adjusted operating income and adjusted earnings per share (EPS) growth to be at the lower end of its previously guided range.
Sales performance in the company’s key growth areas — Global Away From Home and Emerging Markets — aligned with expectations. Kraft Heinz anticipates ongoing momentum within these pillars. However, management stated that recovery in the U.S. Retail division may be more gradual as certain categories continue to face pressure. Nonetheless, Kraft Heinz remains committed to strategic investments in marketing, research and development and technology, aiming to deliver value to consumers and fuel top-line growth.
KHC’s Quarterly Performance: Key Insights
Kraft Heinz posted adjusted earnings of 75 cents per share, beating the Zacks Consensus Estimate of 74 cents. Quarterly earnings rose 4.2% year over year, mainly due to increased adjusted operating income, reduced shares outstanding and lower taxes on adjusted earnings.
Kraft Heinz Company Price, Consensus and EPS Surprise
Kraft Heinz Company Price, Consensus and EPS Surprise
Kraft Heinz Company price-consensus-eps-surprise-chart | Kraft Heinz Company Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The company generated net sales of $6,383 million, down 2.8% year over year. Net sales included an unfavorable currency impact of 0.4 percentage points and an adverse impact of 0.2 percentage points from divestitures. Net sales missed the Zacks Consensus Estimate of $6,407 million. Organic net sales fell 2.2% year over year.
Pricing inched up 1.2 percentage points year over year. The upside was driven by increases in the North America and Emerging Markets segments, although this was somewhat countered by lower prices in International Developed Markets. The favorable pricing was a result of adjustments in certain categories to address higher input costs. The volume/mix dropped 3.4 percentage points from the prior year’s levels, with declines in North America and International Developed Markets, partially balanced by growth in Emerging Markets. The negative impact on the volume/mix was due to changing consumer behavior stemming from economic uncertainty.
The adjusted gross profit of $2,189 million increased from the $2,231 million reported in the year-ago quarter. The adjusted gross margin expanded 30 basis points (bps) to 34.3%. We had expected an adjusted gross margin expansion of 50 bps to 34.5%.
Adjusted operating income moved up 1.4% to $1,330 million. The upside can be attributed to elevated pricing, gains from efficiency efforts and reduced variable compensation expenses. These gains outweighed the effects of adverse volume/mix, higher manufacturing costs and the adverse impacts of foreign currency fluctuations.
Decoding KHC’s Segment-Wise Results
North America: Net sales of $4,826 million declined 3.4% year over year. Organic sales fell 3.2%. During the quarter, pricing moved up 1.2 percentage points, but the volume/mix fell 4.4 percentage points.
International Developed Markets: Net sales of $882 million were down 0.2% year over year. Organic sales declined by 1.8%, with pricing down 1 percentage point and volume/mix dipping 0.8 percentage points.
Emerging Markets: Net sales of $675 million were down 2.4% year over year. Organic sales rose 4.9%, with pricing up 3.8 percentage points and volume/mix increase of 1.1 percentage points.
Kraft Heinz: Other Aspects
Kraft Heinz ended the quarter with cash and cash equivalents of $1,284 million, long-term debt of $19,383 million and total shareholders’ equity of $48,328 million. Net cash provided by operating activities was $2.8 billion for the year-to-date period, and free cash flow amounted to $2 billion.
During the year-to-date period, Kraft Heinz paid cash dividends worth $1.5 billion and made share buybacks worth $538 million. As of Sept. 28, 2024, the company had shares worth $2.4 billion remaining under its buyback plan.
In a separate press release, Kraft Heinz declared a quarterly dividend of 40 cents per share, payable on Dec. 27, 2024, to shareholders of record as of Nov. 29.
What to Expect From KHC in 2024?
For 2024, organic net sales are now expected to be at the lower end of the earlier guidance range of 2% to flat year over year.
The adjusted operating income growth is now projected to be at the lower end of the previously guided range of 1-3%. This forecast expects adjusted gross margin expansion to be at the lower end of the earlier forecasted 75-125 bps growth range.
The adjusted EPS for 2024 is now envisioned in the lower end of the previously projected range of 1-3% growth to $3.01-$3.07.
Shares of this Zacks Rank #4 (Sell) company have dropped 1.2% in the past three months against the industry’s growth of 0.7%.
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