Kraft Heinz sees fourth-quarter profit surge due to tax changes
Pittsburgh Post-Gazette
At least three times during an earnings call with analysts on Friday, Kraft Heinz CEO Bernardo Hees patiently repeated his formula in choosing targets for acquisitions — things like strong brands that can move into new markets.
“So that being said, if there would be more consolidation in the industry or not, it needs to be proven. But if that is the case, we want to be a force in that,” Mr. Hees said in response to one analyst’s question about M&A strategy.
The food giant, co-headquartered in Pittsburgh and Chicago, may be feeling a bit of pressure to get a deal done.
Kraft Heinz on Friday missed analysts’ earnings estimates in the fourth quarter and Mr. Hees conceded there had been some missteps last year — even as he defended the efficient, integrated organization that has been formed since the 2015 merger of the H.J. Heinz Co. and the Kraft Foods Group.
Analysts seemed impatient for the company to repeat the formula that has brought such payoffs in the past — make a big acquisition and then cuts costs to improve profits.
A bid to buy Unilever last year failed after that company flatly rejected the offer.
“So I’m just curious, any color you can give as to kind of why we haven’t seen anything since really the Unilever bid a year ago and is the non-hostile stance, is that reducing the size of the target list or is the lower valuation factoring in?” asked Rob Dickerson, with Deutsche Bank.
Mr. Hees repeated that the company’s thinking on M&A had not changed.
Heinz shares closed Friday at $70.80, down $1.91, after the company reported adjusted earnings per share of 90 cents in the quarter, five cents lower than analysts had been looking for.
CFRA Research analyst Joseph Agnese on Friday downgraded the stock to a hold from a buy, lowering his 12-month price target by $18 to $71.
The U.S. tax overhaul gave a big boost to the company’s overall fourth quarter results, with Kraft Heinz reporting net income attributable to common shareholders of $8 billion, or $6.52 per share.
That compares to $944 million in the year-ago quarter, or 77 cents per share.
The company said, since the tax cuts were approved, it had put $300 million into strategic investments, more than $800 million into capital expenditures and $1.3 billion to prefund post-retirement benefit plans.
Net sales of $6.88 billion were up slightly from the previous year’s $6.86 billion.
Sales in the U.S. of $4.8 billion represented a 1.1 percent drop from the year-ago period, the company said. Bright spots included gains in macaroni and cheese as well as Lunchables and Capri Sun ready-to-drink beverages.
The global company said sales in Canada were down 4.1 percent in the quarter, but up 9.3 percent in Europe.
For the full calendar year, Kraft Heinz reported net sales fell from $26.49 billion in 2016 to $26.23 billion in 2017.
Net income attributable to common shareholders surged from $3.45 billion in 2016 to $11 billion in 2017, with a boost from the tax overhaul.
On a per-share basis, earnings of $8.95 last year compared to $2.81 the previous year.