25 February 2019 | News
Net sales were $6.9 billion, up 0.7 percent versus the year-ago period
The Kraft Heinz Company has 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.
Bernardo Hees, CEO, Kraft Heinz said, “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. 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."
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 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 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 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.
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.
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.
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.
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.