The Kraft Heinz Company Reports Fourth Quarter and Full Year 2015 Results

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Kraft Heinz Reports Solid Financial Performance with Integration
on Track

  • Q4 GAAP net sales increased 155% due to the merger of Kraft and
    Heinz; Pro Forma Organic Net Sales
    (1)
    decreased 3.1%
  • Q4 GAAP operating income increased 266%; Adjusted Pro Forma EBITDA(1)
    grew 20.3% on a constant currency basis, including an approximate 4.5
    percentage point benefit from a 53
    rd week of
    shipments
  • Q4 GAAP diluted EPS was $0.23; Adjusted Pro Forma EPS(1)
    was $0.62, including an approximate $0.03 benefit from a 53
    rd
    week of shipments

PITTSBURGH & CHICAGO–(BUSINESS WIRE)–The Kraft Heinz Company (NASDAQ: KHC) (“Kraft Heinz” or the “Company”)
today reported fourth quarter and full year 2015 financial results that
reflected strong gains in profitability from improved operations and the
ongoing integration of Kraft and Heinz.

“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,” said Kraft Heinz CEO Bernardo Hees. “We are
working to implement proven management methodologies, remove inefficient
spending and streamline our organization, while investing in our brands
and innovation to drive long-term profitable growth. We believe that all
of this positions Kraft Heinz for a strong performance in 2016 and
beyond.”

Q4 2015 Financial Summary

  For the Quarter Ended   Year-over-year Change

January 3,
2016
(14 weeks)

 

December 28,
2014
(13 weeks)

Actual   FX   Divestitures  

53rd
week

  Organic
(in millions, except per share data)
GAAP net sales $ 7,124   $ 2,799 154.5 %
GAAP operating income 1,287 352 265.6 %
GAAP diluted EPS $ 0.23 $ (0.04 ) nm
 
Pro forma net sales $ 7,124 $ 7,496 (5.0 )% (6.1) pp (0.5) pp 4.7 pp (3.1 )%
Adjusted Pro Forma EBITDA 1,875 1,690 10.9 %
Adjusted Pro Forma EPS(2) $ 0.62 $ 0.56 10.7 %
 

Pro forma net sales were $7.1 billion, down 5.0 percent versus the
year-ago period, primarily driven by a negative 6.1 percentage point
impact from currency and a negative 0.5 percentage point impact from
divestitures that was partially offset by a 4.7 percentage point benefit
from a 53rd week of shipments. Pro Forma Organic Net Sales
decreased 3.1 percent versus the year-ago period. Net pricing increased
0.7 percentage points reflecting gains from pricing in all segments that
were partially offset by a negative impact of approximately 1.5
percentage points related to lower overall key commodity costs in the
United States and Canada.(3) Volume/mix decreased 3.8
percentage points as strong growth in ketchup and sauces globally was
more than offset by lower shipments in ready-to-drink beverages, frozen
meals and coffee in the United States and Canada.

Adjusted Pro Forma EBITDA increased 10.9 percent versus the year-ago
period to $1.9 billion, despite a negative 9.4 percentage point impact
from currency that was partially offset by a benefit of approximately
4.5 percentage points from a 53rd week of shipments.
Excluding these factors, gains from cost savings initiatives(4)
and favorable pricing net of commodity costs were partially offset by
unfavorable volume/mix.

Adjusted Pro Forma EPS increased 10.7 percent versus the year-ago period
to $0.62 from $0.56, including an approximate $0.03 benefit from a 53rd
week of shipments. This increase primarily reflected the growth in
Adjusted Pro Forma EBITDA, partially offset by a higher tax rate
compared to the prior year.

Q4 2015 Business Segment Highlights

United States

  For the Quarter Ended   Year-over-year Change

January 3,
2016
(14 weeks)

 

December 28,
2014
(13 weeks)

Actual   FX   Divestitures  

53rd
week

  Organic
(in millions)
Pro forma net sales $ 5,082   $ 5,072 0.2 % 0.0 pp 0.0 pp 4.6 pp (4.4 )%
Segment Adjusted EBITDA 1,346 1,138 18.3 %
 

United States pro forma net sales were $5.1 billion, up 0.2 percent
versus the year-ago period, including a 4.6 percentage point benefit
from a 53rd week of shipments. Pro Forma Organic Net Sales
decreased 4.4 percent. Net pricing increased 0.2 percentage points as
higher net pricing across most categories was mostly offset by a
negative impact of approximately 2.0 percentage points related to lower
overall key commodity costs. Volume/mix decreased 4.6 percentage points
due to lower shipments in ready-to-drink beverages and frozen meals.
These factors were partially offset by favorable volume/mix from
innovation in Lunchables as well as strong growth in condiments
and sauces.

United States Segment Adjusted EBITDA increased 18.3 percent versus the
year-ago period to $1.3 billion, including a benefit of approximately
4.5 percentage points from a 53rd week of shipments.
Excluding this impact, gains from cost savings initiatives and favorable
pricing net of commodity costs, primarily in dairy, were partially
offset by unfavorable volume/mix.

Canada

  For the Quarter Ended   Year-over-year Change

January 3,
2016
(14 weeks)

 

December 28,
2014
(13 weeks)

Actual   FX   Divestitures  

53rd
week

  Organic
(in millions)
Pro forma net sales $ 632   $ 753 (16.1 )% (15.4) pp 0.0 pp 4.1 pp (4.8 )%
Segment Adjusted EBITDA 167 180 (7.2 )%
 

Canada pro forma net sales were $632 million, down 16.1 percent versus
the year-ago period, primarily due to a negative 15.4 percentage point
impact from currency that was partially offset by a 4.1 percentage point
benefit from a 53rd week of shipments. Pro Forma Organic Net
Sales decreased 4.8 percent versus the year-ago period. Net pricing
increased 2.3 percentage points. Significant pricing across most
categories related to higher input costs in local currency were
partially offset by approximately 2.0 percentage points related to lower
overall key commodity costs, primarily in dairy. Volume/mix decreased
7.1 percentage points due to shipment timing and lower volumes in
foodservice, Tassimo coffee and refreshment beverages.

Canada Segment Adjusted EBITDA decreased 7.2 percent versus the year-ago
period to $167 million, primarily driven by a negative 16.6 percentage
point impact from currency that was partially offset by a benefit of
approximately 3.5 percentage points from a 53rd week of
shipments. Excluding these factors, Adjusted EBITDA growth was driven by
favorable pricing net of higher local input costs and gains from cost
savings initiatives that were partially offset by unfavorable volume/mix.

Europe

  For the Quarter Ended   Year-over-year Change

January 3,
2016
(14 weeks)

 

December 28,
2014
(13 weeks)

Actual   FX   Divestitures  

53rd
week

  Organic
(in millions)
Pro forma net sales $ 640   $ 748 (14.4 )% (7.8) pp (4.2) pp 3.5 pp (5.9 )%
Segment Adjusted EBITDA 248 240 3.3 %
 

Europe pro forma net sales were $640 million, down 14.4 percent versus
the year-ago period, primarily due to a negative 7.8 percentage point
impact from currency and a negative 4.2 percentage point impact from
divestitures that were partially offset by a 3.5 percentage point
benefit from a 53rd week of shipments. Pro Forma Organic Net
Sales decreased 5.9 percent versus the year-ago period. Net pricing
increased 0.4 percentage points driven by higher pricing in condiments
and sauces in most markets. Volume/mix decreased 6.3 percentage points
due to lower volumes in soup in the U.K., partially offset by growth in
ketchup and other condiments.

Europe Segment Adjusted EBITDA increased 3.3 percent versus the year-ago
period to $248 million, despite a negative 13.4 percentage point impact
from currency that was partially offset by a benefit of approximately
4.0 percentage points from a 53rd week of shipments.
Excluding these factors, gains from cost savings initiatives and
improved product mix were partially offset by lower volumes.

Rest of World(5)

  For the Quarter Ended   Year-over-year Change

January 3,
2016
(14 weeks)

 

December 28,
2014
(13 weeks)

Actual   FX   Divestitures  

53rd
week

  Organic
(in millions)
Pro forma net sales $ 770   $ 923 (16.6 )% (32.7) pp 0.0 pp 6.5 pp 9.6 %
Segment Adjusted EBITDA 172 196 (12.2 )%
 

Rest of World pro forma net sales were $770 million, down 16.6 percent
versus the year-ago period, due to a negative 32.7 percentage point
impact from currency, including a negative 14.9 percentage point impact
from the devaluation of the Venezuelan bolivar in June 2015, that was
partially offset by a 6.5 percentage point benefit from a 53rd
week of shipments. Pro Forma Organic Net Sales increased 9.6 percent
versus the year-ago period. Net pricing increased 3.2 percentage points,
driven by significant pricing related to higher input costs in local
currencies in RIMEA(5) and higher net pricing in sauces in
Asia. Volume/mix increased 6.4 percentage points due to strong growth in
sauces in Asia and ketchup across all geographies.

Rest of World Segment Adjusted EBITDA decreased 12.2 percent versus the
year-ago period to $172 million primarily due to a negative 55.5
percentage point impact from currency, including a negative 34.0
percentage point impact from the devaluation of the Venezuelan bolivar
in June 2015, that was partially offset by a benefit of approximately
6.0 percentage points from a 53rd week of shipments.
Excluding these factors, Adjusted EBITDA growth was driven by favorable
volume/mix and gains from cost savings initiatives.

End Notes

(1) Pro Forma Organic Net Sales, Adjusted Pro Forma EBITDA and Adjusted
Pro Forma 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 revised Q4 2014 Adjusted Pro Forma EPS to $0.56 from the
previously published $0.50 to reflect a correction in tax rates applied
to certain non-GAAP adjustments.

(3) The Company’s key commodities in the United States and Canada are
dairy, meat, coffee and nuts.

(4) Cost savings initiatives include the Company’s integration,
restructuring and ongoing productivity efforts.

(5) Rest of World is comprised of three operating segments: Asia
Pacific; Latin America; and, Russia, India, the Middle East and Africa
(“RIMEA”).

Webcast and Conference Call Information

A webcast of The Kraft Heinz Company’s fourth quarter and full year 2015
earnings conference call will be available at ir.kraftheinzcompany.com.
The call begins today at 5 p.m. Eastern time.

ABOUT THE KRAFT HEINZ COMPANY

The Kraft Heinz Company (NASDAQ: KHC) is the fifth-largest food and
beverage company in the world. A globally trusted producer of delicious
foods, The Kraft Heinz Company provides high quality, great taste and
nutrition for all eating occasions whether at home, in restaurants or on
the go. The Company’s iconic brands include Kraft, Heinz, ABC,
Capri Sun
, ClassicoJell-OKool-Aid, Lunchables, Maxwell
House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon
, Quero,
Weight Watchers
Smart Ones and Velveeta. The Kraft
Heinz Company is dedicated to the sustainable health of our people, our
planet and our Company. For more information, visit www.kraftheinzcompany.com.

Forward-Looking Statements

This press release contains a number of forward-looking statements.
Words such as “deliver,” “drive,” “grow,” “invest,” “accelerate,”
“believe,” “will,” and variations of such words and similar expressions
are intended to identify forward-looking statements. Examples of
forward-looking statements include, but are not limited to, statements
regarding our plans, investments, execution, growth and integration.
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, increased
competition; the Company’s ability to maintain, extend and expand its
reputation and brand image; the Company’s ability to differentiate its
products from other brands; the consolidation of retail customers; the
Company’s ability to predict, identify and interpret changes in consumer
preferences and demand; the Company’s ability to drive revenue growth in
its key product categories, increase its market share, or add products;
an impairment of the carrying value of goodwill or other
indefinite-lived intangible assets; volatility in commodity, energy and
other input costs; changes in the Company’s management team or other key
personnel; the Company’s inability to realize the anticipated benefits
from the Company’s cost savings initiatives; changes in relationships
with significant customers and suppliers; execution of the Company’s
international expansion strategy; changes in laws and regulations; legal
claims or other regulatory enforcement actions; product recalls or
product liability claims; unanticipated business disruptions; failure to
successfully integrate the Company; the Company’s ability to complete or
realize the benefits from potential and completed acquisitions,
alliances, divestitures or joint ventures; economic and political
conditions in the nations in which the Company operates; the volatility
of capital markets; increased pension, labor and people-related
expenses; volatility in the market value of all or a portion of the
derivatives that the Company uses; exchange rate fluctuations;
disruptions in information technology networks and systems; the
Company’s inability to protect intellectual property rights; impacts of
natural events in the locations in which the Company or its customers,
suppliers or regulators operate; the Company’s indebtedness and ability
to pay such indebtedness; the Company’s dividend payments on its Series
A Preferred Stock; tax law changes or interpretations; pricing actions;
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
“SEC”). 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.

Unaudited Pro Forma Condensed Combined Financial Information

The unaudited pro forma condensed combined financial information (the
“financial information”) presented in this release illustrates the
estimated effects of the merger (the “2015 Merger”) consummated on July
2, 2015 of Kraft Foods Group, Inc. (“Kraft”) with and into a
wholly-owned subsidiary of H.J. Heinz Holding Corporation (“Heinz”), the
related equity investments and common stock conversion, the application
of the acquisition method of accounting, and conformance of accounting
policies. The financial information is presented as if the 2015 Merger
had been consummated on December 30, 2013, the first business day of the
Company’s 2014 fiscal year, and combines the historical results of Kraft
and Heinz. For additional information on the 2015 Merger, please refer
to the Company’s filings with the SEC.

The financial information was prepared using the acquisition method of
accounting, which requires, among other things, that assets acquired and
liabilities assumed in a business combination be recognized at their
fair values as of the completion of the acquisition. The Company
utilized estimated fair values at the closing date of the 2015 Merger
for the preliminary allocation of consideration to the net tangible and
intangible assets acquired and liabilities assumed. Our purchase price
allocation is substantially complete with the exception of identifiable
intangible assets, certain income tax accounts and goodwill. During the
measurement period, the Company will continue to obtain information to
assist in determining the fair value of net assets acquired, which may
differ materially from these preliminary estimates.

The historical consolidated financial statements have been adjusted in
the accompanying financial information to give effect to unaudited pro
forma events that are (1) directly attributable to the 2015 Merger, (2)
factually supportable and (3) expected to have a continuing impact on
the results of operations of the combined company.

The financial information has been prepared based upon currently
available information and assumptions deemed appropriate by management.
This financial information is not necessarily indicative of what the
Company’s results of operations actually would have been had the 2015
Merger been completed as of December 30, 2013. In addition, the
financial information is not indicative of future results or current
financial conditions and does not reflect any additional anticipated
synergies, operating efficiencies, cost savings or any integration costs
that may result from the 2015 Merger.

This financial information should be read in conjunction with historical
financial statements and accompanying notes filed with the SEC. Certain
reclassifications have been made to the historical Kraft and Heinz
results to align accounting policies and eliminate intercompany sales in
all periods presented.

Non-GAAP Financial Measures

To supplement the financial information, the Company has presented Pro
Forma Organic Net Sales, Adjusted Pro Forma EBITDA and Adjusted Pro
Forma EPS, which are considered non-GAAP financial measures. The
non-GAAP financial measures provided should be viewed in addition to,
and not as an alternative for, the financial measures prepared in
accordance with accounting principles generally accepted in the United
States of America (“GAAP”) that are provided.

The non-GAAP financial measures presented in this release may differ
from non-GAAP financial measures presented by other companies, and other
companies may not define these non-GAAP financial measures in the same
way. Pro Forma Organic Net Sales, Adjusted Pro Forma EBITDA and Adjusted
Pro Forma EPS are not substitutes for their comparable GAAP financial
measures, such as net sales, operating income, diluted earnings per
share (“EPS”), or other measures prescribed by GAAP, and there are
limitations to using non-GAAP financial measures.

The Company defines Pro Forma Organic Net Sales as pro forma net sales
excluding the impact of currency, acquisitions, divestitures and the 53rd
week of shipments when it occurs. 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 following the
Company’s June 28, 2015 devaluation of the Venezuelan bolivar and
remeasurement of assets and liabilities of its Venezuelan subsidiary,
for which it calculates the previous year’s results using the current
year’s exchange rate. Management believes that presenting Pro Forma
Organic Net Sales 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 defines Adjusted Pro Forma EBITDA as pro forma operating
income/(loss) excluding the impacts of depreciation and amortization
(including amortization of postretirement benefit plan prior service
credits), integration and restructuring expenses, merger costs,
unrealized gains/(losses) on commodity hedges, equity award compensation
expense, impairment losses, gains/(losses) on the sale of a business and
nonmonetary currency devaluation. The Company also presents Adjusted Pro
Forma EBITDA on a constant currency basis. The Company calculates the
impact of currency on Adjusted Pro Forma EBITDA by holding exchange
rates constant at the previous year’s exchange rate, with the exception
of Venezuela following the Company’s June 28, 2015 devaluation of the
Venezuelan bolivar and remeasurement of assets and liabilities of its
Venezuelan subsidiary, for which it calculates the previous year’s
results using the current year’s exchange rate. Adjusted Pro Forma
EBITDA is a tool intended to assist management 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 core operations.

The Company defines Adjusted Pro Forma EPS as pro forma diluted EPS
excluding the impacts of integration and restructuring expenses, merger
costs, unrealized gains/(losses) on commodity hedges, impairment losses,
gains/(losses) on the sale of a business, nonmonetary currency
devaluation and the timing of preferred dividends. Management uses
Adjusted Pro Forma EPS 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 for the relevant periods.

   
 

Schedule 1

The Kraft Heinz Company
Consolidated Statements of Income
(in millions, except per share data)
(Unaudited)
 
For the Quarter Ended For the Year Ended

January 3,
2016
(14 weeks)

December 28,
2014
(13 weeks)

January 3,
2016
(53 weeks)

 

December 28,
2014
(52 weeks)

Net sales $ 7,124 $ 2,799 $ 18,338 $ 10,922
Cost of products sold 4,720   1,904   12,577   7,645  
Gross profit 2,404 895 5,761 3,277
Selling, general and administrative expenses 1,117   543   3,122   1,709  
Operating income 1,287 352 2,639 1,568
Interest expense 266 182 1,321 686
Other (income)/expense, net (9 ) (1 ) 305   79  
Income from continuing operations before income taxes 1,030 171 1,013 803
Provision for income taxes 382   6   366   131  
Net income 648 165 647 672
Net income attributable to noncontrolling interest 3   2   13   15  
Net income attributable to Kraft Heinz 645 163 634 657
Preferred dividends(1) 360   180   900   720  
Net income/(loss) attributable to common shareholders $ 285   $ (17 ) $ (266 ) $ (63 )
 
Basic shares outstanding 1,214 377 786 377
Diluted shares outstanding 1,225 377 786 377
 
Per share data applicable to common shareholders:
Basic earnings/(loss) per share $ 0.23 $ (0.04 ) $ (0.34 ) $ (0.17 )
Diluted earnings/(loss) per share $ 0.23 $ (0.04 ) $ (0.34 ) $ (0.17 )

Note: The consolidated statements of income for the years ended January
3, 2016 and December 28, 2014 reflect the results for Heinz for both
periods and the results of Kraft Heinz for the period after the 2015
Merger occurred on July 2, 2015.

(1) Cash distributions for Series A Preferred Stock totaled $360 million
and $900 million for the quarter and year ended January 3, 2016,
respectively. This reflected one additional dividend payment versus the
prior year made during the fourth quarter due to the fact that, in
connection with the December 8, 2015 Common Stock dividend declaration,
the Company was required to accelerate payment of the Series A Preferred
Stock dividend from March 7, 2016 to December 8, 2015.

   
 

Schedule 2

The Kraft Heinz Company
Pro Forma Condensed Combined Statements of Income
(in millions, except per share data)
(Unaudited)
 
For the Quarter Ended For the Year Ended

January 3,
2016
(14 weeks)

December 28,
2014
(13 weeks)

January 3,
2016
(53 weeks)

 

December 28,
2014
(52 weeks)

Net sales $ 7,124 $ 7,496 $ 27,447 $ 29,122
Cost of products sold(1) 4,720   5,284   18,299   20,146
Gross profit 2,404 2,212 9,148 8,976
Selling, general and administrative expenses(2) 1,117   1,291   4,613   4,593
Operating income 1,287 921 4,535 4,383
Interest expense 266 288 1,528 1,113
Other (income)/expense, net (9 ) (9 ) 289   57
Income before income taxes 1,030 642 2,718 3,213
Provision for income taxes 382   137   944   880
Net income 648 505 1,774 2,333
Net income attributable to noncontrolling interest 3   2   13   15
Net income attributable to Kraft Heinz $ 645 $ 503 $ 1,761 $ 2,318
Preferred dividends(3) 360   180   900   720
Net income attributable to common shareholders $ 285   $ 323   $ 861   $ 1,598
 
Basic common shares outstanding 1,214 1,192 1,202 1,192
Diluted common shares outstanding 1,225 1,222 1,222 1,222
 
Per share data applicable to common shareholders:
Basic earnings per share $ 0.23 $ 0.27 $ 0.72 $ 1.34
Diluted earnings per share $ 0.23 $ 0.26 $ 0.70 $ 1.31

Contacts

The Kraft Heinz Company
Michael Mullen (media), 847-646-2000
Michael.Mullen@kraftheinzcompany.com
or
Christopher
Jakubik, CFA (investors), 847-646-5494
ir@kraftheinzcompany.com

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