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Thursday, February 21, 2019

=Kraft Heinz (KHC) reported earnings on Thur 21 Feb 2019 (a/h)

Kraft Heinz misses by $0.10, reports revs in-line; discloses receipt of SEC subpoena 
  • Reports Q4 (Dec) earnings of $0.84 per share, excluding non-recurring items, $0.10 worse than the S&P Capital IQ Consensus of $0.94; revenues rose 0.7% year/year to $6.89 bln vs the $6.93 bln S&P Capital IQ Consensus.
    • 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(2) 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.
  • Adjusted EBITDA decreased 13.9 percent versus the year-ago period to $1.7 billion (vs. $1.91 bln analyst estimate), including a negative 2.4 percentage point impact from currency.
  • The Company received a subpoena in October 2018 from the U.S. Securities and Exchange Commission associated with an investigation into the Company's procurement area, more specifically the Company's accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors.
    • Following this initial SEC document request, the Company together with external counsel launched an investigation into the procurement area. In the fourth quarter of 2018, as a result of findings from the investigation, the Company recorded a $25 million increase to costs of products sold as an out of period correction as the Company determined the amounts were immaterial to the fourth quarter of 2018 and its previously reported 2018 and 2017 interim and year to date periods. Additionally, the Company is in the process of implementing certain improvements to its internal controls to mitigate the likelihood of this occurring in the future and has taken other remedial measures. The Company continues to cooperate fully with the U.S. Securities and Exchange Commission.
    • At this time, the Company does not expect the matters subject to the investigation to be material to its current period or any prior period financial statements.
Kraft Heinz will also cut its quarterly dividend to $0.40/share from $0.625/share
The reduction was announced in the company's Q4 and Full Year 2018 Update slide presentation.

Kraft Heinz to report Q4 results after the close
  • Kraft Heinz is slated to report its Q4 results after the close, with a conference call scheduled for 5 PM ET.
  • Current analyst estimates call for EPS of $0.94 on revenues of $6.93 bln (+0.8% y/y).
  • While Kraft does not traditionally provide specific forward-looking guidance, its worth noting that analysts expect the company to deliver EPS of $3.67 on revenues of $26.42 bln (+0.5% y/y) in 2019.
  • When reporting Q3 results in early November, Kraft provided some broader outlook comments, including:
    • Expect both EBITDA growth and absolute level of EBITDA margin to improve beginning in Q4
    • Expect to sustain organic top line momentum -- one-off factors that dragged Q3 EBITDA down should fall away
    • Expect to see a better y/y balance between cost inflation and savings
    • Expects heavy year of investments to drive sustainable profitable growth into 2019 and beyond
  • Kraft currently has a market cap of $59 bln and trades at a P/E of 13.3 & P/S of 2.2. Shares are up 12% YTD, but down nearly 51% from all-time highs set in early 2017.
  • Based on the Mar 47.5 straddle, the options market is pricing in a move of approximately 6% in either direction by March expiration (March 15).

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