PITTSBURGH: Kraft Heinz Co. reported earnings as a single company for the first time since its formation four months ago, showing profits at the packaged-foods giant slid the in latest quarter despite budget cuts and job eliminations.
The maker of Oscar Mayer deli meat and Jell-O desserts on Friday said earnings for the three months ended in September—excluding merger costs, interest, taxes and other one-time items—fell 3.4% to $1.5 billion, partly because the stronger U.S. dollar hurt the value of international earnings. Comparable sales, a measure of combined revenue that strips out currency fluctuations and other one-time factors, fell 2%, driven partly by weak demand for its beverages and boxed dinners in the U.S.
“We are instituting new routines that represent the discipline, accountability and methodology for how we will operate,” Chief Executive Bernardo Hees said on a conference call. “The actions under the resulting plan will take us two years to be complete, but will make us more globally competitive and accelerate our future growth.” Shares slipped 1.7% in after-hours trading.
Kraft Heinz, which was formed in July when H.J. Heinz Co. acquired Kraft Foods Group Inc., is led by 3G Capital Partners LP, the private-equity firm that bought Heinz in 2013 with the help of Warren Buffett’s Berkshire Hathaway Inc.
Mr. Hees, who has been a partner at 3G for more than five years, said that in the latest quarter Kraft Heinz began seeing the benefits of a financial tool called zero-base budgeting, which requires justifying even minor expenses anew each year.
Many industry executives and investors are watching the company’s cost-cutting efforts, which have pressured peers such as Mondelez International Inc. and Kellogg Co. to improve their lagging profit margins.
Kraft Heinz said it is on track to reduce its annual spending by $1.5 billion by the end of 2017. Since merging, it has announced it is eliminating about 5,000 legacy Kraft jobs, about half from office jobs and half from manufacturing positions as part of seven plant closures announced this week.
Kraft Heinz faces a challenge trying to revive brands like Smart Ones frozen entrees and Kraft boxed macaroni and cheese, as consumers, particularly in the U.S., stray from heavily processed food in favor of fresher options.
But Mr. Hees said Kraft Heinz isn’t only focused on saving money. “Make no mistake. We’re committed to growing our great brands,” Mr. Hees said.
He said Kraft Heinz will do more effective advertising, come out with fewer but bigger new products and eventually expand Kraft brands in international markets. Mr. Hees wouldn’t comment on potential acquisitions, which have been a growth strategy for 3G’s companies in the past.
Overall, adjusted earnings fell 4.3% to 44 cents per share, below analysts’ expectations of 62 cents a share, according to Thomson Reuters. Adjusted revenue fell 9% to $6.4 billion, below analysts’ projection of $6.7 billion.
In the U.S., comparable sales fell 3.7% in the quarter, but adjusted earnings rose 1.4% before interest, taxes, depreciation and amortization.
