PITTSBURGH & CHICAGO--(BUSINESS WIRE)--The Kraft Heinz Company (Nasdaq: KHC) today reported fourth quarter and full year 2019 financial results.

“While our 2019 results were disappointing, we closed the year with performance consistent with our expectations, and driven by factors we anticipated,” said Kraft Heinz CEO Miguel Patricio. "We have taken critical actions over the past six months to re-establish visibility and control over the business. And we remain convinced Kraft Heinz has the potential to achieve best-in-class financial performance as we begin transforming our capabilities and making necessary investments in our brands based on deep consumer insights. Our turnaround will take time, but we expect to make significant progress in 2020, laying a strong foundation for future growth.”

Net sales were $6.5 billion, down 5.1 percent versus the year-ago period, including a negative 2.3 percentage point impact from divestitures and an unfavorable 0.6 percentage point impact from currency. Organic Net Sales(1) decreased 2.2 percent versus the year-ago period. Pricing increased 2.0 percentage points versus the prior year period, with higher pricing in all business segments except Canada. Volume/mix decreased 4.2 percentage points, primarily driven by volume/mix declines in the United States and, to a lesser extent, Rest of World markets that more than offset growth in Canada and EMEA.

Net income attributable to common shareholders increased to $182 million and diluted EPS increased to $0.15, primarily reflecting lower non-cash impairment charges recognized in the current year period. The current period included approximately $453 million of non-cash impairment charges to lower the carrying amount of goodwill in the Company’s Australia & New Zealand, as well as Latin America Exports businesses, as well as non-cash impairment charges of approximately $213 million to lower the carrying amount of the Maxwell House trademark. Adjusted EBITDA decreased 6.6 percent versus the year-ago period to $1.6 billion, including an unfavorable 1.3 percentage point impact from currency and a negative 1.5 percentage point impact from divestitures. Excluding these factors, growth in the United States and EMEA was more than offset by higher supply chain costs in Rest of World markets, higher general corporate expenses, and lower pricing versus the prior year period in Canada. Adjusted EPS decreased 14.3 percent to $0.72, reflecting lower Adjusted EBITDA, a higher effective tax rate, and higher stock-based compensation versus the prior year period.

United States net sales were $4.7 billion, down 2.7 percent versus the year-ago period. Pricing increased 3.1 percentage points, reflecting a combination of higher list prices in several categories, including price increases to reflect higher key commodity(2) costs for dairy and meats, as well as a favorable impact from promotional timing versus the prior year, and reduced promotional intensity compared to the year-ago period. Volume/mix decreased 5.8 percentage points, primarily due to lower shipments of cheese, coffee, cold cuts, and bacon that more than offset growth in condiments and sauces as well as foodservice. The decreases reflect volume declines in response to higher prices, including prior year promotional activities that were not repeated, as well as lower distribution in cold cuts and frozen categories at select retailers.

United States Segment Adjusted EBITDA increased 1.6 percent versus the year-ago period to $1.3 billion, driven by higher pricing, lower procurement and logistics costs, as well as lower variable compensation versus the prior year. This more than offset unfavorable impacts from volume/mix and key commodity cost inflation, specifically in dairy and meats, as well as higher manufacturing costs.

Canada net sales were $457 million, 23.8 percent lower than the year-ago period, including a negative 21.4 percentage point impact from the Canadian natural cheese divestiture and a favorable 0.1 percentage point impact from currency. Organic Net Sales decreased 2.5 percent versus the year-ago period. Pricing declined 5.0 percentage points, reflecting unfavorable trade expense versus the prior year and increased holiday-related promotional activity across several categories. Volume/mix increased 2.5 percent, driven by consumption-led growth in peanut butter and pasta sauce that more than offset lower shipments for cheese and ongoing weakness in coffee.

Canada Segment Adjusted EBITDA decreased 26.1 percent versus the year-ago period to $116 million, including a negative 14.8 percentage point impact from a divestiture and a 0.2 percentage point favorable impact from currency. Excluding the impact of these factors, the decrease versus prior year was due to lower pricing, as well as unfavorable dairy and procurement costs versus the prior year period.

EMEA net sales were $689 million, down 0.5 percent versus the year-ago period, due to a negative 0.8 percentage point impact from currency. Organic Net Sales increased 0.3 percent versus the year-ago period. Pricing was slightly favorable as gains from pricing initiatives, particularly in the UK, more than offset lower pricing versus the prior year in Russia. Volume/mix increased 0.2 percentage points, reflecting condiments and sauces growth in Russia, as well as foodservice growth across most regions that more than offset ongoing weakness in infant nutrition and the impact of reduced promotional activity versus the year-ago period in the UK.

EMEA Segment Adjusted EBITDA increased 6.3 percent versus the year-ago period to $182 million, despite a negative 1.4 percentage point impact from currency. Excluding currency, Segment Adjusted EBITDA increased 7.7 percent, from a combination of Organic Net Sales growth and lower variable compensation versus the prior year period.

Rest of World net sales of $708 million decreased 10.1 percent versus the year-ago period, including a negative 5.2 percentage point impact from currency and a negative 3.3 percentage point impact from the India nutritional beverages divestiture. Organic Net Sales decreased 1.6 percent versus the year-ago period. Pricing increased 0.7 percentage points, due to higher pricing in Latin America and China that more than offset lower pricing in Australia. Volume/mix decreased 2.3 percentage points, as growth in Indonesia and Brazil was more than offset by lower shipments across several categories in Australia and New Zealand as well as lower shipments in Latin American exports, including Colombia and Puerto Rico.

Rest of World Segment Adjusted EBITDA decreased 53.9 percent versus the year-ago period to $60 million, including an 8.0 percentage point unfavorable impact from currency and a 0.3 percentage point unfavorable impact from divestiture. Results also included approximately $35 million of costs not expected to repeat, due to $15 million of higher labor-related expenses associated with the Holidays Act in New Zealand as well as $20 million of asset- and inventory-related write-offs in Australia, New Zealand, and Latin America. Excluding these factors, the decline in Segment Adjusted EBITDA was driven by ongoing supply chain cost inflation and lower volume/mix.

End Notes

ABOUT THE KRAFT HEINZ COMPANY

For 150 years, we have produced some of the world’s most beloved products at The Kraft Heinz Company (Nasdaq: KHC). Our Vision is To Be the Best Food Company, Growing a Better World. We are one of the largest global food and beverage companies, with 2019 net sales of approximately $25 billion. Our portfolio is a diverse mix of iconic and emerging brands. As the guardians of these brands and the creators of innovative new products, we are dedicated to the sustainable health of our people and our planet. To learn more, visit www.kraftheinzcompany.com or follow us on LinkedIn and Twitter.