PITTSBURGH — A turnaround of top-line performance is "firmly underway" for The Kraft Heinz Co., which generated organic net sales growth and volume growth in the recent three-month period, said Bernardo V. Hees, chief executive officer. But quarterly profit sank on one-time factors, sending Kraft Heinz shares down more than 10% on Nov. 2 to close at $50.73.
Net income attributable to common shareholders of Kraft Heinz in the third quarter ended Sept. 29 was $630 million, equal to 52c per share on the common stock, down from $944 million, or 78c per share, in the prior-year period. The decline was attributed to non-cash impairment charges and higher costs, which partially were offset by lower taxes.
Net sales ticked up 1.6% to $6,378 million from $6,280 million.
“Across the total company, Kraft Heinz is holding or growing share in more than half of our categories, including very strong market share gains in our Rest of World market,” Mr. Hees said during a Nov. 1 earnings call. “Execution is improving, and our pipeline is getting stronger both in terms of innovation and go-to-market initiatives.”
Total company organic net sales climbed 2.6% in the third quarter, bringing year-to-date organic growth into positive territory, said David H. Knopf, executive vice-president and chief financial officer.
“By segment, the U.S. had a strong volume/mix-led quarter characterized by consumption-led growth across a majority of categories,” Mr. Knopf said. “As expected, the change from positive first-half pricing in the U.S. to lower pricing in Q3 was primarily driven by a combination of three factors: one, lapping carryover pricing from last year; two, increased in-store activity to support our commercial pipeline, including higher year-over-year support in natural cheese and ready-to-drink beverages; and three, passing through recent declines in some key commodities during the quarter, mainly bacon.
“In Canada, while we saw solid growth in coffee and mac and cheese, sales were down, as anticipated, from a combination of select product discontinuations, higher promotional expenses in the current year as well as comparisons with prior year, limited-time condiment offers and activity that were not repeated. As we mentioned on our last call, however, we do expect a solid pipeline of activities to return Canada to growth in Q4.
“EMEA stayed in positive growth territory in Q3 as strong growth in southern Europe and Germany, where we continue to grow the Kraft brands, more than offset some one-off headwinds in Middle East and in Russia, where we ran into destocking activity related to World Cup-related promotional products. That said, we expect EMEA to improve sequentially in Q4 as the headwinds in Middle East and Russia fall away.
“And in Rest of World, in addition to the strong contribution from pricing we’ve seen all year, Latin America drove strong organic volume/mix gains from a combination of pasta sauce and condiments growth in Brazil as well as white space expansion across the region. And this more than offset lower shipments of canned seafood and cordials in Indonesia.”
Adjusted EBITDA fell short of expectations for the quarter, declining more than 14% from the year-ago period to $1,616 million, driven by investments in strategic capabilities and higher overhead and input costs that more than offset the organic net sales growth.
“Looking forward, we expect both EBITDA growth and our absolute level of EBITDA margin to improve beginning in Q4,” Mr. Knopf said. “Specifically, we expect to sustain our organic top-line momentum. The one-off factors that dragged Q3 EBITDA down should fall away. And on top of that, we expect to see a better year-on-year balance between cost inflation and savings.”
Net income attributable to Kraft Heinz shareholders in the nine-month period ended Sept. 29 was $2,379 million, equal to $1.95 per share, down from $2,996 million, or $2.46 per share, in the comparable period. Net sales rose to $19,368 million from $19,241 million.