Kraft macaroni and cheese with nothing artificial, Kraft Heinz
Kraft Heinz' Kraft Mac & Cheese renovation has brought consumers back to the category.

PITTSBURGH — Net income attributable to shareholders of the Kraft Heinz Co. in the third quarter ended Oct. 2 totaled $842 million, equal to 69c per share on the common stock, which compared with a loss of $168 million on a pro forma basis in the same period a year ago. Results were helped by cost-cutting efforts, as the merged company’s integration program delivered approximately $330 million of savings in the quarter, or roughly $1.3 billion on a run rate basis and close to Kraft Heinz’s previously stated goal of $1.5 billion by 2017.

Net sales, meanwhile, eased to $6,267 million, down 1.5% from pro forma net sales of $6,363 million. Excluding foreign currency translation, net sales declined 1%, dragged down by pricing decreases driven by commodity deflation in the United States and higher promotional expenses in Europe.

Bernardo Hees, Kraft Heinz Co.
Bernardo Hees, c.e.o. of Kraft Heinz

“We’re doing a good job in a difficult environment, working effectively to navigate a combination of headwinds from deflationary commodities to increased retail competition in some of our biggest markets,” said Bernardo Hees, chief executive officer of Kraft Heinz Co., during a Nov. 3 earnings call with financial analysts. “We are pulling more in-store activity into the marketplace than in the first half, but we remain disciplined with our go-to market activity, balancing price, promotion and distribution while we innovate to drive profitable growth. As a result, we are holding or improving market share in the majority of our categories in our key markets. Much of this is due to our big bets strategy and their ability to bend trends and capture whitespace.”

Cracker Barrel macaroni and cheese and Devour frozen meal, Kraft Heinz
Cracker Barrel Mac & Cheese and Devour frozen meals are succeeding in the marketplace.

Adjusted EBITDA for the U.S. segment increased 31% to $1,349 million versus the year-ago period, driven by gains from cost-savings initiatives as well as favorable pricing net of commodity costs that were partially offset by volume declines in cold cuts, food service and nuts. U.S. net sales were $4,395 million, down 1.2% from pro forma net sales for the year-ago period.

“First and foremost, our new product initiatives are working well and having a measurable impact,” said George Zoghbi, chief operating officer. “Our Mac & Cheese renovation is bringing people back into the category, boosting consumption and household penetration. Cracker Barrel Mac & Cheese and Devour frozen meals are addressing previously unserved segments of the market.

Capri Sun Organic, Kraft Heinz
Capri Sun Organic continues to build distribution.

“Capri Sun Organic continues to build distribution and is doing well. Our Heinz sauces business had a very successful summer season led by our new Heinz barbecue sauces and the second year of Heinz mustards. And in cheese, Philadelphia Cream Cheese continues to grow strongly, and we are seeing good improvement in the natural cheese segment.

“We also expect the impact of our new product activities to build into Q4 with advertising about to go live behind the launch of Velveeta Mini Blocks and our all-natural Jell-O Simply Good dry package desserts.”

Velveeta mini blocks, Kraft Heinz

Advertising will begin soon for new Velveeta Mini Blocks.

Net income attributable to Kraft Heinz shareholders for the nine months ended Oct. 2 was $2,508 million, or $2.06 per share, which compared with pro forma net income of $576 million, or 48c, in the comparable period. Net sales decreased to $19,630 million from pro forma net sales of $20,323 million.

“Our focus now is to set the table for 2017, delivering high quality operation results and in-market execution in the fourth quarter as we look to build strong momentum going into next year,” Mr. Hees said. “We are fully emerged in our second annual planning process as a merged company. We continue to grow and learn from each other. And our people are in the process of aligning behind our clear vision by setting challenging goals for 2017.”

Shares fell by as much as 5% in after-hours trading following the earnings release on Nov. 3.