Market Overview

Kraft Heinz Reports Second Quarter 2018 Results

Share:
  • Q2 net sales increased 0.7%; Organic Net Sales(1)
    decreased 0.4%
  • Q2 diluted EPS was $0.62; Adjusted EPS(1)
    increased to $1.00, up from $0.98 the prior year

The Kraft Heinz Company (NASDAQ:KHC) ("Kraft Heinz" or the "Company")
today reported second quarter 2018 financial results that reflected
favorable impacts from acquisitions net of divestitures and currency, as
well as higher input costs and increased investments to enhance
capabilities.

"Our results through the first half were stronger than the expectations
we put forward as recently as three months ago, and we have been even
more encouraged by our recent performance in the marketplace," said
Kraft Heinz CEO Bernardo Hees. "We believe we are now in a position to
drive sustainable top-line growth from a strong pipeline of new product,
marketing and whitespace initiatives that are backed by investments in
capabilities for brand and category advantage. And while cost inflation
on many fronts has been holding back our bottom line, we expect our
profitability to improve by year-end, with further momentum into 2019."

Q2 2018 Financial Summary

 

For the Three Months Ended

 

Year-over-year Change

     

Impact of

 
June 30, July 1,

    Impact of    

Acquisitions and

2018 2017

      Actual      

Currency Divestitures

    Organic    

(in millions, except per share data)
Net sales $ 6,686 $ 6,637 0.7% 0.3 pp 0.8 pp (0.4 )%
Operating income 1,329 1,644 (19.1)%
Net income/(loss) attributable to common shareholders 756 1,159 (34.8)%
Diluted EPS $ 0.62 $ 0.94 (34.0)%
Adjusted EBITDA(1) 1,974 2,065 (4.4)% 0.4 pp
Adjusted EPS(1) $ 1.00 $ 0.98 2.0%

Net sales were $6.7 billion, up 0.7 percent versus the year-ago period,
including a favorable 0.3 percentage point impact from currency and a
net 0.8 percentage point benefit from acquisitions and divestitures.
Organic Net Sales decreased 0.4 percent versus the year-ago period.
Pricing increased 1.3 percentage points, driven by pricing to offset
local input costs in Rest of World markets and higher pricing in North
America that more than offset increased in-store and new product
activity in EMEA. Volume/mix decreased 1.7 percentage points, as lower
shipments in North America more than offset growth in EMEA and gains
from condiments and sauces in Rest of World markets.

Net income attributable to common shareholders decreased to $756 million
and diluted EPS decreased to $0.62, primarily due to non-cash impairment
charges in the current period, versus non-cash curtailment gains
recognized in the prior year period related to the Integration Program.
Adjusted EBITDA decreased 4.4 percent versus the year-ago period to $2.0
billion, including a favorable 0.4 percentage point impact from
currency. Excluding the impact of currency, Adjusted EBITDA declined
primarily due to higher input costs, lower volume/mix and investments in
strategic initiatives. Adjusted EPS increased 2.0 percent to $1.00,
primarily driven by lower taxes on adjusted earnings in the current
period.

Q2 2018 Business Segment Highlights

United States

            For the Three Months Ended   Year-over-year Change
     

Impact of

 
June 30, July 1,

  Impact of  

Acquisitions and

2018 2017

      Actual      

Currency Divestitures

    Organic    

(in millions)
Net sales $ 4,513 $ 4,601 (1.9)% 0.0 pp 0.0 pp (1.9 )%
Segment Adjusted EBITDA 1,432 1,557 (8.0)% 0.0 pp

United States net sales were $4.5 billion, down 1.9 percent versus the
year-ago period. Pricing increased 0.4 percentage points, as higher
pricing in select categories was partially offset by the timing of trade
spend, as well as lower pricing to reflect declines in certain key
commodity(2) costs, particularly bacon. Volume/mix decreased
2.3 percentage points driven by lower shipments in cheese, frozen and
nuts, which was partially offset by growth in ready-to-drink beverages.

United States Segment Adjusted EBITDA decreased 8.0 percent versus the
year-ago period to $1.4 billion, primarily reflecting non-key commodity
cost inflation, lower volume/mix, and capability investments that were
partially offset by gains from productivity and higher pricing.

Canada

            For the Three Months Ended   Year-over-year Change
     

Impact of

 
June 30, July 1,

  Impact of  

Acquisitions and

2018 2017

      Actual      

Currency Divestitures

    Organic    

(in millions)

 

Net sales $ 564 $ 592 (4.5)% 3.7 pp 0.0 pp (8.2 )%
Segment Adjusted EBITDA 172 189 (8.9)% 3.4 pp

Canada net sales were $564 million, 4.5 percent lower than the year-ago
period, reflecting a favorable 3.7 percentage point impact from currency
and an 8.2 percent decline in Organic Net Sales. Pricing increased 0.6
percentage points, primarily driven by higher pricing in condiments and
sauces. Volume/mix decreased 8.8 percentage points due to prior year
promotional activity that was not repeated, primarily in condiments and
sauces, as well as trade inventory adjustments and select product
discontinuations.

Canada Segment Adjusted EBITDA decreased 8.9 percent versus the year-ago
period to $172 million, including a favorable 3.4 percentage point
impact from currency. Excluding currency, Segment Adjusted EBITDA
decreased primarily due to lower volume/mix.

EMEA(3)

           

For the Three Months Ended

  Year-over-year Change
     

Impact of

 
June 30, July 1,

  Impact of  

Acquisitions and

2018 2017

      Actual      

Currency Divestitures

    Organic    

(in millions)
Net sales $ 703 $ 647 8.7% 5.4 pp (0.7) pp 4.0 %
Segment Adjusted EBITDA 201 184 8.9% 6.0 pp

EMEA net sales were $703 million, up 8.7 percent versus the year-ago
period, including a 5.4 percentage point benefit from currency and a
negative 0.7 percentage point impact from the divestiture of a joint
venture in South Africa. Organic Net Sales increased 4.0 percent versus
the year-ago period. Pricing declined 1.0 percentage points to support
in-store and new product activity in condiments and sauces, as well as
infant nutrition that more than offset higher pricing in meals.
Volume/mix increased 5.0 percentage points, driven by growth in
condiments and sauces, including the addition of Kraft products in
certain regions within the segment, as well as strong foodservice gains
in every region.

EMEA Segment Adjusted EBITDA increased 8.9 percent versus the year-ago
period to $201 million, including a positive 6.0 percentage point impact
from currency. Excluding the impact of currency, Segment Adjusted EBITDA
increased 2.9 percent, as gains from productivity were partially offset
by higher overhead costs and lower pricing.

Rest of World(3)(4)

            For the Three Months Ended   Year-over-year Change
     

Impact of

 
June 30, July 1,

  Impact of  

Acquisitions and

2018 2017

      Actual      

Currency Divestitures

    Organic    

(in millions)
Net sales $ 906 $ 797 13.5% (5.4) pp 8.1 pp 10.8 %
Segment Adjusted EBITDA 213 171 24.6% (7.1) pp

Rest of World net sales were $906 million, increasing 13.5 percent
versus the year-ago period, including a negative 5.4 percentage point
impact from currency and an 8.1 percentage point contribution from the
Cerebos acquisition. Organic Net Sales increased 10.8 percent versus the
year-ago period. Pricing was up 9.2 percentage points, primarily due to
actions to offset input cost inflation in local currency, particularly
in Latin America. Volume/mix increased 1.6 percentage points, as strong
growth in condiments and sauces across a majority of regions was
partially offset by lower shipments in Southeast Asia and negative
impacts from a truck drivers' strike in Brazil.

Rest of World Segment Adjusted EBITDA increased 24.6 percent versus the
year-ago period to $213 million, despite a negative 7.1 percentage point
impact from currency. Excluding the impact of currency, Segment Adjusted
EBITDA increased 31.7 percent driven by Organic Net Sales gains that
were partially offset by higher input costs in local currency.

End Notes

(1)   Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted
EBITDA and Adjusted EPS are non-GAAP financial measures. Please see
discussion of non-GAAP financial measures and the reconciliations at
the end of this press release for more information.
 
(2) The Company's key commodities in the United States and Canada are
dairy, meat, coffee and nuts.
 
(3) In the first quarter of the Company's fiscal year 2018, the Company
reorganized certain of its international businesses to better align
the Company's global geographies. As a result, Middle East and
Africa businesses were moved from the historical Asia Pacific,
Middle East, and Africa ("AMEA") operating segment into the
historical Europe reportable segment, forming the new Europe, Middle
East, and Africa ("EMEA") reportable segment. The remaining
businesses from the AMEA operating segment became the Asia Pacific
("APAC") operating segment. This change has been reflected in all
historical periods presented.
 
(4) Rest of World comprises two operating segments: Latin America and
APAC.
 

Webcast and Conference Call Information

A webcast of The Kraft Heinz Company's second quarter 2018 earnings
conference call will be available at ir.kraftheinzcompany.com. The call
begins today at 8:30 a.m. Eastern Time.

ABOUT THE KRAFT HEINZ COMPANY

The Kraft Heinz Company (NASDAQ:KHC) is the fifth-largest food and
beverage company in the world. A globally trusted producer of delicious
foods, The Kraft Heinz Company provides high quality, great taste and
nutrition for all eating occasions whether at home, in restaurants, or
on the go. The Company's iconic brands include Kraft, Heinz,
ABC, Capri Sun
, ClassicoJell-OKool-Aid, Lunchables, Maxwell
House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon
, Quero,
Smart Ones
and Velveeta. The Kraft Heinz Company is dedicated
to the sustainable health of our people, our planet and our Company. For
more information, visit www.kraftheinzcompany.com.

Forward-Looking Statements

This press release contains a number of forward-looking statements.
Words such as "enhance," "encouraged," "believe," "position,"
"anticipate," "reflect," "invest," "see," "make," "expect," "deliver,"
"drive," "improve," "assess," "evaluate," "grow," "will," and variations
of such words and similar future or conditional expressions are intended
to identify forward-looking statements. Examples of forward-looking
statements include, but are not limited to, statements regarding the
Company's plans, segment changes, cost savings, expectations,
investments, innovations, opportunities, capabilities, execution,
initiatives, and growth. These forward-looking statements are not
guarantees of future performance and are subject to a number of risks
and uncertainties, many of which are difficult to predict and beyond the
Company's control.

Important factors that may affect the Company's business and operations
and that may cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, operating in
a highly competitive industry; changes in the retail landscape or the
loss of key retail customers; the Company's ability to maintain, extend
and expand its reputation and brand image; the impacts of the Company's
international operations; the Company's ability to leverage its brand
value to compete against retailer brands and other economy brands; the
Company's ability to predict, identify and interpret changes in consumer
preferences and demand; the Company's ability to drive revenue growth in
its key product categories, increase its market share, or add products;
an impairment of the carrying value of goodwill or other
indefinite-lived intangible assets; volatility in commodity, energy and
other input costs; changes in the Company's management team or other key
personnel; the Company's ability to realize the anticipated benefits
from its cost savings initiatives; changes in relationships with
significant customers and suppliers; the execution of the Company's
international expansion strategy; tax law changes or interpretations;
legal claims or other regulatory enforcement actions; product recalls or
product liability claims; unanticipated business disruptions; the
Company's ability to complete or realize the benefits from potential and
completed acquisitions, alliances, divestitures or joint ventures;
economic and political conditions in the United States and in various
other nations in which we operate; volatility of capital markets and
other macroeconomic factors; increased pension, labor and people-related
expenses; volatility in the market value of all or a portion of the
derivatives we use; exchange rate fluctuations; risks associated with
information technology and systems, including service interruptions,
misappropriation of data or breaches of security; the Company's ability
to protect intellectual property rights; impacts of natural events in
the locations in which we or the Company's customers, suppliers or
regulators operate; the Company's indebtedness and ability to pay such
indebtedness; the Company's ownership structure; the impact of future
sales of the Company's common stock in the public markets; the Company's
ability to continue to pay a regular dividend; restatements of the
Company's consolidated financial statements; and other factors. For
additional information on these and other factors that could affect the
Company's forward-looking statements, see the Company's risk factors, as
they may be amended from time to time, set forth in its filings with the
Securities and Exchange Commission. The Company disclaims and does not
undertake any obligation to update or revise any forward-looking
statement in this press release, except as required by applicable law or
regulation.

Non-GAAP Financial Measures

To supplement the financial information, the Company has presented
Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA,
and Adjusted EPS, which are considered non-GAAP financial measures. The
non-GAAP financial measures provided should be viewed in addition to,
and not as an alternative for, results prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP") that are presented in this press release. The non-GAAP
financial measures presented may differ from similarly titled non-GAAP
financial measures presented by other companies, and other companies may
not define these non-GAAP financial measures in the same way. These
measures are not substitutes for their comparable GAAP financial
measures, such as net sales, net income/(loss), diluted earnings per
share, or other measures prescribed by GAAP, and there are limitations
to using non-GAAP financial measures.

Management uses these non-GAAP financial measures to assist in comparing
the Company's performance on a consistent basis for purposes of business
decision making by removing the impact of certain items that management
believes do not directly reflect the Company's underlying operations.
Management believes that presenting the Company's non-GAAP financial
measures is useful to investors because it (i) provides investors with
meaningful supplemental information regarding financial performance by
excluding certain items, (ii) permits investors to view performance
using the same tools that management uses to budget, make operating and
strategic decisions, and evaluate historical performance, and (iii)
otherwise provides supplemental information that may be useful to
investors in evaluating the Company's results. The Company believes that
the presentation of these non-GAAP financial measures, when considered
together with the corresponding GAAP financial measures and the
reconciliations to those measures, provides investors with additional
understanding of the factors and trends affecting the Company's business
than could be obtained absent these disclosures.

Organic Net Sales is defined as net sales excluding, when they occur,
the impact of currency, acquisitions and divestitures, and a 53rd week
of shipments. The Company calculates the impact of currency on net sales
by holding exchange rates constant at the previous year's exchange rate,
with the exception of Venezuela, for which the Company calculates the
previous year's results using the current year's exchange rate. Organic
Net Sales is a tool that can assist management and investors in
comparing the Company's performance on a consistent basis by removing
the impact of certain items that management believes do not directly
reflect the Company's underlying operations.

Adjusted EBITDA is defined as net income/(loss) from continuing
operations before interest expense, other expense/(income), net,
provision for/(benefit from) income taxes, and depreciation and
amortization (excluding integration and restructuring expenses); in
addition to these adjustments, the Company excludes, when they occur,
the impacts of integration and restructuring expenses, deal costs,
unrealized losses/(gains) on commodity hedges, impairment losses,
losses/(gains) on the sale of a business, nonmonetary currency
devaluation (e.g., remeasurement gains and losses), and equity award
compensation expense (excluding integration and restructuring expenses).
The Company also presents Adjusted EBITDA on a constant currency basis.
The Company calculates the impact of currency on Adjusted EBITDA by
holding exchange rates constant at the previous year's exchange rate,
with the exception of Venezuela, for which it calculates the previous
year's results using the current year's exchange rate. Adjusted EBITDA
and Constant Currency Adjusted EBITDA are tools that can assist
management and investors in comparing the Company's performance on a
consistent basis by removing the impact of certain items that management
believes do not directly reflect the Company's underlying operations.

Adjusted EPS is defined as diluted earnings per share excluding, when
they occur, the impacts of integration and restructuring expenses, deal
costs, unrealized losses/(gains) on commodity hedges, impairment losses,
losses/(gains) on the sale of a business, nonmonetary currency
devaluation (e.g., remeasurement gains and losses), and U.S. Tax Reform
discrete income tax expense/(benefit), and including when they occur,
adjustments to reflect preferred stock dividend payments on an accrual
basis. The Company believes Adjusted EPS provides important
comparability of underlying operating results, allowing investors and
management to assess operating performance on a consistent basis.

See the attached schedules for supplemental financial data, which
includes the financial information, the non-GAAP financial measures and
corresponding reconciliations to the comparable GAAP financial measures
for the relevant periods.

       

Schedule 1

The Kraft Heinz Company
Condensed Consolidated Statements of Income
(in millions, except per share data)
(Unaudited)
 
For the Three Months Ended     For the Six Months Ended
June 30,   July 1, June 30,   July 1,
2018 2017 2018 2017
Net sales $ 6,686 $ 6,637 $ 12,990 $ 12,961
Cost of products sold(a) 4,321   4,204   8,380   8,329  
Gross profit 2,365 2,433 4,610 4,632
Selling, general and administrative expenses(b) 1,036   789   1,800   1,555  
Operating income 1,329 1,644 2,810 3,077
Interest expense 318 307 635 620
Other expense/(income), net(c) (35 ) (253 ) (125 ) (383 )
Income/(loss) before income taxes 1,046 1,590 2,300 2,840
Provision for/(benefit from) income taxes 291   430   552   789  
Net income/(loss) 755 1,160 1,748 2,051
Net income/(loss) attributable to noncontrolling interest (1 ) 1   (1 ) (1 )
Net income/(loss) attributable to common shareholders $ 756   $ 1,159   $ 1,749   $ 2,052  
 
Basic shares outstanding 1,219 1,218 1,219 1,218
Diluted shares outstanding 1,226 1,229 1,227 1,229
 
Per share data applicable to common shareholders:
Basic earnings/(loss) per share $ 0.62 $ 0.95 $ 1.43 $ 1.69
Diluted earnings/(loss) per share 0.62 0.94 1.43 1.67

(a)

 

Integration and restructuring expenses recorded in cost of
products sold were $79 million for the quarter ended June 30, 2018
($69 million after-tax), $83 million for the quarter ended July 1,
2017 ($59 million after-tax), $157 million for the six months
ended June 30, 2018 ($130 million after-tax), and $179 million for
the six months ended July 1, 2017 ($125 million after-tax).

 

(b)

Integration and restructuring expenses recorded in selling,
general and administrative expenses ("SG&A") were $14 million for
the quarter ended June 30, 2018 ($12 million after-tax), $71
million for the quarter ended July 1, 2017 ($50 million
after-tax), $26 million for the six months ended June 30, 2018
($22 million after-tax), and $110 million for the six months ended
July 1, 2017 ($76 million after-tax).

 

(c)

Integration and restructuring expenses/(income) recorded in
other expense/(income), net were expenses of $64 million for the
quarter ended June 30, 2018 ($53 million after-tax), income of
$160 million for the quarter ended July 1, 2017 ($111 million
after-tax), expenses of $64 million for the six months ended June
30, 2018 ($53 million after-tax), and income of $147 million for
the six months ended July 1, 2017 ($102 million after-tax).

 
           

Schedule 2

The Kraft Heinz Company
Reconciliation of Net Sales to Organic Net Sales
For the Three Months Ended
(dollars in millions)
(Unaudited)
 

Impact of

   
Impact of

Acquisitions and

Organic Net

  Net Sales  

Currency   Divestitures Sales

      Price      

Volume/Mix
June 30, 2018
United States $ 4,513 $ $ $ 4,513
Canada 564 21 543
EMEA 703 35 11 657
Rest of World 906   (4 ) 63 847
$ 6,686   $ 52   $ 74 $ 6,560
 
July 1, 2017
United States $ 4,601 $ $ $ 4,601
Canada 592 592
EMEA 647 15 632
Rest of World 797   33   764
$ 6,637   $ 33   $ 15 $ 6,589
 
Year-over-year growth rates
United States (1.9 )% 0.0 pp 0.0 pp (1.9)% 0.4 pp (2.3) pp
Canada (4.5 )% 3.7 pp 0.0 pp (8.2)% 0.6 pp (8.8) pp
EMEA 8.7 % 5.4 pp (0.7) pp 4.0% (1.0) pp 5.0 pp
Rest of World 13.5 % (5.4) pp 8.1 pp 10.8% 9.2 pp 1.6 pp
Kraft Heinz 0.7 % 0.3 pp 0.8 pp (0.4)% 1.3 pp (1.7) pp
 
           

Schedule 3

The Kraft Heinz Company
Reconciliation of Net Sales to Organic Net Sales
For the Six Months Ended
(dollars in millions)
(Unaudited)
 

Impact of

   
Impact of

Acquisitions and

Organic Net

    Net Sales    

Currency Divestitures Sales

      Price      

Volume/Mix
June 30, 2018
United States $ 8,881 $ $ $ 8,881
Canada 1,048 43 1,005
EMEA 1,388 109 19 1,260
Rest of World 1,673   13 63 1,597
$ 12,990   $ 165 $ 82 $ 12,743
 
July 1, 2017
United States $ 9,119 $ $ $ 9,119
Canada 1,032 1,032
EMEA 1,244 31 1,213
Rest of World 1,566   73 1,493
$ 12,961   $ 73 $ 31 $ 12,857
 
Year-over-year growth rates
United States (2.6 )% 0.0 pp 0.0 pp (2.6)% 0.6 pp (3.2) pp
Canada 1.6 % 4.1 pp 0.0 pp (2.5)% 0.4 pp (2.9) pp
EMEA 11.6 % 8.8 pp (1.0) pp 3.8% (0.8) pp 4.6 pp
Rest of World 6.8 % (4.3) pp 4.1 pp 7.0% 6.8 pp 0.2 pp
Kraft Heinz 0.2 % 0.7 pp 0.4 pp (0.9)% 1.1 pp (2.0) pp
 
       

Schedule 4

The Kraft Heinz Company
Reconciliation of Net Income/(Loss) to Adjusted EBITDA
(dollars in millions)
(Unaudited)
 
For the Three Months Ended     For the Six Months Ended
June 30,   July 1, June 30,   July 1,
2018 2017 2018 2017
Net income/(loss) $ 755 $ 1,160 $ 1,748 $ 2,051
Interest expense 318 307 635 620
Other expense/(income), net (35 ) (253 ) (125 ) (383 )
Provision for/(benefit from) income taxes 291   430   552   789  
Operating income 1,329 1,644 2,810 3,077
Depreciation and amortization (excluding integration and
restructuring expenses)
242 218 448 440
Integration and restructuring expenses 93 154 183 289
Deal costs 7 16
Unrealized losses/(gains) on commodity hedges 3 (13 ) 5 29
Impairment losses 265 48 265 48
Losses/(gains) on sale of business 15 15
Equity award compensation expense (excluding integration and
restructuring expenses)
20   14   27   26  
Adjusted EBITDA $ 1,974   $ 2,065   $ 3,769   $ 3,909  
 
Segment Adjusted EBITDA:
United States $ 1,432 $ 1,557 $ 2,814 $ 3,021
Canada 172 189 306 314
EMEA 201 184 383 324
Rest of World 213 171 356 315
General corporate expenses (44 ) (36 ) (90 ) (65 )
Adjusted EBITDA $ 1,974   $ 2,065   $ 3,769   $ 3,909  
 
           

Schedule 5

The Kraft Heinz Company
Reconciliation of Adjusted EBITDA to Constant Currency Adjusted
EBITDA
For the Three Months Ended
(dollars in millions)
(Unaudited)
 

             Adjusted            

   

            Impact of            

   

  Constant Currency  

EBITDA Currency Adjusted EBITDA
June 30, 2018
United States $ 1,432 $ $ 1,432
Canada 172 6 166
EMEA 201 12 189
Rest of World 213 1 212
General corporate expenses (44 ) (1 ) (43 )
$ 1,974   $ 18   $ 1,956  
 
July 1, 2017
United States $ 1,557 $ $ 1,557
Canada 189 189
EMEA 184 184
Rest of World 171 10 161
General corporate expenses (36 )   (36 )
$ 2,065   $ 10   $ 2,055  
 
Year-over-year growth rates
United States (8.0 )% 0.0 pp (8.0 )%
Canada (8.9 )% 3.4 pp (12.3 )%
EMEA 8.9 % 6.0 pp 2.9 %
Rest of World 24.6 % (7.1) pp 31.7 %
General corporate expenses 22.8 % 2.8 pp 20.0 %
Kraft Heinz (4.4 )% 0.4 pp (4.8 )%
 
           

Schedule 6

The Kraft Heinz Company
Reconciliation of Adjusted EBITDA to Constant Currency Adjusted
EBITDA
For the Six Months Ended
(dollars in millions)
(Unaudited)
 

            Adjusted            

   

            Impact of            

   

  Constant Currency  

EBITDA Currency Adjusted EBITDA
June 30, 2018
United States $ 2,814 $ $ 2,814
Canada 306 12 294
EMEA 383 32 351
Rest of World 356 4 352
General corporate expenses (90 ) (3 ) (87 )
$ 3,769   $ 45   $ 3,724  
 
July 1, 2017
United States $ 3,021 $ $ 3,021
Canada 314 314
EMEA 324 324
Rest of World 315 21 294
General corporate expenses (65 )   (65 )
$ 3,909   $ 21   $ 3,888  
 
Year-over-year growth rates
United States (6.9 )% 0.0 pp (6.9 )%
Canada (2.5 )% 3.9 pp (6.4 )%
EMEA 18.2 % 9.8 pp 8.4 %
Rest of World 13.1 % (6.5) pp 19.6 %
General corporate expenses 37.3 % 3.8 pp 33.5 %
Kraft Heinz (3.6 )% 0.6 pp (4.2 )%
 
             

Schedule 7

The Kraft Heinz Company
Reconciliation of Diluted EPS to Adjusted EPS
(Unaudited)
 
For the Three Months Ended     For the Six Months Ended
June 30, July 1, June 30, July 1,
2018 2017 2018 2017
Diluted EPS $ 0.62 $ 0.94 $ 1.43 $ 1.67
Integration and restructuring expenses(a)(c) 0.11 0.17 0.08
Deal costs(a)(b) 0.01
Unrealized losses/(gains) on commodity hedges(a)(b) (0.01 ) 0.01
Impairment losses(a)(b) 0.20 0.03 0.20 0.03
Losses/(gains) on sale of business(a)(b) 0.01 0.01
Nonmonetary currency devaluation(a)(d) 0.02 0.02 0.05 0.03
U.S. Tax Reform discrete income tax expense/(benefit)(e) 0.04   0.02
Adjusted EPS $ 1.00 $ 0.98   $ 1.89 $ 1.82

(a)

 

Income tax expense associated with these items is based on
applicable jurisdictional tax rates and deductibility assessments
of individual items.

(b)

Refer to the reconciliation of net income/(loss) to Adjusted
EBITDA for the related gross expenses.

(c)

Integration and restructuring included the following gross
expenses/(income):

 

Expenses recorded in cost of products sold were expenses of
$79 million for the three months and $157 million for the six
months ended June 30, 2018 and $83 million for the three months
and $179 million for the six months ended July 1, 2017.

Expenses recorded in SG&A were $14 million for the three
months and $26 million for the six months ended June 30, 2018 and
$71 million for the three months and $110 million for the six
months ended July 1, 2017.

 

Expenses/(income) recorded in other expense/(income), net,
were expenses of $64 million for the three and six months ended
June 30, 2018 and income of $160 million for the three months and
$147 million for the six months ended July 1, 2017.

(d)

Nonmonetary currency devaluation included the following gross
expenses:

Expenses recorded in other expense/(income), net, were $20
million for the three months and $67 million for the six months
ended June 30, 2018 and $25 million for the three months and $33
million for the six months ended July 1, 2017.

(e)

U.S. Tax Reform discrete income tax expense/(benefit)
included expenses of $44 million for the three months and $24
million for the six months ended June 30, 2018 (there were no such
expenses for the three or six months ended July 1, 2017). Expenses
for the three and six months ended June 30, 2018 primarily related
to the revaluation of our deferred tax balances due to changes in
state tax laws following U.S. Tax Reform. Expenses for the six
months ended were partially offset by U.S. Tax Reform measurement
period adjustments in the first quarter of 2018.

 
               

Schedule 8

The Kraft Heinz Company
Condensed Consolidated Balance Sheets
(in millions, except per share data)
(Unaudited)
   

        June 30, 2018        

  December 30, 2017  

ASSETS
Cash and cash equivalents $ 3,369 $ 1,629
Trade receivables, net 1,950 921
Sold receivables 37 353
Income taxes receivable 177 582
Inventories 3,161 2,815
Other current assets 807   966  
Total current assets 9,501 7,266
Property, plant and equipment, net 7,258 7,120
Goodwill 44,270 44,824
Intangible assets, net 59,101 59,449
Other assets 1,766   1,573  
TOTAL ASSETS $ 121,896   $ 120,232  
 
LIABILITIES AND EQUITY
Commercial paper and other short-term debt $ 34 $ 460
Current portion of long-term debt 2,754 2,743
Trade payables 4,326 4,449
Accrued marketing 474 680
Income taxes payable 88 152
Interest payable 404 419
Other current liabilities 1,011   1,229  
Total current liabilities 9,091 10,132
Long-term debt 31,380 28,333
Deferred income taxes 14,230 14,076
Accrued postemployment costs 394 427
Other liabilities 929   1,017  
TOTAL LIABILITIES 56,024 53,985
 
Redeemable noncontrolling interest 7 6
Equity:
Common stock, $0.01 par value 12 12
Additional paid-in capital 58,766 58,711
Retained earnings 8,710 8,589
Accumulated other comprehensive income/(losses) (1,557 ) (1,054 )
Treasury stock, at cost (254 ) (224 )
Total shareholders' equity 65,677 66,034
Noncontrolling interest 188   207  
TOTAL EQUITY 65,865   66,241  
TOTAL LIABILITIES AND EQUITY $ 121,896   $ 120,232  

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