Kraft Heinz Co., formed by a merger of two US food giants in July, posted quarterly earnings that topped estimates, helped by growth of condiment sales.
Excluding some items, profit amounted to 62 cents per share in the fourth quarter, the company said in a statement Thursday. The average estimate of analysts surveyed by Bloomberg was 58 cents. Revenue for the quarter was $7.12 billion, beating an estimate of $7 billion.
Kraft Heinz is combating a broader slowdown in packaged-food sales by cutting costs and selling more condiments like ketchup. The company, which has dual headquarters in Pittsburgh and Chicago, was created last year in a transaction orchestrated by private equity firm 3G Capital and Warren Buffett.
"The results show that the brands under the merger, if not destined for super-fast growth, are at least stable," said Asit Sharma, an analyst at the Motley Fool. "This means that the business model can benefit from cost cutting and efficiency. That’s what 3G brings to the deal."
The stock climbed as much as 5.3 per cent to $78.90 on Friday, the biggest intraday gain since September. Kraft Heinz had advanced 3 per cent this year through Thursday’s close.
This is only the second time that Kraft Heinz has reported earnings for the combined company. Before that, it released second-quarter sales numbers for Heinz and Kraft Foods Group that showed declining revenue at each business. The falling sales have underscored the need for Kraft Heinz to cut costs. The company has said it will eliminate $1.5 billion in annual expenses by the end of 2017.
Belt Tightening
Buffett and 3G, a firm founded by Brazilian billionaire Jorge Lemann, previously teamed up to take Heinz private in 2013. 3G is famous for its aggressive cutbacks, and the deals have increased pressure on other packaged food companies to slim down.
Chief Executive Officer Bernardo Hees, who ran Heinz before heading up the combined company, cut more than 7,000 jobs in the 20 months after taking over at the ketchup maker. 3G is taking that same belt-tightening approach at Kraft, which has announced factory closings and more than 5,000 job cuts. Shortly after the merger was announced, Kraft Heinz rolled out policies aimed at curbing expenses such as travel, electricity and office supplies. The company also removed refrigerators at headquarters that had been stocked with Kraft products like Jell-O and cheese sticks.
"We’re starting to really see some of the progress of these cost-savings initiatives," said Brittany Weissman, an analyst at Edward Jones. "That’s what people are looking for."
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