Kraft Heinz returns to organic growth, expands margin - Just Food
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Kraft Heinz returns to organic growth, expands margin

16 Feb 2017

Kraft Heinz continued to grow its margins in 2016 and returned to positive organic top-line growth, even as it booked lower sales.

Kraft Heinz continued to grow its margins in 2016 and returned to positive organic top-line growth, even as it booked lower sales.

The US-based food giant revealed operating profit surged 35% in 2016 while net earnings more than doubled to US$3.6bn. The improvements came despite a 3.5% decrease in net sales. Profits were supported by Kraft Heinz’s ongoing efforts to expand margins and lower interest and other financial expenses. 

Kraft Heinz was able to significantly expand its operating profit margin in 2016. Since the acquisition of HJ Heinz by 3G Capital and Berkshire Hathaway in 2014 and its subsequent merger with Kraft Foods Group two years ago, the focus has been firmly on increasing profitability. The company embarked on cost-savings programmes that looked to improve efficiency through the implementation of initiatives including zero-based budgeting and the reduction of SG&A expenses. 

While Kraft Heinz has continued to drive down its costs, the firm also revealed it has returned to organic growth. After a 3.1% drop in sales on a pro-forma basis in 2015 – reflecting Kraft Heinz’s decision to exit less profitable sales – the company revealed sales edged up by 0.3% on an organic basis in 2016. 

Kraft Heinz FY group results

Source:Kraft Heinz

Kraft Heinz FY operating profit margin

Source:Kraft Heinz

Kraft Heinz FY organic sales

Source:Kraft Heinz

Outlook

Kraft Heinz CEO Bernardo Hees insisted the group has “good momentum heading into 2017”. 

“Looking forward, our objectives and opportunities are clear. But we need to sharpen our focus on profitable sales, and further improve our capabilities and execution to deliver another year of strong, sustainable growth in 2017,” he said. 

Providing more detail on its integration programme, the company said it now expects to deliver $1.7bn in cumulative, pre-tax savings by the end of 2017, up from $1.5bn it had previously forecast. The programme is now expected to result in $2bn of pre-tax costs, up from $1.9bn previously, and $1.3bn of capital expenditures, up from $1.1bn.