July 30, 2020 / 11:42 AM / 7 days ago

UPDATE 3-Kraft Heinz takes $3 bln writedown, signals weaker second-half earnings growth

CHICAGO, July 30 (Reuters) - Kraft Heinz Co on Thursday said second-half core earnings growth would be weaker-than-expected and took a nearly $3 billion charge on the value of several businesses, highlighting uncertainty in the food industry due to the novel coronavirus.

Shares of the Chicago-based company, which makes Philadelphia cream cheese and Kraft Singles, were down 4% in afternoon trading.

Higher employee bonuses, foreign exchange fluctuations and climbing commodity costs - particularly the price of cheese - are expected to soften second-half results, Kraft Heinz said.

Adjusted EBITDA growth - earnings before interest, taxes, depreciation, and amortization - will now be about 9 percentage points lower than last year, versus the 7-percentage-point hit the company predicted in April.

With movement outdoors restricted due to lockdowns to curb the spread of the coronavirus, people around the world bought significantly more groceries during the period for meals at home.

While Kraft Heinz’s retail sales rose, the lockdown took its toll on its U.S. and Canadian food service businesses, which provide ketchup, mayonnaise and other products to restaurants, offices and school cafeterias. These units were included in a nearly $1.8 billion writedown taken during the quarter.

Kraft Heinz - which has written down about $20 billion of its brands and businesses since February 2019 - also took nearly $1.1 billion off the value of Oscar Mayer, Maxwell House and seven other brands.

Due to the most recent impairment charges, the company reported a second-quarter loss attributable to common shareholders of $1.65 billion, versus a profit of $449 million a year earlier. Excluding items, adjusted earnings were 80 cents per share, handily beating analysts’ average estimate of 65 cents. Food companies have particularly benefited from sales in developed countries, which have strong e-commerce infrastructure and adaptable distribution systems.

Revenue from Kraft Heinz’s U.S. business rose 8.5% to $4.9 billion in the quarter ended June 27, as it ramped up inventory and boosted sales across nearly all its retail categories. Overall sales grew 3.8% to $6.65 billion, beating analyst expectations for $6.54 billion, according to Refinitiv.

Bernstein analysts called this a “solid quarter” for Kraft Heinz, but said they would remain “on the sidelines” until September, when the company is due to announce a strategic update at its investor day.

Shares are up 10.7% on the year, outperforming the benchmark S&P 500 stock index’s gain of about 0.9% on the year. (Editing by Bernadette Baum)

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