BRKA Berkshire Hathaway Inc (class A)

By Annie Gasparro 

Kraft Heinz Co. boosted profits and key sales in the latest quarter, and said Wednesday it plans to squeeze out more savings than it initially targeted when its legacy companies merged in 2015.

The food company said it now expects annualized savings from the integration to reach $1.7 billion by the end of this year, up from a previous target of $1.5 billion.

Kraft Heinz's strategy is being driven by 3G Capital Partners LP, which alongside Berkshire Hathaway Inc. controls a majority of the company.

The private equity firm has a reputation for swift layoffs and scrutinizing even the most minor costs using the zero-base budgeting philosophy that calls for departments to justify every expense anew each year.

Despite quarterly earnings that beat Wall Street expectations, cost cuts weren't as dramatic as some investors anticipated, said Wells Fargo food analyst John Baumgartner. The results are "respectable, but is it enough?" he said. "We've sensed investors were looking for a number closer to $2 billion."

Shares fell 2% in after-hours trading.

The maker of Oscar Mayer deli meat, Jell-O desserts, Maxwell House coffee, and a plethora of other iconic American snacks, logged comparable sales growth of 1.6% -- marking only the second quarter that key metric has increased since the company began reporting combined earnings in November of 2015.

Kraft Heinz, like other big food makers, has struggled with sales declines in the U.S. and Europe, where consumers are buying food they view as fresher and more natural.

The company has responded by removing artificial colors from foods like Kraft's famous blue-box mac-and-cheese, and creating a new brand of frozen meals aimed at using trendier ingredients to attract younger consumers.

"You see categories that were declining double-digits. Now, there are over seven increasing at high single-digits," Chief Operating Officer George Zoghbi said on an investor call.

Europe was the only geographical segment with declining comparable sales in the quarter, and executives said that is an area they are hoping to improve through things like better marketing.

"We have no intention of gaining sales without the profitability," said Chief Executive Bernardo Hees on the call.

During the fourth quarter, Kraft Heinz's operating profit margin hit 23%, up from 18% a year ago, as the company slashed general and administrative expenses by 42%, on a pro forma basis.

Kraft Heinz's overall revenue declined 3.7% to $6.86 billion, as currency fluctuations and an extra week in the year-ago quarter hurt results. But the revenue beat analysts' expectations of $6.74 billion, according to a poll by Thomson Reuters.

For the fourth quarter, Kraft Heinz earned $944 million, or 77 cents a share. Excluding certain items such as merger costs, Kraft Heinz's adjusted per-share earnings rose 47% to 91 cents, beating the 88-cent analyst estimate.

Ezequiel Minaya contributed to this article.

Write to Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

February 15, 2017 19:54 ET (00:54 GMT)

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