Kraft Heinz: Reports Q4 and Full Year 2022 Results

Chicago / IL. (khc) The Kraft Heinz Company reported financial results for the fourth quarter and full year 2022. «2022 was an incredible year for Kraft Heinz, delivering strong results and ending the fourth quarter with solid momentum that positions us well for 2023,» said Kraft Heinz CEO and Chair of the Board Miguel Patricio. «We continue to see strength driven by our key growth pillars, while at the same time prioritizing investments in our brands and delivering on efficiencies. The results were even more impressive considering the difficult operating environment, with record levels of inflation and supply chain disruptions, to which our teams responded with agility. I am very proud of the entire Kraft Heinz team for a strong year, while continuing to execute on our strategy. We are confident that all the work we’ve done thus far positions us well to accelerate profitable growth and generate attractive returns for our stockholders.»

Q4-2022 Financial Summary

  • Net sales increased 10.0 percent versus the year-ago period to USD 7.4 billion, including a positive 7.1 percentage point impact from a 53rd week, a negative 4.6 percentage point impact from divestitures and acquisitions, and a negative 2.9 percentage point impact from currency. Organic Net Sales increased 10.4 percent versus the prior year period. Price increased 15.2 percentage points versus the prior year period, with increases in both reportable segments primarily driven by price increases to mitigate rising input costs. Volume/mix declined 4.8 percentage points versus the prior year period, with declines in both reportable segments that were primarily driven by supply constraints and elasticity impacts from pricing actions.
  • Net income/(loss) increased 447.9 percent versus the year-ago period to USD 887 million, primarily driven by non-cash impairment losses in the prior year period, lower interest expense primarily due to debt extinguishment costs in the prior year period, and higher Adjusted Ebitda versus the prior year period. These factors were partially offset by higher tax expense, an accrual related to the previously disclosed securities class action lawsuit, and unfavorable changes in other expense/(income). Adjusted Ebitda increased 8.6 percent versus the year-ago period to USD 1.7 billion, including a positive 7.4 percentage point impact from a 53rd week, a negative 4.9 percentage point impact from divestitures and acquisitions, and a negative 2.1 percentage point impact from currency. The remaining year-over-year increase in Adjusted Ebitda is a result of higher pricing and efficiency gains that more than offset higher supply chain costs (reflecting inflationary pressure in procurement, logistics, and manufacturing costs), higher commodity costs (mainly in dairy, packaging materials, energy, and soybean and vegetable oils), as well as unfavorable volume/mix.
  • Diluted EPS was USD 0.72, up 442.9 percent versus the prior year period, driven by the net income/(loss) factors discussed above. Adjusted EPS was USD 0.85, up 7.6 percent versus the prior year period, primarily driven by results of ongoing operations, a 53rd week, and lower interest expense versus the prior year period. These factors were partially offset by a negative USD 0.05 impact from divestitures and unfavorable changes in other expense/(income).

FY-2022 Financial Summary

  • Net Sales increased 1.7 percent versus the year-ago period to USD 26.5 billion, including a negative 8.0 percentage point impact from divestitures and acquisitions, a negative 2.0 percentage point impact from currency, and a positive 1.9 percentage point impact from a 53rd week. Organic Net Sales increased 9.8 percent versus the prior year period. Price increased 13.2 percentage points versus the prior year period, with increases in both reportable segments primarily driven by price increases to mitigate rising input costs. Volume/mix declined 3.4 percentage points versus the prior year period, with declines in both reportable segments that were primarily driven by supply constraints and elasticity impacts from pricing actions.
  • Net income/(loss) increased 131.3 percent versus the year-ago period to USD 2.4 billion, driven by lower interest expense primarily due to debt extinguishment costs in the prior year period and lower non-cash impairment losses in the current year period. These factors were partially offset by lower Adjusted Ebitda versus the prior year period and an accrual related to the previously disclosed securities class action lawsuit. Adjusted Ebitda decreased 5.8 percent versus the year-ago period to USD 6.0 billion, including a negative 6.1 percentage point impact from divestitures and acquisitions, a negative 1.3 percentage point impact from currency, and a positive 1.9 percentage point impact from a 53rd week. The remaining year-over-year decrease in Adjusted Ebitda is primarily a result of higher supply chain costs (reflecting inflationary pressure in procurement, logistics, and manufacturing costs), higher commodity costs (mainly in dairy, packaging materials, soybean and vegetable oils, energy, and meat), and unfavorable volume/mix. These impacts were offset by higher pricing and efficiency gains.
  • Diluted EPS was USD 1.91, up 132.9 percent versus the prior year period, primarily driven by the net income/(loss) factors discussed above. Adjusted EPS was USD 2.78, down 5.1 percent versus the prior year period, primarily driven by a negative USD 0.26 impact from divestitures, higher taxes on adjusted earnings, and unfavorable changes in other expense/(income). These factors were partially offset by lower interest expense and a 53rd week.
  • Year-to-date net cash provided by operating activities was USD 2.5 billion, down 54.0 percent versus the year-ago period, primarily driven by one-time proceeds from the sale of licenses in connection with the Cheese Transaction in the prior year period, higher cash outflows for inventories primarily related to stock rebuilding, increased input costs, and the acceleration of payments to suppliers attributed to the wind-down of existing product financing arrangements, and lower Adjusted Ebitda. These impacts were partially offset by lower cash outflows for interest, primarily due to prior year reduction of long-term debt. Year-to date Free Cash Flow was USD 1.6 billion, down 65.2 percent versus the comparable prior year period due to the same drivers of net cash provided by operating activities.

Outlook

The Company expects 2023 Organic Net Sales growth of 4 to 6 percent versus 2022. Constant Currency Adjusted Ebitda growth from 2022 to 2023 is expected to range between 2 to 4 percent, or 4 to 6 percent when excluding the impact from the 53rd week in 2022. The Company anticipates high single-digit inflation for the year, with pricing and gross efficiencies contributing to Adjusted Gross Profit Margin recovery. Adjusted Gross Profit Margin expansion is expected to fund incremental investments across technology, marketing, and people. Adjusted EPS is expected to be USD 2.67 to USD 2.75, which includes approximately a USD 0.04 negative impact from expected unfavorable changes in non-cash pension and post-retirement benefits, and a USD 0.04 currency headwind at current foreign exchange rates. The expected 2023 year-over-year Adjusted EPS performance reflects a negative USD 0.06 impact from lapping the 53rd week in 2022.

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