01—Abstract
Summary
Summary of the 10-K filed March 3, 2016. Cited figures are marked; the original filing is the authoritative source.
Kraft Heinz completed its 2015 Merger with Kraft Foods Group, Inc. on July 2, 2015, with Heinz renamed The Kraft Heinz Company.
The combined company reported net sales of $18.34 billiona for the 53-week year ended January 3, 2016, up from $10.92 billion in the year ended December 28, 2014, with total assets of $122.97 billion. Operating income rose to $2.64 billion, but net loss attributable to common shareholders was $266 million, or $0.34 per diluted share, because of $1.3 billion in interest expense, a $9.00% Series A Preferred Stock dividend burden of $900 million, and higher tax and other expenses. Pro forma net sales declined 5.8% to $27.45 billion, with Pro Forma Organic Net Sales down 1.6%, driven by unfavorable volume/mix and foreign currency.
Adjusted Pro Forma EPS rose 10.6% to $2.19b. The company recorded $1.02 billion in integration and restructuring expenses and is executing a multi-year $1.9 billion Integration Program, which it expects to deliver $1.5 billion of pre-tax savings by 2017. Cash provided by operating activities was $2.47 billion, and capital expenditures were $648 million.
Long-term debt rose to $25.15 billionc, and the company paid $2.20 billion in dividends during the year, including $900 million to Series A Preferred holders and $1.30 billion on common stock. The company declared a quarterly common dividend of $0.575 per share, an annualized rate of $2.30. Investors should note the concentration of control: the Sponsors (Berkshire Hathaway and 3G Capital) own approximately 51% of common stock, and the company intends to refinance the Series A Preferred Stock in 2016.
Goodwill of $43.05 billiond and indefinite-lived intangibles of $55.82 billion make up a large share of assets, and the company identified these as subject to impairment risk. Wal-Mart Stores Inc. represented approximately 20% of net sales.
02—Key points
Key Highlights
- Net sales of $18.34 billion for the 53-week year ended January 3, 2016, up 67.9% from $10.92 billion, driven primarily by the 2015 Merger.
- Pro forma net sales fell 5.8% to $27.45 billion; Pro Forma Organic Net Sales declined 1.6%, with volume/mix down 2.6 pp and higher net pricing up 1.0 pp.
- Operating income of $2.64 billion, up 68.3%, but net loss attributable to common shareholders of $266 million (diluted loss of $0.34 per share) after $1.32 billion of interest expense and $900 million of Series A Preferred dividends.
- Adjusted Pro Forma EPS of $2.19, up 10.6% from $1.98, and Adjusted Pro Forma EBITDA of $6.74 billion, up 3.3%.
- Integration and restructuring expenses of $1.02 billion under a $1.9 billion Integration Program expected to deliver $1.5 billion of pre-tax savings by 2017.
- Cash from operations of $2.47 billion; long-term debt increased to $25.15 billion from $13.36 billion after the merger.
- Sponsors (Berkshire Hathaway and 3G Capital) own approximately 51% of common stock; the company intends to refinance the 9.00% Series A Preferred Stock in 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Kraft Heinz kept $0.14.
- Revenue$26.30B100.0%
- Cost of revenue−$17.15B65.2%
- Gross profit$9.15B34.8%
- Operating costs−$3.54B13.5%
- Operating income$5.60B21.3%
- Interest, other & tax−$2.00B7.6%
- Net income$3.60B13.7%
Where FY2016 revenue went
$26.30B- Cost of revenue: $17.15B, 65% of revenue
- Net income: $3.60B, 14% of revenue
- SG&A: $3.54B, 13% of revenue
- R&D: $120.0M, 0.5% of revenue
- Interest, other & tax: $2.00B, 7.6% of revenue
Kept 14% as net incomeR&D $120.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 3, 2016Financial Statements
| Revenue | $26.30B |
| Cost of Revenue | $17.15B |
| Gross Profit | $9.15B |
| R&D Expenses | $120.00M |
| SG&A Expenses | $3.54B |
| Operating Income | $5.60B |
| Interest Expense | $1.13B |
| Net Income | $3.60B |
| EPS (Basic) | $2.81 |
| EPS (Diluted) | $2.78 |
| Shares Outstanding (Basic) | 1.22B |
| Shares Outstanding (Diluted) | 1.23B |
05—Questions
Frequently Asked Questions
Why did Kraft Heinz report a net loss despite rising operating income?
Operating income increased 68.3% to $2.64 billion, but interest expense rose to $1.32 billion (including a $236 million write-off of debt issuance costs and a $227 million expense from terminating interest rate swaps), other expense rose to $305 million, the effective tax rate was 36.2%, and the company paid $900 million in Series A Preferred dividends. Net loss attributable to common shareholders was $266 million.
How did the 2015 Merger change the company's size and financial position?
Following the merger of Kraft Foods Group into a Heinz subsidiary on July 2, 2015, net sales for the year rose to $18.34 billion from $10.92 billion, total assets reached $122.97 billion from $36.57 billion, and long-term debt grew to $25.15 billion from $13.36 billion. Goodwill increased to $43.05 billion and intangible assets to $62.12 billion.
What is the company's dividend policy and what are the Series A Preferred obligations?
The Board declared a quarterly common dividend of $0.575 per share, payable April 8, 2016, for an annualized rate of $2.30 per share. The Series A Preferred Stock carries a 9.00% annual dividend, paid in cash, and the company intends to refinance it in 2016. Dividends are subject to Board discretion and the rights of Series A holders.
How concentrated is the company's ownership and customer base?
The Sponsors and certain Heinz stockholders own approximately 51% of common stock, and six of the 11 directors previously served on the Heinz board. Wal-Mart Stores Inc. represented approximately 20% of net sales for 2015, and the five largest U.S. segment customers accounted for approximately 45% of U.S. segment sales.
06—Continue