01—Abstract
Summary
Summary of the 10-K filed February 17, 2022. Cited figures are marked; the original filing is the authoritative source.
The Kraft Heinz Company (Nasdaq: KHC) reported 2021 net sales of $26.04 billiona, down 0.5% from $26.19 billion in 2020, while Organic Net Sales rose 1.8% to $23.71 billion, driven by higher pricing (2.3 pp) that more than offset unfavorable volume/mix (0.5 pp).
Divestitures reduced net sales by 3.5 pp, mainly from the Nuts and Cheese Transactions. Operating income rose 62.6% to $3.46 billionb, primarily because non-cash impairment losses fell to $1.6 billion from $3.4 billion. Net income was $1.02 billion, or $0.82 diluted EPS, versus $0.29 in 2020, while Adjusted EPS increased 1.7% to $2.93 and Adjusted EBITDA decreased 4.5% to $6.37 billion.
Management cited higher commodity, supply chain, and logistics costs from inflationary pressures and expects cost inflation to remain elevated through at least 2022. Interest expense rose to $2.05 billionc, mainly due to a $917 million loss on extinguishment of debt from roughly $6.0 billion of senior note reductions in 2021. Long-term debt, including current portion, fell to $21.8 billion from $28.3 billion, funded largely by the Nuts Transaction (about $3.4 billion) and the Cheese Transaction (about $3.2 billion in cash).
Cash from operations was $5.36 billiond and capital expenditures were $905 million. The company recorded goodwill impairments of $318 million and intangible asset impairments of $1.3 billion in 2021, including a $1.24 billion Kraft brand impairment tied to the Cheese Transaction.
Its Sponsors (Berkshire Hathaway and 3G Capital) own approximately 42% of common stock, and the company has an SEC settlement cost of $62 million. Management concluded internal control over financial reporting was effective as of December 25, 2021.
02—Key points
Key Highlights
- Net sales of $26.04 billion declined 0.5% year over year, while Organic Net Sales grew 1.8% to $23.71 billion on 2.3 pp of price increases.
- Operating income rose 62.6% to $3.46 billion, mainly because non-cash impairment losses fell to $1.6 billion from $3.4 billion.
- Diluted EPS was $0.82 versus $0.29 in 2020; Adjusted EPS rose 1.7% to $2.93.
- Adjusted EBITDA declined 4.5% to $6.37 billion, with United States Segment Adjusted EBITDA down 7.2% on higher commodity and supply chain costs.
- Long-term debt, including current portion, fell to $21.8 billion from $28.3 billion, aided by about $3.4 billion from the Nuts Transaction and about $3.2 billion from the Cheese Transaction.
- Interest expense rose to $2.05 billion, including a $917 million loss on debt extinguishment from 2021 tender offers, repurchases, and redemptions.
- Management expects commodity and supply chain cost inflation to remain elevated through at least 2022 and plans a 2022 capital expenditure budget of approximately $1.0 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Kraft Heinz kept $0.04.
- Revenue$26.04B100.0%
- Cost of revenue−$17.36B66.7%
- Gross profit$8.68B33.3%
- Operating costs−$5.22B20.1%
- Operating income$3.46B13.3%
- Interest, other & tax−$2.45B9.4%
- Net income$1.01B3.9%
Where FY2021 revenue went
$26.04B- Cost of revenue: $17.36B, 67% of revenue
- SG&A: $5.22B, 20% of revenue
- Net income: $1.01B, 3.9% of revenue
- R&D: $140.0M, 0.5% of revenue
- Interest, other & tax: $2.45B, 9.4% of revenue
Kept 3.9% as net incomeNet income $1.01B · 3.9%R&D $140.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 17, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $26.04B$26.18B | −0.5% |
| Cost of Revenue | $17.36B$17.01B | +2.1% |
| Gross Profit | $8.68B$9.18B | −5.4% |
| R&D Expenses | $140.00M$119.00M | +17.6% |
| SG&A Expenses | $5.22B$7.05B | −25.9% |
| Operating Income | $3.46B$2.13B | +62.6% |
| Interest Expense | $2.05B$1.39B | +46.8% |
| Net Income | $1.01B$356.00M | +184.3% |
| EPS (Basic) | $0.83$0.29 | +186.2% |
| EPS (Diluted) | $0.82$0.29 | +182.8% |
| Shares Outstanding (Basic) | 1.22B1.22B | +0.1% |
| Shares Outstanding (Diluted) | 1.24B1.23B | +0.7% |
05—Questions
Frequently Asked Questions
Why did operating income rise sharply while net sales declined?
Operating income rose to $3.46 billion from $2.13 billion mainly because non-cash impairment losses fell to $1.6 billion in 2021 from $3.4 billion in 2020. Net sales declined 0.5% to $26.04 billion, reflecting divestitures, which reduced net sales by 3.5 pp, partly offset by pricing and favorable currency.
What drove the increase in interest expense?
Interest expense increased to $2.05 billion from $1.39 billion, primarily due to a $917 million loss on extinguishment of debt in 2021 tied to about $6.0 billion of senior note reductions through tender offers, redemptions, and open-market repurchases.
How much did the company reduce its debt and how was it funded?
Long-term debt, including the current portion, decreased to $21.8 billion at December 25, 2021 from $28.3 billion at December 26, 2020. The reduction was funded primarily with cash on hand and proceeds from the Nuts Transaction and the Cheese Transaction.
What are the main cost pressures and outlook for the business?
The company experienced higher than expected commodity costs and supply chain costs, including logistics, procurement, and manufacturing costs, largely due to inflationary pressures. It expects this cost inflation to remain elevated through at least 2022 and is mitigating it through pricing actions and efficiency gains, though pricing could reduce market share.
Did the company face significant impairment or legal charges in 2021?
Yes. The company recorded goodwill impairment losses of $318 million and intangible asset impairment losses of $1.3 billion, including a $1.24 billion impairment on the Kraft brand after the Cheese Transaction. It also recorded $62 million of costs to settle a previously disclosed SEC investigation.
06—Continue