01—Abstract
Summary
Summary of the 10-K filed February 16, 2023. Cited figures are marked; the original filing is the authoritative source.
The Kraft Heinz Company (Nasdaq: KHC) reported 2022 net sales of $26.5 billiona, up 1.7% from $26.0 billion in 2021, with Organic Net Sales up 9.8% to $26.2 billion, driven primarily by higher pricing (13.2 pp) partly offset by unfavorable volume/mix (3.4 pp).
Operating income rose 5.0% to $3.6 billion and net income more than doubled to $2.4 billionb (up 131.3%), helped by lower interest expense ($921 million versus $2.0 billion) and lower impairment losses. However, Adjusted EBITDA declined 5.8% to $6.0 billion and Adjusted EPS fell 5.1% to $2.78, as higher supply chain and commodity costs, the impact of divestitures, and unfavorable volume/mix outweighed pricing and efficiency gains. Diluted EPS was $1.91 versus $0.82 in 2021.
Cash flow weakened, with operating cash flow of $2.5 billionc versus $5.4 billion in 2021, reflecting inventory rebuilding, higher input costs, and the prior year's cheese license proceeds. Capital expenditures were $916 million, with 2023 capex expected at about $1.1 billion. Long-term debt declined to $20.1 billion from $21.8 billion through repayments and repurchases, and Fitch and S&P upgraded the credit rating during 2022.
The company remains exposed to goodwill and brand impairment risk: reporting units with 20% or less excess fair value carried $16.4 billiond of goodwill, and the 2022 goodwill and intangible impairments totaled $913 million. Berkshire Hathaway owns approximately 26.6% of common stock.
The filing also discloses a preliminary February 2023 settlement of a securities class action, for which the company recorded a $210 million accrual in the fourth quarter of 2022, and an ongoing IRS transfer pricing examination for 2018 and 2019. The Board declared a $0.40 per share quarterly dividend for the first quarter of 2023.
02—Key points
Key Highlights
- Net sales rose 1.7% to $26.5 billion, while Organic Net Sales increased 9.8%, driven by a 13.2 pp price contribution that more than offset a 3.4 pp volume/mix decline.
- Net income rose 131.3% to $2.4 billion, mainly due to lower interest expense ($921 million vs. $2.0 billion) and lower impairment losses.
- Adjusted EBITDA fell 5.8% to $6.0 billion and Adjusted EPS declined 5.1% to $2.78, reflecting higher supply chain and commodity costs and divestiture impacts.
- Operating cash flow fell to $2.5 billion from $5.4 billion, as inventory rebuilding and input cost inflation offset lower interest payments.
- Long-term debt decreased to $20.1 billion from $21.8 billion, and the company's long-term rating was upgraded by S&P to BBB- and by Fitch to BBB during 2022.
- Goodwill and intangible impairments remain a risk, with reporting units carrying $16.4 billion of goodwill at 20% or less excess fair value after the Q3 2022 annual test.
- A $210 million accrual was recorded for a securities class action that reached a preliminary settlement in February 2023, and the IRS is examining transfer pricing for 2018 and 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Kraft Heinz kept $0.09.
- Revenue$26.48B100.0%
- Cost of revenue−$18.36B69.3%
- Gross profit$8.12B30.7%
- Operating costs−$4.49B16.9%
- Operating income$3.63B13.7%
- Interest, other & tax−$1.27B4.8%
- Net income$2.36B8.9%
Where FY2022 revenue went
$26.48B- Cost of revenue: $18.36B, 69% of revenue
- SG&A: $4.49B, 17% of revenue
- Net income: $2.36B, 8.9% of revenue
- R&D: $127.0M, 0.5% of revenue
- Interest, other & tax: $1.27B, 4.8% of revenue
Kept 8.9% as net incomeR&D $127.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 16, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $26.48B$26.04B | +1.7% |
| Cost of Revenue | $18.36B$17.36B | +5.8% |
| Gross Profit | $8.12B$8.68B | −6.5% |
| R&D Expenses | $127.00M$140.00M | −9.3% |
| SG&A Expenses | $4.49B$5.22B | −14.1% |
| Operating Income | $3.63B$3.46B | +5.0% |
| Interest Expense | $921.00M$2.05B | −55.0% |
| Net Income | $2.36B$1.01B | +133.5% |
| EPS (Basic) | $1.93$0.83 | +132.5% |
| EPS (Diluted) | $1.91$0.82 | +132.9% |
| Shares Outstanding (Basic) | 1.23B1.22B | +0.2% |
| Shares Outstanding (Diluted) | 1.24B1.24B | −0.1% |
05—Questions
Frequently Asked Questions
How did Kraft Heinz perform in 2022 compared with 2021?
Net sales increased 1.7% to $26.5 billion, and Organic Net Sales increased 9.8% to $26.2 billion, primarily from higher pricing. Operating income rose 5.0% to $3.6 billion, and net income rose 131.3% to $2.4 billion. Adjusted EBITDA declined 5.8% to $6.0 billion.
Why did net income rise so much while Adjusted EBITDA declined?
The net income increase was driven mainly by interest expense falling to $921 million from $2.0 billion, largely because 2021 included a $917 million loss on debt extinguishment, and by lower impairment losses. Adjusted EBITDA fell because of higher supply chain and commodity costs, the unfavorable impact of acquisitions and divestitures, and unfavorable volume/mix, which outweighed higher pricing and efficiency gains.
How strong is the company's cash generation and liquidity?
Operating cash flow was $2.5 billion in 2022, down from $5.4 billion in 2021. Cash and cash equivalents were $1.0 billion at year-end. The company has a $4.0 billion senior credit facility maturing in 2027 with no amounts drawn, and it reported compliance with all financial covenants.
What are the main risks to the company's valuation?
The company carries $30.8 billion of goodwill and $38.6 billion of indefinite-lived brand intangibles. Several reporting units and brands have 20% or less excess fair value, so further impairments are possible if assumptions change. Berkshire Hathaway, which owns approximately 26.6% of common stock, can exert significant influence over matters requiring stockholder approval.
What dividend is the company paying?
Dividends paid totaled $2.0 billion in 2022. In the first quarter of 2023, the Board declared a cash dividend of $0.40 per share, payable on March 31, 2023 to stockholders of record on March 10, 2023.
06—Continue