01—Abstract
Summary
Summary of the 10-Q filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Kraft Heinz reported net sales of $6.41 billiona for the three months ended March 30, 2024, down 1.2% from $6.49 billion a year earlier.
Organic Net Sales declined 0.5% to $6.4 billionb, as higher pricing (2.7 pp) was more than offset by unfavorable volume/mix (3.2 pp). Operating income rose 4.7% to $1.30 billion, aided by higher pricing and commodity hedge gains. Net income attributable to common shareholders fell 4.2% to $801 million, and diluted EPS declined 2.9% to $0.66.
Adjusted EPS rose 1.5% to $0.69c, and Adjusted Operating Income increased 1.7% to $1.27 billion. Net income was pressured by an $80 million pre-tax loss on the sale of businesses (the Papua New Guinea Transaction), a $39 million derivative loss, and a higher effective tax rate of 21.9%. Cash generation improved, with operating cash flow of $771 million versus $486 million a year earlier, primarily from lower inventory outflows.
Capital expenditures were $294 milliond, and the company expects 2024 capex of approximately $1.1 billion. The company issued 550 million euros of 3.500% senior notes due 2029 and reported long-term debt, including current portion, of $20.5 billion. Cash and cash equivalents were $1.6 billion, and the $4.0 billion Senior Credit Facility remained undrawn.
Dividends paid totaled $486 million, repurchases of common stock were $329 million, and roughly $2.6 billion remained under the $3.0 billion repurchase authorization. The filing also flags risk items. The IRS has issued Notices of Proposed Adjustment on transfer pricing for 2018 and 2019, proposing roughly $200 million and $210 million in additional U.S. federal tax for those years, plus penalties of about $85 million each; the company has recorded no reserves and strongly disagrees.
Goodwill and indefinite-lived intangible assets total $30.4 billion and $38.4 billion, several reporting units and brands have limited fair value headroom, and a North America interim impairment test is required in the second quarter of 2024 due to reorganization. Segment reporting also changed in the first quarter, with Emerging Markets Segment Adjusted Operating Income down 18.4% to $82 million.
02—Key points
Key Highlights
- Net sales fell 1.2% to $6.41 billion; Organic Net Sales declined 0.5%, with volume/mix down 3.2 pp and pricing up 2.7 pp.
- Operating income rose 4.7% to $1.30 billion, while net income fell 3.9% to $804 million and diluted EPS fell 2.9% to $0.66.
- Adjusted EPS rose 1.5% to $0.69 and Adjusted Operating Income rose 1.7% to $1.27 billion (filing reports $1,265 million).
- Operating cash flow increased to $771 million from $486 million, and capital expenditures were $294 million.
- Issued 550 million euros of 3.500% senior notes due 2029; long-term debt including current portion was $20.5 billion, and the $4.0 billion revolver was undrawn.
- Shareholder returns included $486 million in dividends and $329 million in share repurchases, with about $2.6 billion remaining under the $3.0 billion authorization.
- Goodwill of $30.4 billion and indefinite-lived intangibles of $38.4 billion carry impairment risk; an interim North America impairment test is required in Q2 2024 following reorganization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Kraft Heinz kept $0.12.
- Revenue$6.41B100.0%
- Cost of revenue−$4.17B65.0%
- Gross profit$2.24B35.0%
- Operating costs−$941.0M14.7%
- Operating income$1.30B20.3%
- Interest, other & tax−$501.0M7.8%
- Net income$801.0M12.5%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 1, 2024Financial Statements
| Revenue | $6.41B |
| Cost of Revenue | $4.17B |
| Gross Profit | $2.24B |
| SG&A Expenses | $941.00M |
| Operating Income | $1.30B |
| Interest Expense | $226.00M |
| Net Income | $801.00M |
| EPS (Basic) | $0.66 |
| EPS (Diluted) | $0.66 |
| Shares Outstanding (Basic) | 1.21B |
| Shares Outstanding (Diluted) | 1.22B |
05—Questions
Frequently Asked Questions
Why did net income decline despite higher operating income?
Net income attributable to common shareholders fell 4.2% to $801 million, mainly due to unfavorable changes in other expense/(income), including an $80 million pre-tax loss on the sale of businesses and a $39 million derivative loss, along with a higher effective tax rate of 21.9% versus 20.3% a year earlier.
What drove sales performance in the quarter?
Net sales decreased 1.2% to $6.41 billion. Pricing increased 2.7 pp on an organic basis, but unfavorable volume/mix of 3.2 pp more than offset it. Emerging Markets organic sales grew 5.5%, while North America organic sales declined 1.2%.
What is the status of the IRS transfer pricing dispute?
The IRS issued two Notices of Proposed Adjustment in Q3 2023 proposing additional U.S. federal tax of about $200 million for 2018 and $210 million for 2019, excluding interest, plus penalties of about $85 million each. The company strongly disagrees, has recorded no reserves, and intends to contest the positions. The IRS began auditing 2020 through 2022 in Q1 2024.
How is the company's liquidity and debt position?
Cash and cash equivalents were $1.6 billion at March 30, 2024. The company issued 550 million euros of notes due 2029 to fund the repayment of 550 million euro notes due May 2024. The $4.0 billion Senior Credit Facility was undrawn, no commercial paper was outstanding, and the company was in compliance with all financial covenants.
What impairment risks should investors watch?
Several reporting units and brands have limited fair value headroom above carrying value, so they carry a heightened risk of future impairment. A goodwill and intangibles interim impairment test is required in Q2 2024 because North America reporting units were reorganized. Accumulated goodwill impairment losses were $11.8 billion.
06—Continue