01—Abstract
Summary
Summary of the 10-Q filed October 30, 2024. Cited figures are marked; the original filing is the authoritative source.
The Kraft Heinz Company reported third-quarter 2024 net sales of $6.38 billiona, down 2.8% from $6.57 billion a year earlier, with Organic Net Sales down 2.2%, driven mainly by unfavorable volume/mix (3.4 pp) that more than offset higher pricing (1.2 pp).
The company posted a net loss of $290 millionb for the quarter, compared with net income of $254 million in the prior-year period, primarily because of non-cash impairment losses. Operating loss was $101 million, reflecting goodwill impairment losses of $707 million and intangible asset impairment losses of $721 million. For the nine months, net sales were $19.27 billion, down 2.6%, and net income was $614 million versus $2.09 billion a year earlier.
Excluding impairments, the company's underlying profitability held up: Adjusted Operating Income rose 1.4% to $1.33 billionc in the quarter and 1.7% to $3.98 billion for the nine months, and Adjusted EPS increased 4.2% to $0.75 for the quarter. Management attributed these gains to higher pricing, efficiency initiatives (primarily procurement), and lower variable compensation, partly offset by unfavorable volume/mix and higher manufacturing labor costs. Cash from operating activities was $2.80 billion for the nine months, versus $2.62 billion a year earlier, while the company paid $1.45 billion in dividends and repurchased $538 million of common stock.
Investors should focus on the impairment charges, which totaled $2.28 billiond for the nine months and reduced goodwill to $28.95 billion and intangible assets to $41.80 billion, and on continued volume declines in North America. The filing also discloses an IRS transfer-pricing dispute covering 2018 and 2019 with proposed additional U.S. tax of roughly $200 million and $210 million, which the company strongly contests and has not reserved for.
02—Key points
Key Highlights
- Net sales fell 2.8% to $6.38 billion in the third quarter of 2024; Organic Net Sales fell 2.2%, with volume/mix down 3.4 pp and pricing up 1.2 pp.
- Operating loss of $101 million in the quarter, driven by $1.43 billion of impairment losses, including $707 million of goodwill and $721 million of intangible asset impairments.
- Net loss of $290 million (diluted EPS of $(0.24)) versus net income of $254 million a year earlier; Adjusted EPS rose 4.2% to $0.75.
- Adjusted Operating Income increased 1.4% to $1.33 billion in the quarter and 1.7% to $3.98 billion for the nine months, driven by pricing and procurement efficiencies.
- Goodwill fell to $28.95 billion from $30.46 billion at year-end 2023, and the company reported 2024 impairments in North America, International Developed Markets, and Emerging Markets reporting units.
- Operating cash flow of $2.80 billion for the nine months, with $1.45 billion in dividends paid and $538 million in share repurchases.
- Total debt carrying value was $20.1 billion; the $4.0 billion Senior Credit Facility was extended to July 2029 and no amounts were drawn.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q3 FY2024, Kraft Heinz lost $0.05.
- Revenue$6.38B100.0%
- Cost of revenue−$4.20B65.8%
- Gross profit$2.19B34.2%
- Operating costs−$2.29B35.8%
- Operating income−$101.0M1.6%
- Interest, other & tax−$189.0M3.0%
- Net income−$290.0M4.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed October 30, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $6.38B$6.57B | −2.8% |
| Cost of Revenue | $4.20B$4.33B | −3.2% |
| Gross Profit | $2.19B$2.23B | −2.2% |
| SG&A Expenses | $2.29B$1.58B | +44.6% |
| Operating Income | -$101.00M$653.00M | −115.5% |
| Interest Expense | $230.00M$228.00M | +0.9% |
| Net Income | -$290.00M$262.00M | −210.7% |
| EPS (Basic) | $-0.24$0.21 | −214.3% |
| EPS (Diluted) | $-0.24$0.21 | −214.3% |
| Shares Outstanding (Basic) | 1.21B1.23B | −1.5% |
| Shares Outstanding (Diluted) | 1.21B1.24B | −2.0% |
05—Questions
Frequently Asked Questions
Why did Kraft Heinz report a net loss in the third quarter of 2024?
The net loss of $290 million was primarily caused by non-cash impairment losses of $1.43 billion in the quarter, including $707 million of goodwill impairments and $721 million of intangible asset impairments. Excluding these impairments, operating income rose $12 million, driven by higher pricing, efficiency initiatives, and lower variable compensation.
How did the underlying business perform apart from the impairments?
Organic Net Sales fell 2.2% in the quarter due to unfavorable volume/mix, partly offset by higher pricing. Adjusted Operating Income rose 1.4% to $1.33 billion and Adjusted EPS rose 4.2% to $0.75, reflecting pricing, procurement savings, and lower variable compensation.
Which segments and areas drove the sales decline?
North America net sales fell 3.4% to $4.83 billion, with Organic Net Sales down 3.2% due to volume/mix of 4.4 pp, which management linked to shifts in consumer behavior and a decline in Lunchables. Emerging Markets Organic Net Sales rose 4.9%, while International Developed Markets Organic Net Sales fell 1.8%.
What is the status of the IRS transfer-pricing matter?
The IRS issued two Notices of Proposed Adjustment in the third quarter of 2023 that could increase U.S. federal tax by approximately $200 million for 2018 and $210 million for 2019, excluding interest, plus penalties of about $85 million each year. The company strongly disagrees, intends to contest the positions, and has not recorded any reserves for this issue.
How is the company's liquidity and capital allocation position?
Cash and cash equivalents were $1.28 billion at September 28, 2024, and the company had no commercial paper outstanding. The Senior Credit Facility of $4.0 billion was undrawn and was extended to July 2029. Approximately $2.4 billion remained under the $3.0 billion share repurchase authorization, and a dividend of $0.40 per share was declared for payment on December 27, 2024.
06—Continue