Kraft Heinz(KHC) - 2024 Q2 - Quarterly Results

Q2 2024 Financial Performance Performance Highlights Q2 2024 saw a 3.6% net sales decrease, but Adjusted Gross Profit Margin rose 210 bps and Adjusted Operating Income grew 2.0%, while GAAP EPS fell 90.1% due to impairment - CEO noted net sales lower than anticipated due to cautious consumer sentiment, while company focuses on efficiencies for brand investment and profit growth[3] Q2 2024 Key Financial Metrics | Metric | Q2 2024 Result | Change vs. PY | | :--- | :--- | :--- | | Net Sales | $6.5 billion | -3.6% | | Organic Net Sales | - | -2.4% | | Adjusted Gross Profit Margin | 35.5% | +210 bps | | Operating Income | $0.5 billion | -62.1% | | Adjusted Operating Income | $1.4 billion | +2.0% | | Diluted EPS | $0.08 | -90.1% | | Adjusted EPS | $0.78 | -1.3% | - Company anticipates improved top-line trends in H2 2024 through innovation, marketing, expanded distribution, and promotional investments[3] Detailed Financial Results Overall sales declined due to volume/mix decreases in North America and International Developed markets, while Emerging Markets showed growth, and GAAP Operating Income was significantly impacted by $854 million in impairment losses Net Sales Analysis Q2 2024 Net Sales Breakdown by Segment (vs. PY) | Segment | Net Sales ($M) | % Change | Organic Net Sales % Change | Price (pp) | Volume/Mix (pp) | | :--- | :--- | :--- | :--- | :--- | :--- | | North America | $4,921 | (3.1)% | (2.9)% | 1.3 | (4.2) | | International Developed | $885 | (5.0)% | (3.9)% | (1.5) | (2.4) | | Emerging Markets | $670 | (5.7)% | 3.4% | 1.9 | 1.5 | | Kraft Heinz Total | $6,476 | (3.6)% | (2.4)% | 1.0 | (3.4) | YTD 2024 Net Sales Breakdown by Segment (vs. PY) | Segment | Net Sales ($M) | % Change | Organic Net Sales % Change | Price (pp) | Volume/Mix (pp) | | :--- | :--- | :--- | :--- | :--- | :--- | | North America | $9,749 | (2.2)% | (2.1)% | 1.9 | (4.0) | | International Developed | $1,740 | (2.9)% | (2.6)% | 0.5 | (3.1) | | Emerging Markets | $1,398 | (3.8)% | 4.4% | 2.9 | 1.5 | | Kraft Heinz Total | $12,887 | (2.4)% | (1.5)% | 1.8 | (3.3) | Profitability and Earnings Analysis - The 62.1% decrease in GAAP Operating Income was primarily driven by non-cash impairment losses of $854 million in Q2 2024[9] Q2 2024 Profitability Metrics (in millions, except EPS) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Gross Profit | $2,294 | $2,261 | 1.5% | | Operating Income | $522 | $1,376 | (62.1)% | | Net Income | $100 | $998 | (90.0)% | | Diluted EPS | $0.08 | $0.81 | (90.1)% | | Adjusted Operating Income | $1,380 | $1,351 | 2.0% | | Adjusted EPS | $0.78 | $0.79 | (1.3)% | - The 1.3% decline in Adjusted EPS was primarily due to lapping a one-time tax benefit from the prior year, offsetting higher Adjusted Operating Income and fewer shares outstanding[9] Cash Flow and Capital Return H1 2024 operating cash flow increased 8.1% to $1.7 billion, with Free Cash Flow up 8.7% to $1.2 billion, and $1.5 billion returned to stockholders YTD 2024 Cash Flow & Capital Return (in billions) | Metric | YTD 2024 | % Change vs. PY | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1.7 | +8.1% | | Free Cash Flow | $1.2 | +8.7% | | Total Capital Return | $1.5 | - | | - Cash Dividends Paid | $0.97 | - | | - Share Repurchases | $0.54 | - | - The increase in operating cash flow was primarily due to favorable improvements in working capital, particularly within inventory and accounts payable[9] - As of June 29, 2024, the company has $2.4 billion remaining under its authorized share repurchase program[9] Full Year 2024 Outlook Revised Guidance Kraft Heinz lowered its full-year 2024 guidance for Organic Net Sales and Adjusted Operating Income but reaffirmed Adjusted EPS growth, supported by improved Adjusted Gross Profit Margin expansion Full Year 2024 Guidance Update | Metric | Previous Guidance | New Guidance | | :--- | :--- | :--- | | Organic Net Sales Growth | 0% to 2% | -2% to 0% | | Adjusted Operating Income Growth | 2% to 4% | 1% to 3% | | Adjusted Gross Profit Margin Expansion | 50 to 100 bps | 75 to 125 bps | | Adjusted EPS Growth | 1% to 3% ($3.01 to $3.07) | Unchanged | - The company continues to expect an effective tax rate on Adjusted EPS to be in the range of 20 to 22 percent for the full year[13] Financial Statements and Reconciliations Consolidated Statements of Income Q2 2024 net income sharply declined to $100 million from $998 million, primarily due to an $854 million goodwill impairment loss impacting operating income Q2 2024 Income Statement Highlights (in millions) | Line Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net sales | $6,476 | $6,721 | | Gross profit | $2,294 | $2,261 | | Goodwill impairment losses | $854 | $0 | | Operating income/(loss) | $522 | $1,376 | | Net income/(loss) | $100 | $998 | Reconciliation of Non-GAAP Measures Reconciliation schedules detail GAAP to non-GAAP adjustments, with an $854 million impairment loss being the most significant adjustment to Q2 2024 operating income - Organic Net Sales for Q2 2024 were adjusted for a negative 1.0 pp impact from currency and a negative 0.2 pp impact from divestitures[33] Q2 2024 Reconciliation of Operating Income to Adjusted Operating Income (in millions) | Description | Amount | | :--- | :--- | | Operating income/(loss) (GAAP) | $522 | | Restructuring activities | $3 | | Unrealized losses/(gains) on commodity hedges | $1 | | Impairment losses | $854 | | Adjusted Operating Income (Non-GAAP) | $1,380 | Consolidated Balance Sheet As of June 29, 2024, total assets decreased to $88.8 billion from $90.3 billion, mainly due to a nearly $1 billion reduction in Goodwill from impairment charges Balance Sheet Summary (in millions) | Account | June 29, 2024 | Dec 30, 2023 | | :--- | :--- | :--- | | Total current assets | $7,530 | $7,929 | | Goodwill | $29,501 | $30,459 | | TOTAL ASSETS | $88,797 | $90,339 | | Total current liabilities | $7,486 | $8,037 | | Long-term debt | $19,265 | $19,394 | | TOTAL LIABILITIES | $39,766 | $40,617 | | TOTAL EQUITY | $49,021 | $49,688 | Consolidated Statements of Cash Flows H1 2024 net cash from operating activities increased to $1.71 billion, despite lower net income, largely due to non-cash impairment add-backs, while financing activities saw increased cash usage from share repurchases YTD 2024 Cash Flow Summary (in millions) | Cash Flow Activity | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,713 | $1,584 | | Net cash used for investing activities | ($632) | ($475) | | Net cash used for financing activities | ($1,565) | ($1,187) | | Net decrease in cash | ($502) | ($92) | - Free Cash Flow for the six months ended June 29, 2024 was $1.17 billion, an increase from $1.08 billion in the prior year period[66] Definitions and Disclosures Non-GAAP Financial Measures The company uses non-GAAP measures like Organic Net Sales, Adjusted Operating Income, and Free Cash Flow to provide a clearer view of operational performance by excluding specific non-recurring items - Management uses non-GAAP measures to compare performance on a consistent basis for business decision making by removing the impact of certain items that do not directly reflect underlying operations[21] - Key non-GAAP definitions include: - Organic Net Sales: Excludes impacts of currency, acquisitions, and divestitures[23] - Adjusted Operating Income: Excludes items like restructuring activities, impairment losses, and unrealized gains/losses on commodity hedges[24] - Free Cash Flow: Defined as net cash from operating activities less capital expenditures[27] Forward-Looking Statements This report contains forward-looking statements about plans and guidance, which are not guarantees and are subject to various risks and uncertainties including consumer preferences and macroeconomic conditions - Forward-looking statements are identified by words such as "anticipate," "expect," "will," "guidance," and "outlook"[14] - Important risk factors that could cause actual results to differ materially include operating in a highly competitive industry, changes in consumer demand, volatility in commodity costs, and disruptions in the global economy[15]