Kraft Heinz Reports First Quarter 2023 Results

The Kraft Heinz Company (Nasdaq: KHC) (“Kraft Heinz” or the “Company”) today reported financial results for the first quarter of 2023.

"We delivered strong results in the first quarter of 2023, with net sales growth across both our North America and International zones that continues to be fueled by Foodservice, Emerging Markets, and U.S. Retail GROW platforms," said Kraft Heinz CEO and Chair of the Board Miguel Patricio. "I am very proud of the entire Kraft Heinz team as we continue to deliver on what we can control by unlocking efficiencies and reinvesting in our brands and capabilities. Our team's continued focus on executing against the strategy is coming to fruition, but it's not time to declare victory just yet. We remain committed to advancing our business transformation, and we are confident we have the right strategy in place to win with customers and consumers, and to deliver profitable growth and create value for our stockholders."

Q1 2023 Financial Summary

• Net sales increased 7.3 percent versus the year-ago period to $6.5 billion, including a negative 2.1 percentage point impact from currency. Organic Net Sales⁽¹⁾ increased 9.4 percent versus the prior year period. Price increased 14.7 percentage points versus the prior year period, with growth in both reportable segments that was primarily driven by list price increases. Volume/mix declined 5.3 percentage points versus the prior year period, with declines in both reportable segments that were primarily driven by elasticity impacts from pricing actions.

• Net income/(loss) increased 7.1 percent versus the year-ago period to $837 million primarily driven by higher Adjusted EBITDA versus the prior year period and lapping non-cash impairment losses in the prior year period. These factors more than offset unrealized losses on commodity hedges in the current year period compared to unrealized gains on commodity hedges in the prior year period and unfavorable changes in other expense/(income). Adjusted EBITDA⁽¹⁾ increased 10.3 percent versus the year-ago period to $1.5 billion, primarily driven by higher pricing and efficiency gains. These factors more than offset higher supply chain costs (reflecting inflationary pressure in procurement and manufacturing costs), unfavorable volume/mix, higher commodity costs (mainly in soybean and vegetable oils, energy, and sweeteners), higher general corporate expenses, an unfavorable impact from foreign currency (1.6 pp), and an unfavorable impact of Cyclone Gabrielle in New Zealand in the first quarter of 2023.

• Diluted EPS was $0.68, up 7.9 percent versus the prior year period, primarily driven by the net income/(loss) factors discussed above. Adjusted EPS⁽¹⁾ was $0.68, up 13.3 percent versus the prior year period, primarily driven by higher Adjusted EBITDA and lower interest expense. These factors more than offset unfavorable changes in other expense/(income) and higher taxes on adjusted earnings.

• Year-to-date net cash provided by operating activities was $486 million, flat versus the year-ago period as higher Adjusted EBITDA and lower cash outflows for variable compensation versus the year-ago period were offset by unfavorable changes in cash collateral related to our commodity derivative margin requirements, higher cash outflows in accounts payable, unfavorable changes in trade receivables, and higher cash outflows for inventories. Year-to date Free Cash Flow⁽¹⁾ was $220 million, down 19.3 percent versus the prior year period driven by an increase in capital expenditures.

Outlook

The Company reaffirms its expectation of 2023 Organic Net Sales⁽²⁾ growth of 4 to 6 percent versus 2022. The Company is raising 2023 Constant Currency Adjusted EBITDA⁽¹⁾⁽²⁾ guidance to growth of 4 to 6 percent versus 2022, or 6 to 8 percent when excluding the impact from lapping the 53rd week in 2022.

The Company continues to anticipate high single-digit inflation for the year, reflecting low double-digit inflation in the first half of the year and mid-single-digit inflation in the second half of the year, with pricing and gross efficiencies continuing to contribute to Adjusted Gross Profit Margin⁽¹⁾⁽²⁾ recovery. 2023 Adjusted Gross Profit Margin is now expected to expand 125 to 175 basis points versus prior year. This expansion is expected to fund incremental investments across marketing, research and development, and technology.

The Company is raising 2023 Adjusted EPS⁽²⁾ guidance to be in the range of $2.83 to $2.91, which includes a negative impact of approximately $0.04 from expected unfavorable changes in non-cash pension and post-retirement benefits and a currency headwind of approximately $0.02 at current foreign exchange rates. The expected 2023 year-over-year Adjusted EPS reflects a negative $0.06 impact from lapping a 53rd week in 2022. Additionally, the Company now expects an effective tax rate on Adjusted EPS to be in the range of 19 to 21 percent.

End Notes

Earnings Discussion and Webcast Information

A pre-recorded management discussion of The Kraft Heinz Company's first quarter 2023 earnings is available at ir.kraftheinzcompany.com. The Company will host a live question and answer session beginning today at 9:00 a.m. Eastern Daylight Time. A webcast of the session will be accessible at ir.kraftheinzcompany.com.

ABOUT THE KRAFT HEINZ COMPANY

We are driving transformation at The Kraft Heinz Company (Nasdaq: KHC), inspired by our Purpose, Let’s Make Life Delicious. Consumers are at the center of everything we do. With 2022 net sales of approximately $26 billion, we are committed to growing our iconic and emerging food and beverage brands on a global scale. We leverage our scale and agility to unleash the full power of Kraft Heinz across a portfolio of six consumer-driven product platforms. As global citizens, we’re dedicated to making a sustainable, ethical impact while helping feed the world in healthy, responsible ways. Learn more about our journey by visiting www.kraftheinzcompany.com or following us on LinkedIn and Twitter.

Forward-Looking Statements

This press release contains a number of forward-looking statements. Words such as “advance,” “anticipate,” “believe,” “commit,” “continue,” “create,” “deliver,” “expect,” “maintain,” “will,” “guidance,” and “outlook,” and variations of such words and similar future or conditional expressions are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding the Company's plans, impacts of accounting standards and guidance, growth, legal matters, taxes, costs and cost savings, impairments, dividends, expectations, investments, innovations, opportunities, capabilities, execution, initiatives, and pipeline. These forward-looking statements reflect management's current expectations and are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond the Company's control.

Important factors that may affect the Company's business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, operating in a highly competitive industry; the Company’s ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers; changes in the Company's relationships with significant customers or suppliers, or in other business relationships; the Company’s ability to maintain, extend, and expand its reputation and brand image; the Company’s ability to leverage its brand value to compete against private label products; the Company’s ability to drive revenue growth in its key product categories or platforms, increase its market share, or add products that are in faster-growing and more profitable categories; product recalls or other product liability claims; climate change and legal or regulatory responses; the Company’s ability to identify, complete, or realize the benefits from strategic acquisitions, divestitures, alliances, joint ventures, or investments; the Company's ability to successfully execute its strategic initiatives; the impacts of the Company's international operations; the Company's ability to protect intellectual property rights; the Company’s ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes, and improve its competitiveness; the influence of the Company's largest stockholder; the Company's level of indebtedness, as well as our ability to comply with covenants under our debt instruments; additional impairments of the carrying amounts of goodwill or other indefinite-lived intangible assets; foreign exchange rate fluctuations; volatility in commodity, energy, and other input costs; volatility in the market value of all or a portion of the commodity derivatives we use; compliance with laws and regulations and related legal claims or regulatory enforcement actions; failure to maintain an effective system of internal controls; a downgrade in the Company's credit rating; the impact of sales of the Company's common stock in the public market; the Company’s ability to continue to pay a regular dividend and the amounts of any such dividends; disruptions in the global economy caused by geopolitical conflicts, including the ongoing conflict between Russia and Ukraine; unanticipated business disruptions and natural events in the locations in which the Company or the Company's customers, suppliers, distributors, or regulators operate; economic and political conditions in the United States and in various other nations where the Company does business (including inflationary pressures, instability in financial institutions, general economic slowdown, or recession); changes in the Company's management team or other key personnel and the Company's ability to hire or retain key personnel or a highly skilled and diverse global workforce; our dependence on information technology and systems, including service interruptions, misappropriation of data, or breaches of security; increased pension, labor, and people-related expenses; changes in tax laws and interpretations; volatility of capital markets and other macroeconomic factors; and other factors. For additional information on these and other factors that could affect the Company's forward-looking statements, see the Company's risk factors, as they may be amended from time to time, set forth in its filings with the Securities and Exchange Commission. The Company disclaims and does not undertake any obligation to update, revise, or withdraw any forward-looking statement in this press release, except as required by applicable law or regulation.

Non-GAAP Financial Measures

The non-GAAP financial measures provided in this press release should be viewed in addition to, and not as an alternative for, results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

To supplement the financial information provided, the Company has presented Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income/(Loss), Adjusted EPS, and Free Cash Flow, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable GAAP financial measures, such as net sales, net income/(loss), gross profit, diluted earnings per share (“EPS”), net cash provided by/(used for) operating activities, or other measures prescribed by GAAP, and there are limitations to using non-GAAP financial measures.

Management uses these non-GAAP financial measures to assist in comparing the Company’s performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect the Company’s underlying operations. The Company believes:

• Organic Net Sales, Adjusted EBITDA, Constant Currency Adjusted EBITDA, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income/(Loss), and Adjusted EPS provide important comparability of underlying operating results, allowing investors and management to assess the Company’s operating performance on a consistent basis; and
• Free Cash Flow provides a measure of the Company’s core operating performance, the cash-generating capabilities of the Company’s business operations, and is one factor used in determining the amount of cash available for debt repayments, dividends, acquisitions, share repurchases, and other corporate purposes.

Management believes that presenting the Company’s non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting the Company’s business than could be obtained absent these disclosures.

Definitions

Organic Net Sales is defined as net sales excluding, when they occur, the impact of currency, acquisitions and divestitures, and a 53rd week of shipments. The Company calculates the impact of currency on net sales by holding exchange rates constant at the previous year's exchange rate, with the exception of highly inflationary subsidiaries, for which the Company calculates the previous year's results using the current year's exchange rate.

Adjusted EBITDA is defined as net income/(loss) from continuing operations before interest expense, other expense/(income), provision for/(benefit from) income taxes, and depreciation and amortization (excluding restructuring activities); in addition to these adjustments, the Company excludes, when they occur, the impacts of divestiture-related license income, restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, and equity award compensation expense (excluding restructuring activities). The Company also presents Adjusted EBITDA on a constant currency basis (Constant Currency Adjusted EBITDA). The Company calculates the impact of currency on Adjusted EBITDA by holding exchange rates constant at the previous year's exchange rate, with the exception of highly inflationary subsidiaries, for which it calculates the previous year's results using the current year's exchange rate.

Adjusted Gross Profit, Adjusted Net Income/(Loss), and Adjusted EPS are defined as gross profit, net income/(loss), and diluted earnings per share, respectively, excluding, when they occur, the impacts of restructuring activities, deal costs, unrealized losses/(gains) on commodity hedges, impairment losses, certain non-ordinary course legal and regulatory matters, losses/(gains) on the sale of a business, other losses/(gains) related to acquisitions and divestitures (e.g., tax and hedging impacts), nonmonetary currency devaluation (e.g., remeasurement gains and losses), debt prepayment and extinguishment (benefit)/costs, and certain significant discrete income tax items (e.g., U.S. and non-U.S. tax reform), and including when they occur, adjustments to reflect preferred stock dividend payments on an accrual basis. Adjusted Gross Profit Margin is defined as Adjusted Gross Profit divided by net sales.

Free Cash Flow is defined as net cash provided by/(used for) operating activities less capital expenditures. The use of this non-GAAP measure does not imply or represent the residual cash flow for discretionary expenditures since the Company has certain non-discretionary obligations such as debt service that are not deducted from the measure.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230503005051/en/