The Kraft Heinz Company (NASDAQ: KHC) has reported better-than-expected results for the first quarter of 2022, as earnings and revenues surpassed consensus estimates by 13.2% and 3.8%, respectively.
Along with the impressive results, the company’s announcement of dividend payments for shareholders and an upwardly revised organic sales guidance seem to have lifted investors’ sentiments. Shares of this $52.5-billion company rose 1.4% to close at $42.88 on Wednesday.
Based in Pittsburgh, PA, Kraft Heinz is known for its sauces, dairy products, condiments, refreshment beverages, meats, groceries, coffee, meals, and other products.
Financial Highlights
Kraft Heinz’s adjusted earnings were $0.60 per share in the first quarter, above the consensus estimate of $0.53. Compared with the year-ago quarter, the bottom line decreased 16.7% due to weak revenue generation, partially benefiting from lower costs and expenses.
Revenues totaled $6.05 billion, higher than the consensus estimate of $5.83 billion. However, the top line decreased 5.5% year-over-year as organic sales growth of 6.8% was more than offset by 11.2% adverse impacts of acquisitions and divestitures and 1.1% impact of forex woes.
Interestingly, the organic sales growth was driven by a 9% increase in pricing, especially in foodservice and retail markets. Volume/mix declined 2.2% due to the net impact of a restricted supply chain, healthy demand in retail, and growth in the foodservice business.
The company’s revenues in the United States segment decreased 8.5% year-over-year to $4.21 billion. Sales generated in the Canada segment were at $0.39 billion, down 1.5% from the year-ago quarter. The International segment sales at $1.44 billion increased 3.6%.
Costs of products sold in the quarter were down 1.9% year-over-year to $4.11 billion. Gross profits in the quarter decreased 12.3% to $1.93 billion, while the margin fell 250 basis points (bps) to 31.9%.
Selling, general and administrative expenses stood at $0.83 billion, down 6.2% from the year-ago quarter. Operating income increased 2.4% year-over-year to $1.12 billion. The margin was 18.4%, up 140 bps year-over-year.
Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) in the quarter were $1,342 million, down 15.1% year-over-year. Also, the adjusted EBITDA margin decreased 250 bps to 22.2%.
Balance Sheet and Cash Flow
Exiting the first quarter, Kraft Heinz’s cash and cash equivalents were $2.98 billion, down 13.6% from the end of 2021. Also, its long-term debt stood at $20.97 billion, down 0.4% from the 2021-level.
In the quarter, the company generated net cash of $0.49 billion, down 40% year-over-year. Its capital expenditures decreased 5.7% from the year-ago quarter to $0.21 billion. Free cash flow was at $0.27 billion, down 53.3% year-over-year.
Projections
For 2022, Kraft Heinz has increased its projection of organic sales growth (year-over-year) to mid-single-digits from the previous expectation of low-single-digit. Effective pricing, business growth potential, and sound performance in the first quarter were the main drivers.
Adjusted EBITDA is expected within the $5.8-$6 billion range (maintained). Of this, roughly 48% is expected to be generated in the first half and 52% in the second half.
Management Comments
The CEO of Kraft Heinz, Miguel Patricio, opines that the company continues “to build critical capabilities, greater corporate agility, and additional financial flexibility to address short-term turmoil.”
Capital Deployment
In the first quarter of 2022, Kraft Heinz’s net spending on acquisitions was $241 million, while it used $9 million for repayments of long-term debts. Dividend payments inched up 0.2% year-over-year to $490 million.
Along with the results, the company announced that its board of directors has approved a payment of a quarterly cash dividend of $0.40 per share. The disbursement will be made on June 24, and all shareholders in the company’s record as of May 27 will be eligible to receive it.
Stock Rating
A couple of days ago, Christopher Growe of Stifel Nicolaus reiterated a Hold rating on Kraft Heinz with a price target of $45 (4.94% upside potential).
Overall, the Street is cautious about Kraft Heinz’s growth prospects and has a Hold consensus rating based on two Buys, 11 Holds, and one Sell. Kraft Heinz’s price forecast of $41.29 suggests 3.71% downside from current levels.
Shares of Kraft Heinz have increased 6.9% over the past year.
Risks
According to the TipRanks Risk Factors tool, Kraft Heinz’s main risk category is Finance & Corporate, which contributes 11 risks to the total 33 risks identified for the stock.
Conclusion
Kraft Heinz is well-positioned to benefit from solid product offerings, organic sales growth potential, and shareholder-friendly policies. However, the adverse impacts of inorganic actions, forex woes, and exposure to supply-chain restrictions are weighing on its growth momentum.
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