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.
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.
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.
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.”
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.
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.
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.
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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