The Kraft Heinz Company (KHC) is a multinational food and beverage conglomerate with a rich history dating back over a century. Formed through the merger of Kraft Foods and H.J. Heinz in 2015, the company has grown to become one of the largest packaged food companies in the world, boasting a diverse portfolio of iconic brands that span multiple product categories.
Business Overview and History
The origins of The Kraft Heinz Company can be traced back to the late 19th century, when James L. Kraft began selling cheese in Chicago in 1903 and H.J. Heinz Company was founded in 1869, pioneering the commercialization of ketchup and other condiments. Over the decades, both companies expanded their product offerings and grew to become household names, with Kraft becoming a leader in cheese, macaroni and cheese, and other grocery staples, while Heinz cemented its position as the premier ketchup brand globally.
The 2015 merger of Kraft Foods and H.J. Heinz was a blockbuster $49 billion deal, creating The Kraft Heinz Company. At the time, the combined entity had estimated annual sales of $28 billion and operations in more than 40 countries. The merger brought together two storied American food brands, creating a diversified global food and beverage leader with a portfolio of over 200 brands, including Kraft, Heinz, Philadelphia, Lunchables, Velveeta, Oscar Mayer, and many others.
In the years following the merger, Kraft Heinz faced some challenges. In 2019, the company took a $15 billion write-down on the value of its Kraft and Oscar Mayer brands, reflecting the difficulties large packaged food companies were having adapting to changing consumer preferences. Around this time, the company also faced scrutiny over its accounting practices.
Despite these setbacks, Kraft Heinz has remained one of the largest food companies globally, with a presence across numerous product categories. The company has weathered industry shifts and integrated major acquisitions throughout its history, maintaining its position as a significant player in the packaged food space.
Since the merger, Kraft Heinz has navigated a dynamic consumer landscape, marked by shifting preferences towards healthier, more sustainable, and less-processed food options. In response, the company has undertaken a multifaceted transformation, streamlining its operations, divesting non-core assets, and investing in brand renovation and innovation to better align with evolving consumer demands.
Financials
As of the company's latest fiscal year ending December 28, 2024, Kraft Heinz reported total revenue of $25.85 billion, a 3% decrease from the prior year. Net income for the period stood at $2.75 billion, with annual operating cash flow of $4.18 billion and annual free cash flow of $3.02 billion.
For the most recent quarter (Q4 2024), Kraft Heinz reported revenue of $6.58 billion, representing a 3% year-over-year growth. This growth was primarily driven by higher pricing, which more than offset unfavorable volume/mix. Net income for the quarter was $2.13 billion.
The company's financial ratios paint a mixed picture. Kraft Heinz's return on equity of 5.60% and return on assets of 3.11% are relatively low, reflecting the ongoing challenges in driving profitability amidst a competitive and evolving market landscape.
Liquidity
Kraft Heinz's current ratio of 1.06 and quick ratio of 0.59 suggest adequate liquidity to meet short-term obligations, while its debt-to-equity ratio of 0.39 indicates a moderately leveraged capital structure. As of December 28, 2024, the company had $1.33 billion in cash on hand and an undrawn $4 billion senior unsecured revolving credit facility, providing additional financial flexibility.
Operational Highlights and Segmental Performance
Kraft Heinz operates through four reportable geographic segments: North America, International Developed Markets, West and East Emerging Markets (WEEM), and Asia Emerging Markets (AEM). In 2024, the North America segment accounted for 75.6% of the company's total revenue, while International Developed Markets and Emerging Markets contributed 13.7% and 10.7%, respectively.
North America, the company's largest and most important segment, generated $19.54 billion in net sales in 2024, representing 75.6% of total net sales. This segment includes products sold in the United States and Canada, featuring key brands such as Kraft, Oscar Mayer, Heinz, Philadelphia, Lunchables, Velveeta, Ore-Ida, Capri Sun, Maxwell House, Kool-Aid, and Jell-O. The segment's Adjusted Operating Income was $5.11 billion, representing 90.4% of the company's total Adjusted Operating Income. Performance was driven by higher pricing, lower procurement and logistics costs, and lower variable compensation expense, which offset unfavorable volume/mix and increased manufacturing and SG&A expenses.
The International Developed Markets segment generated $3.54 billion in net sales in 2024, or 13.7% of total net sales. This segment includes operations in developed markets outside of North America, such as Europe and the Pacific region, with key brands including Heinz, Golden Circle, Watties, and Plasmon. The segment's Adjusted Operating Income was $537 million, representing 9.5% of the company's total. Performance was driven by lower procurement and logistics costs, the absence of the prior year's business disruption in Australia and New Zealand, and lower variable compensation expense, partially offset by unfavorable volume/mix and increased inflationary pressures in manufacturing.
The Emerging Markets segment, which combines the West and East Emerging Markets and Asia Emerging Markets operating segments, generated $2.77 billion in net sales in 2024, or 10.7% of total net sales. Key brands in this segment include Heinz, ABC, Master, and Quero. The segment's Adjusted Operating Income was $321 million, representing 5.7% of the company's total. Performance was impacted by higher supply chain costs reflecting inflationary pressures, the unfavorable impact of foreign currency, and increased SG&A from investments in the go-to-market strategy, partially offset by higher pricing and favorable volume/mix.
Across its brand platforms, Kraft Heinz's "ACCELERATE" platforms, such as Taste Elevation and Easy Ready Meals, which include iconic brands like Kraft, Heinz, and Lunchables, contributed 67% of total revenue in 2024. The company's "PROTECT" platforms, including Desserts and Hydration, accounted for 13% of revenue, while the "BALANCE" platforms, such as Cheese, Coffee, and Meats, made up the remaining 20%.
Geographic Performance
Kraft Heinz has significant sales in the United States, Canada, and the United Kingdom, which represented 68.8%, 6.8%, and 4.9% of total net sales in 2024, respectively. The remaining 19.5% of net sales came from other international markets.
Navigating Evolving Consumer Trends
The packaged food industry has faced significant headwinds in recent years, as consumers increasingly gravitate towards healthier, more natural, and less-processed food options. This shift has posed challenges for legacy brands like those within Kraft Heinz's portfolio, which have historically been associated with highly processed, high-sugar, and high-sodium products.
In response, Kraft Heinz has invested heavily in brand renovation and innovation, reformulating existing products to reduce sugar and sodium content, while also introducing new offerings that better cater to evolving consumer preferences. For example, the company has expanded its Lunchables line to include higher-protein, lower-sugar options and has launched new flavors and packaging for its iconic Capri Sun brand to appeal to health-conscious parents.
Furthermore, Kraft Heinz has been actively divesting non-core assets and streamlining its operations to free up resources for investment in its most promising brands and platforms. This strategic shift has included the sale of the company's global cheese business to Lactalis in 2020 and the divestiture of its infant nutrition business in Russia in 2024.
Outlook and Guidance
Looking ahead to 2025, Kraft Heinz is cautiously optimistic about its prospects. The company expects modest margin expansion between flat to 20 basis points, following a 100 basis point increase in profit margins in 2024. Kraft Heinz anticipates improving top-line growth throughout 2025 while preserving profitability.
For its growth pillars, the company reports that 75% of new customer wins in the Away From Home segment are already locked in, representing about 40% year-over-year incremental growth. In Emerging Markets, Kraft Heinz is building on a 17% distribution increase with plans for 40,000 additional points of distribution in 2025. For North America Retail, 75% of the 2025 innovation pipeline is already secured.
The company plans to invest in price, product, and marketing, especially for its priority "ACCELERATE" brands, which is expected to drive improved trends throughout the year. In terms of organic sales growth by pillar, Emerging Markets is expected to see gradual improvements, exiting 2025 at double-digit growth. Away From Home is anticipated to improve gradually, likely exiting around mid-single digit growth. The "ACCELERATE" platforms in U.S. Retail are expected to see the sharpest improvement, driven by the planned investments.
Kraft Heinz's tax rate in the P&L is expected to increase by 500 basis points starting in 2025, due to a $2.4 billion tax benefit recorded in Q4 2024. However, the cash tax rate impact is expected to be more modest, around 200-300 basis points.
Risks and Challenges
Despite its optimistic outlook, Kraft Heinz faces several risks that could impact its performance. These include ongoing competition from both larger packaged food conglomerates and nimble, health-focused startups, as well as potential challenges in successfully renovating and repositioning its iconic brands to align with shifting consumer preferences. Additionally, Kraft Heinz remains exposed to volatile commodity costs and potential supply chain disruptions, which could pressure its margins.
The packaged food industry has seen relatively flat to low single-digit growth in recent years, with a CAGR of around 2-3% over the past 5 years. This slow growth environment, coupled with the ongoing shift towards healthier, less-processed options, continues to pose challenges for large CPG companies like Kraft Heinz.
Conclusion
The Kraft Heinz Company is a storied brand with a rich heritage and a diverse portfolio of well-known products. However, the company finds itself navigating a rapidly evolving consumer landscape, where demand for healthier, less-processed foods has put pressure on its traditional product offerings. By investing in brand renovation, innovation, and operational efficiency, Kraft Heinz is working to adapt to these changing market dynamics and position itself for long-term success. While challenges remain, the company's strong brand equity, ongoing transformation efforts, and strategic focus on key growth pillars suggest it is well-equipped to weather the storm and capitalize on emerging opportunities in the years ahead. As Kraft Heinz continues to execute its strategy and adapt to consumer trends, investors and industry observers will be watching closely to see how the company balances its legacy brands with the need for innovation and health-focused offerings in an increasingly competitive packaged food landscape.