Kraft Heinz Co. (NASDAQ:KHC)

Net Operating Profit After Taxes (NOPAT)

Over the five-year period, NOPAT demonstrated considerable volatility. There was a substantial increase from 1,418 million USD in 2015 to a peak of 5,287 million USD in 2017. However, in 2018, the company experienced a significant decline, resulting in a negative NOPAT of -11,194 million USD. This was followed by a recovery in 2019, with NOPAT rising again to 2,719 million USD. This fluctuation suggests periods of both strong operational performance and substantial operational challenges within the timeframe.

Cost of Capital

The cost of capital showed a gradual decline throughout the period, decreasing from 12.64% in 2015 to 10.18% in 2019. This trend indicates a potentially lower risk perception by investors or a reduction in the company’s financing costs over time, which could be beneficial for long-term profitability and investment decisions.

Invested Capital

Invested capital remained relatively stable but showed a slight downward trend towards the end of the period. Starting at 105,133 million USD in 2015, it peaked slightly at 112,007 million USD in 2017, followed by a reduction to 94,307 million USD by 2019. The decline in invested capital during the latter years could imply divestment, asset optimization, or other capital restructuring activities.

Economic Profit

Economic profit consistently remained negative throughout the period, indicating that the company was not generating returns above its cost of capital. Although there was a gradual improvement from -11,866 million USD in 2015 to -8,241 million USD in 2017, the situation deteriorated sharply in 2018 with economic profit dropping to -21,285 million USD. This was followed by a partial recovery in 2019 to -6,884 million USD. The persistent negative economic profit highlights challenges in creating value for shareholders, despite fluctuations in operational profitability.

Net Income (Loss) Attributable to Kraft Heinz

The net income showed significant volatility over the five-year period. Starting at $634 million in 2015, it experienced a substantial increase to $3,632 million in 2016 and peaked at $10,999 million in 2017. However, this trend reversed sharply in 2018, resulting in a significant net loss of $10,192 million. The company partially recovered in 2019, reporting net income of $1,935 million. This pattern suggests the company faced exceptional events or impairments in 2018 that drastically affected profitability.

Net Operating Profit After Taxes (NOPAT)

The NOPAT followed a similar trajectory to net income, indicating alignment between operating performance and net profitability. NOPAT increased from $1,418 million in 2015 to $4,237 million in 2016 and further to $5,287 million in 2017, reflecting improving operational efficiency or profitability. The figure then dropped markedly to a negative $11,194 million in 2018, consistent with the reported net loss. In 2019, NOPAT rebounded to $2,719 million, indicating a recovery in operating profit after taxes but remaining below the peak levels observed in 2017. This pattern underscores a volatile period with a significant downturn followed by a partial recovery.

Summary of Trends

Overall, both net income and NOPAT exhibited growth from 2015 to 2017, followed by a substantial deterioration in 2018, which indicates major adverse developments during that year. The recovery in 2019 points to improvement but not a full restoration to prior peak levels. Such fluctuations suggest the presence of extraordinary losses or impairments in 2018, impacting both reported net income and operating profit after taxes.

The financial data reveals notable fluctuations in the provision for (benefit from) income taxes over the five-year period. Initially, the provision increased significantly from 366 million US dollars in 2015 to 1381 million US dollars in 2016. Subsequently, there was a sharp reversal, with the provision moving into a substantial benefit position, showing -5460 million US dollars in 2017 and a continued benefit of -1067 million US dollars in 2018. In 2019, the provision returned to a positive value of 728 million US dollars, indicating a reversion to a tax expense position.

In contrast, cash operating taxes exhibited a different pattern, showing more stability and less volatility. The amount rose from 1157 million US dollars in 2015 to a peak of 1815 million US dollars in 2016, followed by a decline to 1448 million US dollars in 2017. Afterward, cash operating taxes decreased further to 1177 million US dollars in 2018 but increased again to 1312 million US dollars in 2019. Overall, cash operating taxes remained within a narrower range compared to the provision for income taxes, reflecting relatively steadier tax cash payments despite fluctuations in tax provisions.

The divergence between the provision for income taxes and cash operating taxes suggests that significant non-cash tax items affected the income tax provision, particularly in 2017 and 2018. These years experienced considerable tax benefits recorded in the provision, which could be linked to one-time adjustments, changes in tax laws, or deferred tax asset/liability movements. Meanwhile, cash taxes paid remained consistently positive and relatively stable, highlighting the difference between accounting tax expenses and actual cash outflows related to taxes.

Total Reported Debt & Leases

The total reported debt and leases increased significantly from 25,825 million USD in 2015 to a peak of 32,787 million USD in 2016. After reaching this peak, the amount decreased slightly over the next three years, ending at 29,845 million USD in 2019. This indicates an overall rise in leverage in 2016, followed by some reduction, although debt levels remained higher than in 2015.

Shareholders’ Equity

Shareholders’ equity showed variability during the period. It was relatively stable between 2015 (57,685 million USD) and 2016 (57,358 million USD), then increased notably to 66,034 million USD in 2017. After this peak, equity declined sharply in 2018 to 51,657 million USD and remained nearly constant through 2019 at 51,623 million USD. This pattern suggests a significant equity event or adjustment between 2017 and 2018, followed by stabilization at a lower level.

Invested Capital

The invested capital gradually increased from 105,133 million USD in 2015 to a peak of 112,007 million USD in 2017. However, this was followed by a marked decline over the next two years, reaching 94,307 million USD by 2019. This trajectory shows an initial expansion of capital investment, succeeded by a contraction, which aligns with the observed reductions in debt and equity during the latter years.

Economic Profit

The economic profit exhibited a generally negative trend throughout the observed period. It was significantly negative in 2015 at -11,866 million US dollars, showing some improvement in 2016 and 2017 with values of -9,823 million and -8,241 million respectively. However, a pronounced decline occurred in 2018, with economic profit dropping sharply to -21,285 million, before partially recovering in 2019 to -6,884 million. This pattern indicates considerable volatility with an overall persistent economic loss across the years.

Invested Capital

The invested capital started at 105,133 million US dollars in 2015 and showed a gradual increase over the next two years, reaching a peak of 112,007 million in 2017. Subsequently, invested capital decreased in the following years to 96,541 million in 2018 and further to 94,307 million in 2019. This reflects a contraction in capital employed after 2017, which could be related to changes in asset base or strategic shifts in capital allocation.

Economic Spread Ratio

The economic spread ratio remained negative for all years, indicating that the returns on invested capital were consistently below the cost of capital. It improved from -11.29% in 2015 to -7.36% in 2017, which corresponds with the reduction in economic losses during that period. However, in 2018 there was a sharp deterioration to -22.05%, aligning with the significant drop in economic profit. By 2019, the ratio improved again to -7.3%, signaling a partial recovery but still reflecting negative economic returns.

Overall Financial Insights

The data reflects a challenging financial environment with persistent economic losses throughout the period. Despite a temporary improvement from 2015 to 2017, the sharp downturn in 2018 highlights operational or market challenges that significantly impacted profitability. The contraction in invested capital after 2017 suggests possible efforts to optimize or reduce the asset base in response to financial performance. Although there was some recovery in economic profit and spread ratio in 2019, the company has yet to generate positive economic returns, pointing to ongoing struggles in creating value over the cost of capital.

Net Sales

Net sales exhibited an overall upward trend from 2015 to 2018, increasing from $18,338 million in 2015 to $26,268 million in 2018. However, in 2019, net sales declined slightly to $24,977 million, indicating a reversal of the previous growth trend.

Economic Profit

Economic profit was negative throughout the entire period, indicating losses in economic value. The losses showed considerable fluctuation, starting at -$11,866 million in 2015, improving gradually to -$8,241 million by 2017. However, a sharp deterioration occurred in 2018, with economic losses widening significantly to -$21,285 million, before improving again in 2019 to -$6,884 million.

Economic Profit Margin

The economic profit margin mirrored the economic profit trend, remaining negative across all years. It improved from -64.71% in 2015 to -31.42% in 2017, suggesting increasing efficiency or profitability relative to sales. However, the margin plunged to -81.03% in 2018, indicating a period of severe economic inefficiency or losses relative to sales, before recovering to -27.56% in 2019, the best performance in the five-year span.

Summary of Trends

While net sales grew steadily until 2018, economic profit and margin struggled, with particularly poor performance in 2018 marked by a significant increase in losses and economic inefficiency. The subsequent recovery in 2019, as seen by the reduction in losses and improvement in economic profit margin, despite a slight decrease in net sales, suggests operational or cost management improvements. Nonetheless, the persistent negative economic profit and margins over the period highlight ongoing challenges in generating positive economic value.