Kraft Heinz Co. (NASDAQ:KHC)

Net Operating Profit After Taxes (NOPAT)

Over the analyzed periods, Net Operating Profit After Taxes (NOPAT) displayed notable volatility. Initially, it increased significantly from 1,418 million USD to 5,287 million USD over the first three years, indicating an improving operational performance. However, in the fourth year, there was a substantial decline to -11,194 million USD, reflecting a major operational loss. The final year showed a recovery with NOPAT rising again to 2,719 million USD, although it did not reach the earlier peak values.

Cost of Capital

The cost of capital demonstrated a gradual decline throughout the period, decreasing from 12.64% to 10.19%. This downward trend suggests potentially reduced financing costs or changes in the perceived risk associated with the invested capital, which could have implications for investment and valuation decisions.

Invested Capital

Invested capital remained relatively stable but showed a slight decreasing trend overall. It rose modestly from 105,133 million USD to a peak of 112,007 million USD by the third year before declining to 94,307 million USD by the end of the fifth year. This reduction may signal asset divestitures, depreciation exceeding new investments, or operational restructuring.

Economic Profit

Economic profit was consistently negative in all periods, indicating that the returns on invested capital were insufficient to cover the cost of capital. Although the economic losses reduced from -11,873 million USD to -8,248 million USD in the initial three years, a sharp deterioration occurred in the fourth year with economic profit falling to -21,289 million USD. The fifth year showed some improvement, rising to -6,889 million USD, but economic profit remained below zero.

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.

The analysis of the financial indicators over the five-year period reveals notable fluctuations and generally adverse trends in the company's economic performance and capital efficiency.

Economic Profit

The economic profit, expressed in millions of US dollars, exhibits persistent negative values throughout the entire period. Starting at -11,873 million in 2015, the deficit narrows sequentially to -8,248 million by 2017, indicating a moderate improvement in profitability. However, a significant deterioration occurs in 2018, with economic losses spiking to -21,289 million, the worst in the timeframe. By 2019, losses decline again but remain substantial at -6,889 million. This pattern highlights considerable volatility and challenges in generating economic value above the cost of capital.

Invested Capital

Invested capital demonstrates a general decreasing trend following an initial increase. It rises from 105,133 million US dollars in 2015 to a peak of 112,007 million in 2017. Thereafter, capital investment shrinks notably to 96,541 million in 2018 and undergoes a further slight reduction to 94,307 million in 2019. This contraction may reflect strategic asset divestitures, operational scaling down, or capital restructuring efforts during the latter years.

Economic Spread Ratio

The economic spread ratio remains consistently negative, signifying that the company’s returns did not cover its cost of capital in any year analyzed. It starts at -11.29% in 2015 and improves gradually to -7.36% by 2017. In 2018, a sharp decline to -22.05% occurs, paralleling the spike in economic losses. By 2019, the ratio recovers close to previous levels at -7.3%. This metric underscores the company’s inability to generate adequate returns on the invested capital, with a particularly severe setback in 2018.

Overall, the data depict a company experiencing ongoing economic challenges, with negative economic profits and spreads indicative of returns below capital costs. Despite some recovery signs post-2018, the firm faces ongoing issues in achieving economic value creation and managing capital efficiently.