Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
Profitability Ratios (Summary)
Kraft Heinz Co., profitability ratios
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Gross Profit Margin
- The gross profit margin demonstrated a generally positive trend from 2015 to 2017, increasing from 31.42% to a peak of 36.99%. However, this upward trajectory reversed in the subsequent years, declining to 33.96% in 2018 and further to 32.62% in 2019. This indicates an initial improvement in core profitability, followed by a gradual erosion in efficiency of production or cost control.
- Operating Profit Margin
- The operating profit margin exhibited significant volatility over the five-year period. After a strong increase from 14.39% in 2015 to 25.82% in 2017, it sharply declined to a substantial loss of -38.91% in 2018. Although there was a partial recovery to 12.29% in 2019, the margin remained considerably lower than in earlier years, suggesting operational challenges or extraordinary costs incurred in 2018 that negatively impacted earnings before interest and tax.
- Net Profit Margin
- Net profit margin mirrored the operational margin's fluctuations, rising from a modest 3.46% in 2015 to a high of 41.93% in 2017. This performance sharply deteriorated in 2018 with a negative margin of -38.8%, indicative of a significant net loss. A subsequent recovery to 7.75% in 2019 shows improvement but still reflects instability in bottom-line profitability during the period analyzed.
- Return on Equity (ROE)
- Return on equity improved steadily from 1.1% in 2015 to a peak of 16.66% in 2017, signaling effective use of shareholders' investments to generate earnings. This measure turned negative in 2018 (-19.73%), highlighting a period of poor financial performance and loss generation. The recovery to 3.75% in 2019 points to a partial regain of profitability but remains below earlier peak levels.
- Return on Assets (ROA)
- The return on assets followed a similar pattern, increasing from 0.52% in 2015 to 9.15% in 2017 before declining sharply to -9.85% in 2018. This indicates that asset utilization efficiency significantly dropped during 2018, corresponding with the overall loss situation. In 2019, ROA improved moderately to 1.91%, suggesting some level of restored asset productivity, though it remains subdued compared to prior years.
Return on Sales
Return on Investment
Gross Profit Margin
Kraft Heinz Co., gross profit margin calculation, comparison to benchmarks
| Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Gross profit | 8,147) | 8,921) | 9,703) | 9,586) | 5,761) | |
| Net sales | 24,977) | 26,268) | 26,232) | 26,487) | 18,338) | |
| Profitability Ratio | ||||||
| Gross profit margin1 | 32.62% | 33.96% | 36.99% | 36.19% | 31.42% | |
| Benchmarks | ||||||
| Gross Profit Margin, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Gross profit margin = 100 × Gross profit ÷ Net sales
= 100 × 8,147 ÷ 24,977 = 32.62%
2 Click competitor name to see calculations.
- Gross Profit
- Gross profit experienced a substantial increase from 2015 to 2016, rising from 5,761 million USD to 9,586 million USD. After that, it remained relatively stable in 2017 at 9,703 million USD before gradually declining in the subsequent years to 8,921 million USD in 2018 and further to 8,147 million USD in 2019.
- Net Sales
- Net sales showed a similar pattern to gross profit with significant growth from 18,338 million USD in 2015 to 26,487 million USD in 2016. Sales peaked in 2016 and then fluctuated marginally, falling slightly to 26,232 million USD in 2017, remaining virtually flat at 26,268 million USD in 2018, and decreasing to 24,977 million USD in 2019.
- Gross Profit Margin
- The gross profit margin improved noticeably from 31.42% in 2015 to a peak of 36.99% in 2017. However, this margin declined thereafter, dropping to 33.96% in 2018 and further to 32.62% in 2019. This indicates a reduction in profitability per dollar of sales in the later years despite stable net sales.
- Summary of Trends
- The company witnessed significant growth in both net sales and gross profit between 2015 and 2016, which contributed to improved profitability ratios. However, after reaching a peak in 2017, the gross profit and margins started to decline, reflecting potential pressures on cost management or pricing power. Despite overall stable sales figures from 2016 through 2018, the downward trend in gross profit margin by 2019 signals challenges in maintaining earlier profitability levels.
Operating Profit Margin
Kraft Heinz Co., operating profit margin calculation, comparison to benchmarks
| Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Operating income (loss) | 3,070) | (10,220) | 6,773) | 6,142) | 2,639) | |
| Net sales | 24,977) | 26,268) | 26,232) | 26,487) | 18,338) | |
| Profitability Ratio | ||||||
| Operating profit margin1 | 12.29% | -38.91% | 25.82% | 23.19% | 14.39% | |
| Benchmarks | ||||||
| Operating Profit Margin, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Operating profit margin = 100 × Operating income (loss) ÷ Net sales
= 100 × 3,070 ÷ 24,977 = 12.29%
2 Click competitor name to see calculations.
The operating profit margin exhibited significant fluctuation over the observed period. Initial years demonstrated a positive trend, followed by a substantial decline and subsequent partial recovery.
- Operating Profit Margin - Overall Trend
- The operating profit margin began at 14.39% in 2015 and increased steadily through 2017, reaching a peak of 25.82%. A dramatic decrease occurred in 2018, resulting in a negative margin of -38.91%. The margin partially recovered in 2019, reaching 12.29%, but remained below the levels seen in 2015-2017.
- Growth Phase (2015-2017)
- From 2015 to 2017, the operating profit margin showed consistent growth. This suggests improving operational efficiency, effective cost management, or increasing pricing power during this period. The increase from 14.39% to 25.82% represents a substantial improvement in profitability relative to sales.
- Significant Decline (2018)
- The operating profit margin experienced a severe contraction in 2018, falling to -38.91%. This indicates a substantial loss in profitability from core operations. The negative value suggests that operating expenses exceeded operating income by a significant margin. This could be attributed to factors such as increased costs, decreased sales, or significant impairment charges.
- Partial Recovery (2019)
- In 2019, the operating profit margin showed a degree of recovery, increasing to 12.29%. While this represents an improvement over the prior year, the margin did not return to the levels observed before 2018. This suggests that while some corrective actions were taken, challenges to profitability remained.
- Relationship to Net Sales
- Net sales increased from 2015 to 2016, then remained relatively stable between 2016 and 2018, before decreasing in 2019. The operating profit margin’s fluctuations were not directly correlated with net sales changes, indicating that factors beyond revenue generation significantly impacted operating profitability, particularly in 2018.
Net Profit Margin
Kraft Heinz Co., net profit margin calculation, comparison to benchmarks
| Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income (loss) attributable to Kraft Heinz | 1,935) | (10,192) | 10,999) | 3,632) | 634) | |
| Net sales | 24,977) | 26,268) | 26,232) | 26,487) | 18,338) | |
| Profitability Ratio | ||||||
| Net profit margin1 | 7.75% | -38.80% | 41.93% | 13.71% | 3.46% | |
| Benchmarks | ||||||
| Net Profit Margin, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
Net profit margin = 100 × Net income (loss) attributable to Kraft Heinz ÷ Net sales
= 100 × 1,935 ÷ 24,977 = 7.75%
2 Click competitor name to see calculations.
The net profit margin exhibited significant fluctuations over the observed period. Initial values indicated a moderate level of profitability, which then increased substantially before experiencing a dramatic decline and subsequent partial recovery.
- Net Profit Margin Trend (2015-2019)
- In 2015, the net profit margin stood at 3.46%. This figure rose considerably to 13.71% in 2016, and continued its upward trajectory, reaching a peak of 41.93% in 2017. A substantial reversal occurred in 2018, with the net profit margin plummeting to -38.80%, indicating a significant net loss relative to net sales. The final year observed, 2019, showed a recovery to 7.75%, though remaining below the levels achieved in 2016 and 2017.
The substantial increase in net profit margin between 2015 and 2017 suggests improved operational efficiency, cost management, or potentially, favorable market conditions. However, the sharp decline in 2018 warrants further investigation, potentially related to impairment charges, increased costs, or decreased sales. The partial recovery in 2019 indicates some corrective measures were taken, but the margin did not return to its earlier high point.
- Relationship to Net Income
- The net profit margin’s volatility closely mirrors the fluctuations in net income. The high margin in 2017 corresponded with the highest reported net income of US$10,999 million. Conversely, the negative margin in 2018 aligned with a substantial net loss of US$10,192 million. The 2019 margin of 7.75% reflects a net income of US$1,935 million.
The observed trend highlights a considerable degree of instability in profitability. While the company demonstrated the capacity for high profit margins, its vulnerability to significant losses is also apparent. Continued monitoring of factors influencing net sales and cost structure is crucial for understanding and managing these fluctuations.
Return on Equity (ROE)
Kraft Heinz Co., ROE calculation, comparison to benchmarks
| Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income (loss) attributable to Kraft Heinz | 1,935) | (10,192) | 10,999) | 3,632) | 634) | |
| Shareholders’ equity | 51,623) | 51,657) | 66,034) | 57,358) | 57,685) | |
| Profitability Ratio | ||||||
| ROE1 | 3.75% | -19.73% | 16.66% | 6.33% | 1.10% | |
| Benchmarks | ||||||
| ROE, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
ROE = 100 × Net income (loss) attributable to Kraft Heinz ÷ Shareholders’ equity
= 100 × 1,935 ÷ 51,623 = 3.75%
2 Click competitor name to see calculations.
The Return on Equity (ROE) exhibited significant fluctuations over the observed period. Initial values were relatively low, followed by a substantial increase, a dramatic decline, and a partial recovery.
- ROE Trend
- In 2015, ROE stood at 1.10%. A considerable increase was noted in 2016, rising to 6.33%, and continued upward in 2017, reaching a peak of 16.66%. This positive trend reversed sharply in 2018, with ROE plummeting to -19.73%. A partial recovery occurred in 2019, with ROE increasing to 3.75%, though remaining below the levels seen in 2016 and 2017.
- Net Income Influence
- The substantial increase in ROE between 2015 and 2017 appears strongly correlated with a significant rise in net income attributable to the company. Net income increased from US$634 million in 2015 to US$10,999 million in 2017. The subsequent decline in ROE in 2018 coincided with a substantial net loss of US$10,192 million. The improvement in ROE in 2019 aligns with a return to net income of US$1,935 million.
- Shareholders’ Equity Stability
- Shareholders’ equity demonstrated relative stability throughout the period. It decreased slightly from US$57,685 million in 2015 to US$57,358 million in 2016, then increased to US$66,034 million in 2017. A decrease was observed in 2018 to US$51,657 million, followed by a marginal change in 2019, remaining at US$51,623 million. The fluctuations in ROE were therefore primarily driven by changes in net income, rather than significant shifts in shareholders’ equity.
The volatility in ROE suggests a sensitivity to net income performance. The negative ROE in 2018 indicates a period of substantial underperformance relative to shareholder investment.
Return on Assets (ROA)
Kraft Heinz Co., ROA calculation, comparison to benchmarks
| Dec 28, 2019 | Dec 29, 2018 | Dec 30, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income (loss) attributable to Kraft Heinz | 1,935) | (10,192) | 10,999) | 3,632) | 634) | |
| Total assets | 101,450) | 103,461) | 120,232) | 120,480) | 122,973) | |
| Profitability Ratio | ||||||
| ROA1 | 1.91% | -9.85% | 9.15% | 3.01% | 0.52% | |
| Benchmarks | ||||||
| ROA, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 2019 Calculation
ROA = 100 × Net income (loss) attributable to Kraft Heinz ÷ Total assets
= 100 × 1,935 ÷ 101,450 = 1.91%
2 Click competitor name to see calculations.
The Return on Assets (ROA) exhibited significant fluctuations over the observed period. Initially, the ROA demonstrated substantial growth, followed by a dramatic decline and a subsequent partial recovery.
- Initial Growth (2015-2017)
- From 2015 to 2017, the ROA increased considerably. Starting at 0.52% in 2015, it rose to 3.01% in 2016 and peaked at 9.15% in 2017. This positive trend suggests improving efficiency in utilizing assets to generate profit during this timeframe. The substantial increase in net income attributable to Kraft Heinz, alongside relatively stable total assets, contributed to this growth.
- Significant Decline (2017-2018)
- A sharp reversal occurred between 2017 and 2018. The ROA plummeted from 9.15% to -9.85%. This decline was primarily driven by a substantial net loss attributable to Kraft Heinz in 2018, while total assets also decreased. The negative ROA indicates that the company’s assets were generating a loss rather than a profit during this period.
- Partial Recovery (2018-2019)
- In 2019, the ROA showed a partial recovery, increasing to 1.91%. This improvement was attributable to a return to net income, although the level of profitability remained below that of 2016 and 2017. Total assets continued to decline, but at a slower rate than the prior year. The positive, yet modest, ROA suggests some improvement in asset utilization, but performance remained significantly below the peak observed in 2017.
- Net Income and ROA Correlation
- A strong correlation exists between net income attributable to Kraft Heinz and the ROA. Years with higher net income generally corresponded with higher ROA values, and vice versa. This highlights the significant impact of profitability on the company’s ability to generate returns from its asset base.
Overall, the ROA demonstrates a volatile pattern, characterized by a period of strong growth, a substantial decline, and a subsequent, incomplete recovery. The fluctuations in ROA are closely linked to changes in net income and, to a lesser extent, total assets.