The Kraft Heinz Company

Company Overview

Business Model: The Kraft Heinz Company is a global food and beverage company that manages its sales portfolio through eight consumer-driven product platforms: Accelerate (Taste Elevation, Easy Ready Meals, Substantial Snacking), Protect (Desserts, Hydration), and Balance (Cheese, Coffee, Meats). Products are sold through its own sales organizations, independent brokers, agents, and distributors to various retail and foodservice channels, and online.

Market Position: The food and beverage industry is highly competitive, encompassing e-commerce, large-format retailers, and discounters, offering both branded and private label products. Competition is based on innovation, price, quality, nutrition, service, taste, convenience, brand recognition, marketing, distribution, and promotions. The Kraft Heinz Company holds significant trademarks globally, including Kraft, Oscar Mayer, Heinz, Philadelphia, Lunchables, Velveeta, Ore-Ida, Capri Sun (licensed), Maxwell House, Kool-Aid, Jell-O in North America; Heinz, Golden Circle, Wattie’s, Plasmon in International Developed Markets; and Heinz, ABC, Master, Quero, Kraft, Pudliszki in Emerging Markets.

Recent Strategic Developments: In Q1 2024, The Kraft Heinz Company reorganized its International segment into International Developed Markets and Emerging Markets. Strategic investments in 2024 included the acquisition of the TGI Friday License for $140 million and the completion of the redemption of remaining outstanding shares of Just Spices, making it a wholly-owned entity. The Company also sold manufacturing facilities in Papua New Guinea, Indonesia, and two in Russia in 2024.

Geographic Footprint: Approximately 31% of 2024 net sales were generated outside the United States. The Company operates 70 manufacturing and processing facilities globally (66 owned, 4 leased). Net sales by geography in 2024 were:

Financial Performance

Revenue Analysis

Profitability Metrics (2024):

• Gross Margin: 34.7%
• Operating Margin: 6.5%
• Net Margin: 10.6%

Investment in Growth:

• R&D Expenditure: $150 million (0.6% of revenue)
• Capital Expenditures: $1,024 million
• Strategic Investments: Acquired TGI Friday License for $140 million in Q2 2024. Completed redemption of remaining outstanding shares of Just Spices in Q2 2024, making it wholly owned.

Business Segment Analysis

North America

Financial Performance:

• Revenue: $19,543 million (-2.9% YoY)
• Organic Net Sales: $19,570 million (-2.8% YoY)
• Segment Adjusted Operating Income: $5,111 million (+1.2% YoY)
• Key Growth Drivers: Organic Net Sales decrease was due to unfavorable volume/mix (4.2 percentage points) partially offset by higher pricing (1.4 percentage points).

Product Portfolio:

• Major product lines and services within segment: Kraft, Oscar Mayer, Heinz, Philadelphia, Lunchables, Velveeta, Ore-Ida, Capri Sun (licensed), Maxwell House, Kool-Aid, Jell-O.

Market Dynamics:

• The five largest customers accounted for approximately 46% of North America segment net sales in 2024.

Sub-segment Breakdown:

• Taste Elevation: 44% of consolidated net sales
• Easy Ready Meals: 18% of consolidated net sales
• Substantial Snacking: 5% of consolidated net sales
• Desserts: 4% of consolidated net sales
• Hydration: 9% of consolidated net sales
• Cheese: 7% of consolidated net sales
• Coffee: 3% of consolidated net sales
• Meats: 8% of consolidated net sales
• Other: 2% of consolidated net sales

International Developed Markets

Financial Performance:

• Revenue: $3,535 million (-2.4% YoY)
• Organic Net Sales: $3,522 million (-2.8% YoY)
• Segment Adjusted Operating Income: $537 million (+3.0% YoY)
• Key Growth Drivers: Organic Net Sales decrease was due to unfavorable volume/mix (2.8 percentage points).

Product Portfolio:

• Major product lines and services within segment: Heinz, Golden Circle, Wattie’s, Plasmon.

Market Dynamics:

• The five largest customers accounted for approximately 28% of International Developed Markets net sales in 2024.

Emerging Markets

Financial Performance:

• Revenue: $2,768 million (-4.3% YoY)
• Organic Net Sales: $2,857 million (+4.0% YoY)
• Segment Adjusted Operating Income: $321 million (-14.7% YoY)
• Key Growth Drivers: Organic Net Sales increase was due to higher pricing (3.5 percentage points) and favorable volume/mix (0.5 percentage points).

Product Portfolio:

• Major product lines and services within segment: Heinz, ABC, Master, Quero, Kraft, Pudliszki.

Market Dynamics:

• The five largest customers accounted for approximately 12% of Emerging Markets net sales in 2024.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: The Board authorized a $3.0 billion share repurchase program on November 27, 2023, through December 26, 2026. Approximately $1.9 billion of authorization remained as of December 28, 2024. The Company repurchased 14,296,553 shares in 2024.
• Dividend Payments: $1.9 billion in 2024. A cash dividend of $0.40 per share is payable on March 28, 2025.

Balance Sheet Position:

• Cash and Equivalents: $1,334 million
• Total Debt: $19,900 million
• Net Cash Position: -$18,566 million (Total Debt less Cash and Equivalents)
• Credit Rating: BBB by S&P Global Ratings and Fitch Ratings, Baa2 by Moody’s Investor Services, Inc., all with stable outlook.
• Debt Maturity Profile (aggregate principal maturities, excluding finance leases):
  • 2025: $629 million
  • 2026: $1,879 million
  • 2027: $1,856 million
  • 2028: $1,510 million
  • 2029: $935 million
  • Thereafter: $12,766 million

Cash Flow Generation:

• Operating Cash Flow: $4,184 million
• Free Cash Flow: $3,160 million (Operating Cash Flow less Capital Expenditures of $1,024 million)

Operational Excellence

Production & Service Model: The Kraft Heinz Company operates 70 manufacturing and processing facilities globally, with 66 owned and 4 leased as of December 28, 2024. These facilities are distributed across North America (32 owned, 2 leased), International Developed Markets (17 owned), and Emerging Markets (17 owned, 2 leased).

Supply Chain Architecture: The Company sources a variety of raw materials including dairy products, meat products, tomato products, sugar and other sweeteners, soybean and vegetable oils, coffee beans, wheat and processed grains, eggs, and other fruits and vegetables. Packaging materials include plastics, cardboard, resin, glass, and metal. Energy sources include electricity, diesel fuel, and natural gas. In 2024, the Company experienced moderate inflation in supply chain costs, which is expected to continue through 2025. Trade payables programs had $745 million outstanding at December 28, 2024.

Key Suppliers & Partners:

• Licensing Partner: The Kraft Heinz Company licenses Capri Sun packaged drink pouches for North America.
• Strategic Partner: The Company grants perpetual licenses for Kraft and Velveeta brands for certain cheese products to an affiliate of Groupe Lactalis.

Facility Network:

• Manufacturing: 70 manufacturing and processing facilities globally (66 owned, 4 leased). In 2024, the Company sold manufacturing facilities in Papua New Guinea, Indonesia, and two in Russia.
• Research & Development: R&D efforts are focused on product innovations, food safety, product/package performance, and supply chain optimization.
• Distribution: The Company has a non-cancellable synthetic lease for a distribution facility with an estimated construction cost of approximately $625 million, expected to commence late 2027.

Operational Metrics:

• Total Recordable Incident Rate (TRIR): 0.39 in 2024 (compared to 0.53 in 2023).

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Products are sold through the Company's own sales organizations.
• Channel Partners: Independent brokers, agents, and distributors are utilized.
• Digital Platforms: Products are sold through online channels.
• Retail & Foodservice: Products are distributed to various retail and foodservice channels.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients: Walmart Inc. was the largest customer, representing approximately 21% of net sales in 2024.
• Customer Concentration: In 2024, the five largest customers accounted for approximately 46% of North America segment net sales, 28% of International Developed Markets net sales, and 12% of Emerging Markets net sales.

Geographic Revenue Distribution:

• United States: 68.7% of total revenue
• Canada: 6.9% of total revenue
• United Kingdom: 5.0% of total revenue
• Other: 19.4% of total revenue

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The food and beverage industry is highly competitive, characterized by the presence of e-commerce, large-format retailers, and discounters. Competition extends across both branded and private label products. Key competitive factors include innovation, price, quality, nutrition, service, taste, convenience, brand recognition, marketing, distribution, and promotions.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: The filing indicates competition from both branded and private label products across various retail and foodservice channels, but does not name specific direct competitors.

Competitive Response Strategy: The Kraft Heinz Company's R&D investments and focus on product innovation, coupled with its strong brand portfolio and strategic segment reorganization, are aimed at maintaining competitive advantage in a dynamic market.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: The highly competitive food and beverage industry, including e-commerce, large-format retailers, and discounters, poses a risk to market share and pricing power. Competition is based on multiple factors including innovation, price, quality, and brand recognition.

Operational & Execution Risks

Supply Chain Vulnerabilities: The Company experienced moderate inflation in supply chain costs in 2024, which is expected to continue through 2025, potentially impacting profitability.

Financial & Regulatory Risks

Market & Financial Risks: The Company's long-term debt is rated BBB by S&P Global Ratings and Fitch Ratings, and Baa2 by Moody’s Investor Services, Inc., all with a stable outlook. Regulatory & Compliance Risks: The Kraft Heinz Company is involved in ongoing discussions with the U.S. Department of Justice, U.S. Environmental Protection Agency, and Indiana Department of Environmental Management regarding alleged Clean Water Act violations at a Kendallville, Indiana facility.

Geopolitical & External Risks

Geographic Dependencies: Business in Russia generated approximately 1% of consolidated net sales for 2024, with less than 1% of consolidated total assets located in Russia as of December 28, 2024.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Product Innovation: Investment in new product development and enhancements.
• Food Safety: Efforts to ensure the safety and quality of products.
• Product/Package Performance: Optimization of product and packaging attributes.
• Supply Chain Optimization: Initiatives to improve efficiency and cost-effectiveness in the supply chain.
• R&D Expenditure: $150 million in 2024, $147 million in 2023, and $127 million in 2022.

Intellectual Property Portfolio:

• Patent Strategy: The Kraft Heinz Company owns numerous patents worldwide.
• Licensing Programs: The Company licenses Capri Sun packaged drink pouches for North America and grants perpetual licenses for Kraft and Velveeta brands for certain cheese products to an affiliate of Groupe Lactalis.
• Goodwill & Intangible Assets: Goodwill was $28.7 billion and indefinite-lived intangible assets (primarily brands) were $36.5 billion as of December 28, 2024.
  • Impairment Losses: In 2024, goodwill impairment losses totaled $1.6 billion, including $854 million for the Meat & Cheese reporting unit and $495 million for Continental Europe. Intangible asset impairment losses totaled $2.0 billion, including $593 million for Lunchables, Claussen, and Wattie’s brands, and $1.3 billion for the Oscar Mayer brand.
  • Heightened Risk: Reporting units with less than 5% excess fair value over carrying amount (heightened risk of future impairment) include Taste Elevation, Ready Meals and Snacking, Continental Europe, and Away from Home & Kraft Heinz Ingredients, with an aggregate goodwill carrying amount of $19.0 billion. Brands with heightened risk include Oscar Mayer, Lunchables, Claussen, and Wattie’s, with an aggregate carrying amount of $2.6 billion.

Leadership & Governance

Executive Leadership Team

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 36,000 employees globally as of December 28, 2024.

Talent Management: Acquisition & Retention:

• Employee Value Proposition: A November 2024 global engagement survey showed an all-time high for employee engagement since the 2015 Merger.

Diversity & Development:

• Diversity Metrics: Achieved top-quartile on the Inclusion Index in the November 2024 global engagement survey.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: The Kraft Heinz Company is engaged in ongoing discussions with the U.S. Department of Justice, U.S. Environmental Protection Agency, and Indiana Department of Environmental Management regarding alleged Clean Water Act violations at a Kendallville, Indiana facility.

Legal Proceedings:

• A consolidated securities class action lawsuit (Union Asset Management Holding AG, et al. v. The Kraft Heinz Company, et al.) was settled in February 2023 and dismissed with prejudice on September 12, 2023.
• Two stockholder derivative actions (Datnoff, et al. v. Behring, et al. and Felicetti, et al. v. Behring, et al.) were dismissed with prejudice on July 23, 2024, with appeals voluntarily dismissed.
• A new stockholder derivative action (Erste Asset Management v. Hees, et al.) was filed November 28, 2023, dismissed August 8, 2024, with an appeal filed September 5, 2024. The potential range of loss cannot be reasonably estimated.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: -220.5% in 2024, 21.7% in 2023.
• Geographic Tax Planning: In December 2024, The Kraft Heinz Company recognized a $3.0 billion non-U.S. deferred tax asset from moving business operations to a wholly-owned subsidiary in the Netherlands, partially offset by a $0.6 billion valuation allowance. This change is estimated to increase the cash tax rate by 2.0% to 3.0% and the effective tax rate by approximately 5.0%. Unrecognized deferred tax liabilities for local country withholding taxes related to 2018-2024 accumulated earnings of certain international subsidiaries are approximately $80 million.
• Tax Reform Impact: The Company is under IRS examination for income taxes for 2018 through 2022. Notices of Proposed Adjustment (NOPAs) for transfer pricing propose an increase to U.S. taxable income of approximately $200 million for 2018 and $210 million for 2019, plus penalties of approximately $85 million for each year. The Company disagrees and intends to contest these proposals.