The Kraft Heinz Company reported financial results for the third quarter of 2022.
"We delivered another quarter of strong results as we continue to successfully navigate a volatile environment," Kraft Heinz CEO and chair of the board, Miguel Patricio, said in the announcement. "We are driving net sales growth across both North America and International segments, fueled by each of our three pillars of growth: our GROW platforms in North America, Foodservice, and Emerging Markets. At the same time, the consumer remains our top priority. We're dedicated to providing solutions for consumers by leveraging the power of our brands to deliver on value at a time when consumers need it most. I'm very proud of what we have been able to deliver thus far, but our work continues. We remain focused on advancing our long-term strategy, and believe we are well-positioned to drive profitable growth and generate attractive returns for our stockholders."
Q3 2022 financial summary
Net sales increased 2.9% versus the year-ago period to $6.5 billion, including a negative 6.4 percentage point impact from divestitures and acquisitions and a negative 2.3 percentage point impact from currency. Organic net sales increased 11.6% versus the prior year period. Price increased 15.4 percentage points versus the prior year period, with growth in both reportable segments that was primarily driven by price increases to mitigate rising input costs. Volume/mix declined 3.8 percentage points versus the prior year period, with declines in both reportable segments that were primarily driven by supply constraints and elasticity impacts from pricing actions.
Net income/(loss) decreased 40.8% versus the year-ago period to $435 million primarily driven by higher non-cash impairment losses, unfavorable changes in other expense/(income), and lower adjusted EBITDA versus the prior year period. These factors were partially offset by lower interest expense primarily due to debt extinguishment costs in the prior year period. Adjusted EBITDA decreased 5.5% versus the year-ago period to $1.4 billion, with performance including an unfavorable impact from divestitures and acquisitions of 6.1 percentage points and an unfavorable 1.4 percentage point impact from currency. The remaining year-over-year increase in adjusted EBITDA is a result of higher pricing and efficiency gains that more than offset higher supply chain costs (reflecting inflationary pressure in procurement, logistics and manufacturing costs) and higher commodity costs (mainly in dairy, packaging materials, soybean and vegetable oils, and energy), as well as unfavorable volume/mix. Results continue to reflect the difference in timing between inflationary pressures and the mitigating actions that were taken.
Diluted EPS was $0.35, down 40.7% versus the prior year period, driven by the net income/(loss) factors discussed above. Adjusted EPS was $0.63, down 3.1% versus the prior year period, primarily driven by lower adjusted EBITDA, including a negative $0.06 impact from divestitures, and an unfavorable impact from other expense/(income). These factors more than offset lower interest expense versus the prior year period.
Year-to-date net cash provided by operating activities was $1.5 billion, down 38.0% versus the year-ago period, primarily driven by higher cash outflows for inventories primarily related to stock rebuilding and increased input costs, and lower adjusted EBITDA. These impacts were partially offset by lower cash outflows for interest primarily due to prior year reduction of long-term debt and lower cash outflows for variable compensation versus the year ago period. Year-to date Free Cash Flow was $885 million, down 50.7% versus the comparable prior year period due to the same drivers of net cash provided by operating activities.
Outlook
The company continues to expect strong financial performance for 2022 and reaffirms 2022 organic net sales growth of a high-single-digit percentage increase versus the prior year period. The company has also raised the lower end of its expected 2022 adjusted EBITDA range. It now expects 2022 adjusted EBITDA to be $5.9 billion to $6.0 billion as compared to the prior expectation of $5.8 billion to $6.0 billion. Due to uncertainty with regard to the potential impact of continued upstream supply chain challenges faced by the industry, the company anticipates coming in at the lower end of this new adjusted EBITDA range. The full year adjusted EBITDA outlook reflects a 53rd week in 2022, an increase in foreign currency headwinds based on current exchange rates, the impact of divestitures versus the prior year, strong organic net sales, as well as the company's ongoing efforts to manage inflationary pressures, including unlocking gross efficiencies, as it continues to invest in long-term growth.
