Kraft Heinz Co. (NASDAQ:KHC)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes showed a significant increase from 2015 to 2017, rising from 1,418 million to 5,287 million US dollars. However, in 2018, there was a substantial decline, with NOPAT turning negative to -11,194 million US dollars, indicating operational challenges or extraordinary losses during that year. In 2019, NOPAT partially recovered to 2,719 million US dollars, but it remained below the levels observed in 2016 and 2017.

Cost of Capital

The cost of capital demonstrated a declining trend over the five-year period, decreasing from 12.65% in 2015 to 10.19% in 2019. This suggests a gradual reduction in the company's required return on investments, potentially reflecting lower risk perceptions or favorable market conditions affecting capital costs.

Invested Capital

Invested capital initially increased slightly from 105,133 million US dollars in 2015 to a peak of 112,007 million in 2017. Afterward, it declined notably during 2018 and 2019, dropping to 96,541 million and 94,307 million US dollars, respectively. This reduction could indicate asset divestitures, write-downs, or changes in investment strategy.

Economic Profit

Economic profit throughout the period was negative, indicating that the company's returns did not exceed the cost of capital. The deficit improved somewhat from -11,878 million US dollars in 2015 to -8,253 million in 2017, but a steep deterioration occurred in 2018 with economic profit falling to -21,293 million US dollars. In 2019, the economic loss narrowed to -6,892 million US dollars, yet the company remained value-destructive according to this metric.

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 negative trend throughout the period under review, indicating consistent losses. The deficit decreased from -11,878 million US dollars in 2015 to -8,253 million in 2017, suggesting some improvement. However, a significant deterioration occurred in 2018, with the loss reaching -21,293 million, before partially recovering to -6,892 million in 2019. This fluctuation indicates volatility in generating value beyond the cost of capital, with a notable spike in losses in 2018.

Invested Capital

Invested capital showed a fluctuating pattern over the five years. It increased moderately from 105,133 million US dollars in 2015 to 112,007 million in 2017, indicating expansion or increased asset base. Subsequently, it decreased sharply to 96,541 million in 2018 and further to 94,307 million in 2019. This decline might reflect divestitures, asset disposals, or impairment, which could be linked to the sharp decline in economic profit during the same period.

Economic Spread Ratio

The economic spread ratio remained negative in all periods, highlighting that returns on invested capital consistently fell below the cost of capital. From -11.3% in 2015, this ratio improved somewhat to -7.37% by 2017, mirroring the trend seen in economic profit. However, it worsened dramatically to -22.06% in 2018, indicating a substantial erosion of value creation. By 2019, the ratio improved again to -7.31%, nearly returning to levels seen prior to 2018. Overall, the ratio reflects persistent underperformance with a significant adverse event in 2018.

Summary of Trends

Across the observed period, the company experienced persistent negative economic profit and economic spread ratios, signaling ongoing challenges in value creation. The invested capital initially rose but declined notably after 2017, coinciding with the steep drop in economic profit and economic spread in 2018. The patterns suggest that 2018 was a particularly difficult year, possibly due to operational issues, market conditions, or strategic decisions impacting asset base and profitability. The partial recovery in 2019 indicates some corrective actions or improved performance but does not fully restore previous profitability levels.

The financial data reveals notable trends in the company's economic profit, net sales, and economic profit margin over the five-year period ending in 2019.

Economic Profit

The economic profit demonstrates a persistent negative value throughout the periods, indicating sustained losses in economic terms. Starting at -11,878 million US dollars in 2015, the losses show an improving trend until 2017, decreasing to -8,253 million. However, there is a sharp deterioration in 2018, with economic profit plunging to -21,293 million, followed by a notable recovery to -6,892 million in 2019. This volatility suggests fluctuations in the company's ability to generate returns over and above its cost of capital, with particular strain during 2018.

Net Sales

Net sales illustrated a general growth trend from 18,338 million US dollars in 2015 to a peak of 26,487 million in 2016. After this peak, sales exhibit slight decreases and stabilization, with figures remaining close around 26,000 million up to 2018, then slightly declining to 24,977 million in 2019. This pattern indicates relative stability in revenue generation following initial growth, although there is a mild downturn in the final year observed.

Economic Profit Margin

The economic profit margin remains deeply negative across all years, reflecting the unfavorable economic profitability relative to sales. The margin improves from -64.78% in 2015 to -31.46% in 2017, aligning with the economic profit recovery during this period. Despite this improvement, the margin deteriorates sharply to -81.06% in 2018, the year of highest economic losses, before easing to -27.59% in 2019. These fluctuations underline the company's challenges in translating sales into economic value, specifically the impactful loss experienced in 2018.