The Kraft Heinz Company reported financial results for the second quarter of 2022 that reflected strong price realization and resilient demand.
"We delivered yet another quarter of strong results as we continue to successfully navigate near-term headwinds, enabled by further advancements of our long-term strategy," Kraft Heinz CEO and chair of the board, Miguel Patricio, said in the announcement. "Though the environment remains fluid, we are better able to anticipate dynamic conditions, adapt to this constantly changing environment, and demonstrate our resiliency against new challenges. We are anticipating and adapting to changing market conditions while managing inflation through pricing realization and gross efficiencies. I am very proud of the Kraft Heinz team because, despite all of the challenges, employees across the organization continue to do a tremendous job."
Q2 2022 financial summary
Net sales decreased 0.9% versus the year-ago period to $6.6 billion, including a negative 9.3 percentage point impact from divestitures net of acquisitions and a negative 1.7 percentage point impact from currency. Organic net sales increased 10.1% versus the prior year period. Pricing was up 12.4 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 2.3 percentage points versus the year-ago period reflecting continued strong demand in retail and foodservice channels that was offset by supply constraints and elasticity impacts from pricing actions. On a segment level, unfavorable volume/mix in the North America segment more than offset favorable volume/mix in the International segment.
Net income/(loss) increased 1,136.4% versus the year-ago period to $265 million primarily driven by lower tax expenses in the current year period, lower interest expense primarily due to debt extinguishment costs in the prior year period, and favorable changes in other expense/(income). These factors were partially offset by higher non-cash impairment losses and lower adjusted EBITDA versus the prior year period. Adjusted EBITDA decreased 10.9% versus the year-ago period to $1.5 billion with performance including an unfavorable impact from divestitures of 5.9 percentage points and an unfavorable 1.1 percentage point impact from currency. The remaining year-over-year decrease in adjusted EBITDA is a result of higher pricing and efficiency gains that were offset by higher commodity costs (primarily in dairy, packaging materials, soybean and vegetable oils, and meat) and supply chain costs (reflecting inflationary pressure in procurement, logistics and manufacturing costs), as well as unfavorable volume/mix. Results continue to reflect the difference in timing between inflationary pressures and the mitigating actions we have taken.
Diluted EPS was $0.21, up 1,150.0% versus the prior year period, driven by the net income/(loss) factors discussed above. Adjusted EPS was $0.70, down 10.3% versus the prior year period, primarily driven by lower adjusted EBITDA, including a negative $0.07 impact from divestitures, and higher taxes on adjusted earnings. These factors more than offset lower interest expense and favorable changes in other expense/(income) versus the prior year period.
Outlook
The company continues to expect strong financial performance in 2022. The company is raising expectations for 2022 organic net sales to a high-single-digit percentage increase versus the prior year period, as compared to previous expectations of a mid-single-digit percentage increase, reflecting strong performance to date and ongoing business momentum. The company continues to expect 2022 adjusted EBITDA to be in the range of $5.8 billion to $6.0 billion, with a 45% to 55% third quarter to fourth quarter split. This 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.
