Kraft Heinz Co

Results of Operations

We disclose in this report certain non-GAAP financial measures. These non-GAAP financial measures assist management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our underlying operations. For additional information and reconciliations to the most closely comparable financial measures presented in our consolidated financial statements, which are calculated in accordance with U.S. GAAP, see Non-GAAP Financial Measures.

Consolidated Results of Operations

Summary of Results:

Net Sales:

Net sales decreased 3.0% to $25.8 billion in 2024 compared to $26.6 billion in 2023, including the unfavorable impacts of foreign currency (0.7 pp) and acquisitions and divestitures (0.2 pp). Organic Net Sales decreased 2.1% to $25.9 billion in 2024 compared to $26.5 billion in 2023, primarily due to the unfavorable volume/mix (3.5 pp), which more than offset higher pricing (1.4 pp). Pricing was higher in North America and Emerging Markets, and flat in International Developed Markets. Volume/mix in North America and International Developed Markets was unfavorable, while volume/mix in Emerging Markets was favorable.

Net sales increased 0.6% to $26.6 billion in 2023 compared to $26.5 billion in 2022, including the unfavorable impacts of lapping a 53rd week of shipments in the prior period (1.8 pp), foreign currency (0.9 pp), and acquisitions and divestitures (0.1 pp). Organic Net Sales increased 3.4% to $26.8 billion in 2023 compared to $25.9 billion in 2022, primarily driven by higher pricing (8.9 pp), which more than offset unfavorable volume/mix (5.5 pp). Pricing was higher in all segments. Volume/mix in North America and International Developed Markets was unfavorable, while volume/mix in Emerging Markets was favorable.

Net Income/(Loss):

(a) Adjusted Operating Income is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.

Operating income/(loss) decreased 63.2% to $1.7 billion in 2024 compared to $4.6 billion in 2023, due to non-cash impairment losses that were $3.0 billion higher in the current year period. The remaining change to operating income/(loss) was an increase of $118 million primarily driven by higher pricing, lower variable compensation expense, and lower procurement and logistics costs, due, in part, to the beneficial impact from our efficiency initiatives. These favorable impacts to operating income/(loss) were partially offset by unfavorable volume/mix, increased manufacturing expenses due to increased labor costs, and increased selling, general and administrative expenses (“SG&A”) due, in part, to investments in technology.

Net income/(loss) decreased 3.5% to $2.7 billion in 2024 compared to $2.8 billion in 2023. This decrease was due to unfavorable changes in operating income/(loss) factors discussed above, which more than offset a lower effective tax rate in the current period and the favorable changes in other expense/(income).

•Our effective tax rate was a benefit of 220.5% in 2024 compared to an expense of 21.7% in 2023. The year-over-year change in the effective tax rate was primarily driven by the recognition of a $3.0 billion non-U.S. deferred tax asset as a result of the movement of certain business operations to a wholly-owned subsidiary in the Netherlands and the geographic mix of pre-tax income in various non-U.S. jurisdictions. This benefit to our effective tax rate was partially offset by establishing a partial valuation allowance of $0.6 billion against the Netherlands deferred tax asset, establishing a full valuation allowance against Brazil net deferred tax assets, and non-deductible goodwill impairments.

•Other expense/(income) was $85 million of income in 2024 compared to $27 million of expense in 2023. This change was primarily driven by $197 million of favorable changes in net pension and postretirement non-service cost/(benefit), partially offset by an $81 million net loss on the sale of businesses in 2024.

Adjusted Operating Income increased 1.2% to $5.4 billion in 2024 compared to $5.3 billion in 2023, primarily driven by higher pricing, lower variable compensation expense, and lower procurement and logistics costs, due, in part, to the beneficial impact from our efficiency initiatives. These favorable impacts to Adjusted Operating Income were partially offset by unfavorable volume/mix, increased manufacturing expenses due to increased labor costs, increased SG&A due, in part, to investments in technology, and the unfavorable impact of foreign currency (0.4 pp).

Operating income/(loss) increased 25.8% to $4.6 billion in 2023 compared to $3.6 billion in 2022, primarily driven by higher pricing, the beneficial impact from our efficiency initiatives, lower non-cash impairment losses in the current year period ($251 million), and the impact of the securities class action lawsuit in the prior year period. These favorable impacts to operating income/(loss) were partially offset by higher commodity costs, including the impact of realized and unrealized gains and losses on commodity hedges, higher supply chain costs, reflecting inflationary pressure in manufacturing and procurement costs, unfavorable volume/mix, increased SG&A primarily for advertising expenses, and the decrease from lapping a 53rd week of shipments in the prior period.

Net income/(loss) increased 20.2% to $2.8 billion in 2023 compared to $2.4 billion in 2022. This increase was driven by the operating income/(loss) factors discussed above and lower interest expense, which more than offset unfavorable changes in other expense/(income) and higher tax expense.

•Interest expense was $912 million in 2023 compared to $921 million in 2022.

•Our effective tax rate was 21.7% in 2023 compared to 20.2% in 2022. The year-over-year increase in the effective tax rate was due primarily to the decrease in deferred tax liabilities due to the merger of certain foreign entities and the revaluation of deferred tax balances due to changes in state tax laws in the prior year versus the current year.

•Other expense/(income) was $27 million of expense in 2023 compared to $253 million of income in 2022. This change was primarily driven by $202 million of unfavorable changes in net pension and postretirement non-service cost/(benefit) due, in part, to the settlement of one of our U.K. defined benefit pension plans, which resulted in pre-tax losses of $162 million in 2023. Further, additional changes in other expense/(income) were driven by $179 million of unfavorable changes in foreign exchange losses/(gains). These unfavorable impacts to other expense/(income) were partially offset by $109 million of favorable changes in derivative losses/(gains).

Adjusted Operating Income increased 6.2% to $5.3 billion in 2023 compared to $5.0 billion in 2022, primarily due to higher pricing and the beneficial impact from our efficiency initiatives, which more than offset higher commodity costs, including the impact of realized gains and losses on commodity hedges; higher supply chain costs, reflecting inflationary pressure in manufacturing, procurement, and logistics; unfavorable volume/mix; increased SG&A, primarily advertising expenses; the decrease from lapping a 53rd week of shipments in the prior period (2.2 pp); and the unfavorable impact of foreign currency (1.2 pp).

Diluted Earnings Per Share (“EPS”):

Diluted EPS decreased 2.2% to $2.26 in 2024 compared to $2.31 in 2023, primarily driven by the net income/(loss) factors discussed above and the favorable impact of our common stock repurchases.

(b) Includes the impact of the change in the weighted average shares of common stock outstanding, including dilutive effect, which is primarily due to shares purchased pursuant to our publicly announced share repurchase program. See Note 19, Earnings Per Share, in Item 8, Financial Statements and Supplementary Data, for more information on our weighted average shares outstanding.

Adjusted EPS increased 2.7% to $3.06 in 2024 compared to $2.98 in 2023 primarily driven by higher Adjusted Operating Income, the favorable impact of our common stock repurchases, and favorable changes in other expense/(income), which more than offset higher taxes on adjusted earnings.

Diluted EPS increased 20.9% to $2.31 in 2023 compared to $1.91 in 2022, primarily driven by the net income/(loss) factors discussed above.

Adjusted EPS increased 7.2% to $2.98 in 2023 compared to $2.78 in 2022, primarily driven by higher Adjusted Operating Income and lower interest expense, which more than offset the decrease from lapping a 53rd week of shipments in the prior period, unfavorable changes in other expense/(income), and higher taxes on adjusted earnings.