Kraft Heinz Co

We manage our operating results through four operating segments. We have two reportable segments defined by geographic region: North America and International Developed Markets. Our remaining operating segments, consisting of WEEM and AEM, are combined and disclosed as Emerging Markets.

Management evaluates segment performance based on several factors, including net sales, Organic Net Sales, and Segment Adjusted Operating Income. In the first quarter of 2024, certain measures utilized by management to evaluate segment performance changed, including a change from Segment Adjusted EBITDA to Segment Adjusted Operating Income in order to drive a stronger connection to our long-term strategic plan. Segment Adjusted Operating Income is defined as operating income/(loss) excluding, when they occur, the impacts of restructuring activities, deal costs, unrealized gains/(losses) on commodity hedges (the unrealized gains and losses are recorded in general corporate expenses until realized; once realized, the gains and losses are recorded in the applicable segment’s operating results), impairment losses, and certain non-ordinary course legal and regulatory matters. Segment Adjusted Operating Income for Emerging Markets, which represents the aggregation of our WEEM and AEM operating segments, is defined and presented consistently with the Segment Adjusted Operating Income of our reportable segments — North America and International Developed Markets. Segment Adjusted Operating Income is a financial measure that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations. Management also uses Segment Adjusted Operating Income to allocate resources. We have reflected this change from Segment Adjusted EBITDA to Segment Adjusted Operating Income in all historical periods presented.

Under highly inflationary accounting, the financial statements of a subsidiary are remeasured into our reporting currency (U.S. dollars) based on the legally available exchange rate at which we expect to settle the underlying transactions. Exchange gains and losses from the remeasurement of monetary assets and liabilities are reflected in other expense/(income) on our consolidated statement of income, as nonmonetary currency devaluation, rather than accumulated other comprehensive income/(losses) on our consolidated balance sheet, until such time as the economy is no longer considered highly inflationary. See Note 2, Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data, for additional information. We apply highly inflationary accounting to the results of our subsidiaries in Venezuela, Argentina, Turkey, Egypt, and Nigeria, which are all in Emerging Markets.

Net Sales:

Organic Net Sales:

Drivers of the changes in net sales and Organic Net Sales were:

Adjusted Operating Income:

North America:

Net sales decreased 2.9% to $19.5 billion in 2024 compared to $20.1 billion in 2023, including the unfavorable impacts of foreign currency (0.1 pp). Organic Net Sales decreased 2.8% to $19.6 billion in 2024 compared to $20.1 billion in 2023, primarily due to unfavorable volume/mix (4.2 pp), which more than offset higher pricing (1.4 pp). Higher pricing was primarily driven by increases to mitigate higher input costs. Unfavorable volume/mix was primarily due to shifts in consumer behavior due to economic uncertainty, a decline in Lunchables, and a temporary plant closure.

Segment Adjusted Operating Income increased 1.2% to $5.1 billion in 2024 compared to $5.1 billion in 2023, primarily driven by higher pricing, lower procurement and logistics costs due, in part, to the beneficial impact from our efficiency initiatives, and lower variable compensation expense. These favorable impacts to Segment Adjusted Operating Income were partially offset by unfavorable volume/mix, increased manufacturing expenses due to increased labor cost, increased SG&A due, in part, to investments in technology, increased depreciation expense, and the unfavorable impact of foreign currency (0.1 pp).

Net sales decreased 1.0% to $20.1 billion in 2023 compared to $20.3 billion in 2022, including the decrease from lapping a 53rd week of shipments in the prior period (1.7 pp) and the unfavorable impacts of foreign currency (0.3 pp). Organic Net Sales increased 1.0% to $20.2 billion in 2023 compared to $20.0 billion in 2022, driven by higher pricing (7.5 pp), which more than offset unfavorable volume/mix (6.5 pp). Higher pricing was primarily driven by increases to mitigate higher input costs, particularly in the first half of 2023. Unfavorable volume/mix was primarily due to elasticity impacts from pricing actions and due, in part, to the reduction of Supplemental Nutrition Assistance Program (“SNAP”) benefits.

Segment Adjusted Operating Income increased 6.7% to $5.1 billion in 2023 compared to $4.7 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; unfavorable volume/mix; increased manufacturing expenses; increased SG&A, primarily due to advertising expense; the decrease from lapping a 53rd week of shipments in the prior period (2.3 pp); and the unfavorable impact of foreign currency (0.3 pp).

International Developed Markets:

Net sales decreased 2.4% to $3.5 billion in 2024 compared to $3.6 billion in 2023, including the favorable impacts of foreign currency (0.4 pp). Organic Net Sales decreased 2.8% to $3.5 billion in 2024 compared to $3.6 billion in 2023, primarily due to unfavorable volume/mix (2.8 pp) while pricing remained flat. Unfavorable volume/mix was primarily due to a temporary pause in shipments as a result of a contract negotiation with certain customers in our Continental Europe region, and lower sales in New Zealand due to an inventory reduction by a regional customer.

Segment Adjusted Operating Income increased 3.0% to $0.5 billion in 2024 compared to $0.5 billion in 2023, primarily driven by lower procurement and logistics costs due, in part, to the beneficial impact from our efficiency initiatives, lapping the prior year business disruption caused by Cyclone Gabrielle in Australia and New Zealand, lower variable compensation expense, and the favorable impact of foreign currency (1.8 pp). These favorable impacts to Segment Adjusted Operating Income were partially offset unfavorable volume/mix and increased inflationary pressures in manufacturing expenses.

Net sales increased 6.5% to $3.6 billion in 2023 compared to $3.4 billion in 2022, including the unfavorable impacts of lapping a 53rd week of shipments in the prior period (1.8 pp), acquisitions and divestitures (0.7 pp), and foreign currency (0.5 pp). Organic Net Sales increased 9.5% to $3.6 billion in 2023 compared to $3.3 billion in 2022 driven by higher pricing (15.6 pp), which more than offset unfavorable volume/mix (6.1 pp). Higher pricing included increases across markets primarily to mitigate higher input costs. Unfavorable volume/mix was primarily due to the elasticity impacts from pricing actions, particularly in our Northern Europe region.

Segment Adjusted Operating Income was flat year over year, at $522 million in both 2023 and 2022. Increases to Segment Adjusted Operating Income were primarily driven by higher pricing offset by higher supply chain costs, reflecting inflationary pressure in procurement, manufacturing, and logistics costs; unfavorable volume/mix; increased SG&A, primarily due to advertising expense; the unfavorable impact from a business disruption in Australia and New Zealand caused by Cyclone Gabrielle; the decrease from lapping a 53rd week of shipments in the prior period (1.5 pp); and the unfavorable impact of foreign currency (0.1 pp).

Emerging Markets:

Net sales decreased 4.3% to $2.8 billion in 2024 compared to $2.9 billion in 2023, including the unfavorable impacts of foreign currency (6.2 pp) and acquisitions and divestitures (2.1 pp). Organic Net Sales increased 4.0% to $2.9 billion in 2024 compared to $2.7 billion in 2023, primarily driven by higher pricing (3.5 pp) and favorable volume/mix (0.5 pp). Higher pricing was taken primarily in our Eastern Europe and Middle East and Africa (“MEA”) regions to address higher input costs, which more than offset lower pricing in Brazil as a result of maintaining price gaps to competition. Favorable volume/mix within our Eastern Europe and MEA more than offset unfavorable volume/mix in Brazil and China.

Segment Adjusted Operating Income decreased 14.7% to $0.3 billion in 2024 compared to $0.4 billion in 2023, primarily due to higher supply chain costs reflecting inflationary pressures in our Eastern Europe and LATAM regions, the unfavorable impact of foreign currency (6.1 pp), and increased SG&A as a result of our investments in our go-to-market strategy, primarily in LATAM. These unfavorable impacts to Segment Adjusted Operating Income more than offset higher pricing, favorable volume/mix, and lower variable compensation expense.

Net sales increased 5.4% to $2.9 billion in 2023 compared to $2.7 billion in 2022, including the unfavorable impacts of foreign currency (6.6 pp), lapping a 53rd week of shipments in the prior period (1.7 pp), and acquisitions and divestitures (0.2 pp). Organic Net Sales increased 13.9% to $3.0 billion in 2023 compared to $2.6 billion in 2022, driven by higher pricing (10.9 pp) and favorable volume/mix (3.0 pp). Higher pricing included increases across markets primarily to mitigate higher input costs. Volume/mix was favorable in our Eastern European countries and LATAM region, partially offset by unfavorable volume/mix in our Asia region.

Segment Adjusted Operating Income increased 17.6% to $376 million in 2023 compared to $319 million in 2022, primarily driven by higher pricing and favorable volume/mix, partially offset by higher supply chain costs, reflecting inflationary pressure in LATAM and Eastern Europe regions; increased SG&A due, in part, to investments in advertising and research and development; the unfavorable impact of foreign currency (14.1 pp); increased depreciation expense; and the decrease from lapping a 53rd week of shipments in the prior period (2.7 pp).