Kraft Heinz (KHC)

Packaged foods company Kraft Heinz (NASDAQ:KHC) met Wall Streets revenue expectations in Q3 CY2025, but sales fell by 2.3% year on year to $6.24 billion. Its non-GAAP profit of $0.61 per share was 5.5% above analysts’ consensus estimates.

Company Overview

The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ:KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors in packaged food with diverse brand portfolios include Mondelez (NASDAQ:MDLZ), Campbell Soup (NYSE:CPB), General Mills (NYSE:GIS), and Nestle (SWX:NESN).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $25.16 billion in revenue over the past 12 months, Kraft Heinz is one of the most widely recognized consumer staples companies. Its influence over consumers gives it negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don’t have). However, its scale is a double-edged sword because it’s harder to find incremental growth when your existing brands have penetrated most of the market. To accelerate sales, Kraft Heinz likely needs to optimize its pricing or lean into new products and international expansion.

As you can see below, Kraft Heinz struggled to increase demand as its $25.16 billion of sales for the trailing 12 months was close to its revenue three years ago. This is mainly because consumers bought less of its products - we’ll explore what this means in the "Volume Growth" section.

This quarter, Kraft Heinz reported a rather uninspiring 2.3% year-on-year revenue decline to $6.24 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection implies its newer products will catalyze better top-line performance, it is still below the sector average.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether Kraft Heinz generated its growth (or lack thereof) from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, Kraft Heinz’s average quarterly volumes have shrunk by 3.8%. This isn’t ideal for a consumer staples company, where demand is typically stable. In the context of its 2.3% average organic sales declines, we can see that most of the company’s losses have come from fewer customers purchasing its products.

In Kraft Heinz’s Q3 2025, sales volumes dropped 3.5% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Kraft Heinz’s unit economics are higher than the typical consumer staples company, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 34.2% gross margin over the last two years. Said differently, Kraft Heinz paid its suppliers $65.80 for every $100 in revenue.

Kraft Heinz’s gross profit margin came in at 31.9% this quarter, down 2.3 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Although Kraft Heinz was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 5.4% over the last two years. Unprofitable public companies are rare in the defensive consumer staples industry, so this performance certainly caught our eye.

Looking at the trend in its profitability, Kraft Heinz’s operating margin decreased by 34.6 percentage points over the last year. Kraft Heinz’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Kraft Heinz generated an operating margin profit margin of 16.4%, up 18 percentage points year on year. The increase was solid, and because its revenue and gross margin actually decreased, we can assume it was more efficient because it trimmed its operating expenses like marketing, and administrative overhead.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Kraft Heinz reported adjusted EPS of $0.61, down from $0.75 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.5%. Over the next 12 months, Wall Street expects Kraft Heinz’s full-year EPS of $2.76 to shrink by 5.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Kraft Heinz has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 13.2% over the last two years. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Kraft Heinz’s margin expanded by 2.4 percentage points over the last year. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Kraft Heinz’s free cash flow clocked in at $986 million in Q3, equivalent to a 15.8% margin. This result was good as its margin was 2.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Kraft Heinz historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.2%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Kraft Heinz reported $3.13 billion of cash and $21.19 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $5.93 billion of EBITDA over the last 12 months, we view Kraft Heinz’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $385 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Kraft Heinz beat analysts’ EPS expectations this quarter. On the other hand, its gross margin missed and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 1.7% to $25.10 immediately after reporting.

Updated: December 4, 2025 at 9:50 PM EST

Are you wondering whether to buy Kraft Heinz or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Kraft Heinz doesn’t pass our quality test. To begin with, its revenue has declined over the last three years, and analysts don’t see anything changing over the next 12 months. And while its unparalleled brand awareness makes it a household name consumers consistently turn to, the downside is its declining operating margin shows the business has become less efficient. On top of that, its projected EPS for the next year is lacking.

Kraft Heinz’s P/E ratio based on the next 12 months is 10.1x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $27.08 on the company (compared to the current share price of $24.61).