Kraft Heinz (KHC)

Packaged foods company Kraft Heinz (NASDAQ:KHC) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 6.4% year on year to $6.00 billion. Its non-GAAP profit of $0.62 per share was 2.7% 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $25.43 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 there are only so many big store chains to sell into, making it harder to find incremental growth. For Kraft Heinz to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, Kraft Heinz struggled to increase demand as its $25.43 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 6.4% year-on-year revenue decline to $6.00 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 1.8% over the next 12 months, similar to its three-year rate. This projection is underwhelming and indicates its products will see some demand headwinds.

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 sales volumes have shrunk by 2.8%. This isn’t ideal for a consumer staples company, where demand is typically stable.

In Kraft Heinz’s Q1 2025, sales volumes dropped 5.6% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

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 34.4% gross margin over the last two years. That means for every $100 in revenue, $65.57 went towards paying for raw materials, production of goods, transportation, and distribution.

In Q1, Kraft Heinz produced a 34.4% gross profit margin, in line with the same quarter last year and analysts’ estimates. 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.

Kraft Heinz has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer staples business, producing an average operating margin of 11.9%.

Looking at the trend in its profitability, Kraft Heinz’s operating margin decreased by 11.2 percentage points over the last year. Even though its historical margin was healthy, shareholders will want to see Kraft Heinz become more profitable in the future.

In Q1, Kraft Heinz generated an operating profit margin of 19.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

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.

Kraft Heinz’s EPS grew at an unimpressive 2% compounded annual growth rate over the last three years. On the bright side, this performance was better than its flat revenue and tells us management responded to softer demand by adapting its cost structure.

In Q1, Kraft Heinz reported EPS at $0.62, down from $0.69 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 2.7%. Over the next 12 months, Wall Street expects Kraft Heinz’s full-year EPS of $2.99 to shrink by 10.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Kraft Heinz has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 11% over the last two years, quite impressive for a consumer staples business.

Taking a step back, we can see that Kraft Heinz’s margin dropped by 2.2 percentage points over the last year. Continued declines could signal it is in the middle of an investment cycle.

Kraft Heinz burned through $166 million of cash in Q1, equivalent to a negative 2.8% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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 3.4%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Kraft Heinz reported $2.79 billion of cash and $21.6 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 $6.24 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 $404 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.

We struggled to find many positives in these results. The company's organic revenue fell short of Wall Street’s estimates and full-year EPS guidance missed after being lowered. Overall, this was a weaker quarter. The stock traded down 1% to $28.49 immediately after reporting.

Updated: July 10, 2025 at 10:49 PM EDT

Before investing in or passing on Kraft Heinz, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Kraft Heinz falls short of our quality standards. First off, its revenue has declined over the last three years, and analysts expect its demand to deteriorate 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 9.9x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $31.67 on the company (compared to the current share price of $26.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.