Episode Details

The Kraft Heinz Company (KHC) Q2 2026 — Adjusted EPS $0.56 beat the $0.53 estimate - and fell 18.8% from $0.69. GAAP EPS was -$4.60 on a $5.46B net loss driven by $7.35B of impairments. Net sales $6,262M, -1.4%. The print landed PRE-MARKET; $26.64 is the prior session's close, not a reaction. Organic sales fell 1.3%: price +1.3 points, volume/mix -2.6. Kraft Heinz raised prices and gave back two points of food sold for every point of price. And the split everyone still talks about was PAUSED in February. THE CALL: HOLD (3/5, A COVERED SIX PERCENT YIELD, AND NOT MUCH ELSE) — base-case value ~$25.0 vs ~$26.64 today. KEY METRICS: - CALL: HOLD 3/5, fair value ~$25 vs the $26.64 close (-6.2%). Base: $2.4B of clean free cash flow capitalised at an 8.0% cost of equity, 0% terminal growth = $30.0B equity over 1,186M shares = $25. Cross-check at 9.0x our $4.95B of 2026 adjusted EBITDA = $44.5B EV less $16.3B net debt = $24. Dividend discounted at 8% = $25. Bear $21, bull $36. Street: Hold, $22.80 avg (35 analysts, 4 buy/20 hold/11 sell), high $25, low $18 - 14.4% BELOW the price. We ALIGN on the rating, $2 above their target. - A BEAT AGAINST A BAR THAT FELL. Adjusted EPS $0.56 vs a $0.53 estimate, a 5.7% beat on the same adjusted basis. But a year ago the same measure was $0.69 - so adjusted EPS fell 18.8%. GAAP diluted EPS was -$4.60 on a $5,460M net loss. Net sales $6,262M vs $6,352M, -1.4%, ahead of the $6.12B consensus. Gross margin 32.4%, down 200bp. Adjusted operating income $1,041M vs $1,276M, -18.4% - profit fell more than ten times faster than sales. - PRICE UP, VOLUME DOWN. Organic net sales -1.3%: price +1.3 points, volume/mix -2.6. The filing attributes the price to cost pass-through in coffee and ready-to-drink beverages, not pricing power. By segment: North America $4,626M (three quarters of the company) organic -2.7%, volume/mix -3.8; International Developed $865M organic -0.7%; Emerging Markets $771M organic +8.5%, balanced price +4.5 / volume +4.0. North American segment adjusted operating income fell $1,173M to $988M, -15.8%. - THE SPLIT IS PAUSED - THE SPENDING IS NOT. The September 2025 plan to separate into Global Taste Elevation (Heinz, Philadelphia) and North American Grocery (Oscar Mayer, Lunchables) was paused on February 11, 2026 by new CEO Steve Cahillane. This filing's risk factors still cite 'the current pause on work related to the separation'. $66M of separation costs were expensed anyway. Incremental investment rose from $600M to ~$700M; FY26 guidance is constant-currency adjusted operating income DOWN 16-18%, adjusted EPS $2.03-$2.09. - THE CASH IS REAL AND FLATTERED, THE BALANCE SHEET IS NOT. Half-year operating cash flow $2,088M (+8.2%), capex $429M, free cash flow $1,659M (+10.3%), conversion 123% vs 96%. But working capital added ~$402M (payables +$392M on 'improved payment terms'). Clean half-year FCF is ~$1,257M, ~$2.4B annualised, against a $1.9B dividend - 79c of every clean cash dollar. Impairments were $7,352M this quarter after $9,266M a year ago. Goodwill $19,714M plus intangibles $32,372M = $52.1B, 71% of a $73.1B balance sheet and ABOVE the $47.9B enterprise value. Tangible book is -$16.1B. What to watch: Changes our mind UP: two quarters of North American volume/mix improving toward zero, or net leverage back under 3.0x. Confirms the bear: another Q4 impairment, a dividend exceeding clean free cash flow, or Berkshire actually selling. We'd buy at $21-$23. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.