How Kraft Heinz Just Destroyed Shareholders (and Maybe Its Future)

Andrew Cummings
February 24, 2019

Kraft, which owns Velveeta cheese and Heinz ketchup brands, forecast adjusted earnings before interest, tax, depreciation and amortization (EBITDA) between $6.3 billion and $6.5 billion in 2019, lower than analysts' estimates of $7.47 billion, according to IBES data from Refinitiv.

Kraft Heinz Co. shares fell 20 per cent on a slew of bad news, mainly centering on a multi-billion dollar write-down, which had investors wondering if years of rigorous cost cuts came at the expense of losing the value of its marquee Kraft and Oscar Mayer brands.

"Kraft Heinz results confirmed all our worst fears - plus more", Guggenheim Partners analyst Laurent Grandet said in a note.

Legendary investor Warren Buffet's Berkshire Hathaway took a $4 billion hit Friday, after one of the holding company's largest investments, food and beverage giant Kraft Heinz, plunged more than 25% to a record low.

Bottles of Heinz tomato ketchup of USA food company Kraft Heinz are offered at a supermarket of Swiss retail group Coop in Zumikon, Switzerland December 13, 2016. "They need to get their house in order".

"In light of its $15bn write-down on its key Kraft and Oscar Mayer". The company said that it is fully cooperating with the SEC. But that wasn't supposed to matter for Kraft. The combined company cut $1.7 billion in expenses, beating the target it released when the deal was announced.

In 2017 it made a $143bn bid to buy Unilever, but withdrew the offer days later. Since Unilever rebuffed the proposal, though, the Buffett-backed company has been on a steady decline.

"We were overly optimistic on delivering savings that did not materialize by year end", said CEO Bernardo Vieira Hees "For that, we take full responsibility".

"The most recent quarter also included substantial catastrophe losses for the global insurance industry, which we would also expect to negatively impact Berkshire's earnings", Gelb wrote in a note to clients.

After receiving a subpoena for documents from the SEC, Kraft Heinz said the company launched an investigation into its work with suppliers and other vendors.

General Mills Inc., Campbell Soup Co., Kellogg Co., and J.M. Smucker Co. hold the same familiar place in the mind of the American consumer.

Unlike a technology startup, investors generally look to a consumer staples company for stable earnings and growth, said Baumunk, who teaches financial accounting and accounting ethics. Kraft Heinz said it would return to profit growth in 2020 and its strong operating margins give it the "balance sheet flexibility for future consolidation". Royal Bank of Canada lowered their price objective on Kraft Heinz to $68.00 and set an "outperform" rating for the company in a research report on Friday, November 2nd. But with its shares plummeting to a record low and big questions emerging about the strategy, pulling off a big acquisition - something that's already been tough - may be even harder from here.

Berkshire Hathaway's investment declined from a valuation of about $15.7 billion to $12.9 billion as the stock plunged to $39.66 at 6:15 NY.

Bloomberg's Aviel Brown and Nancy Moran contributed.

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