After posting results CNN characterized as “a gigantic loss” this weekend, Kraft Heinz’s stock has hemorrhaged value—leading pundits, critics, and even the company’s most high-profile investor, Warren Buffet, to speculate about the company’s financial future.
“Our fourth quarter and full year 2018 results reflect our commitment to re-establish commercial growth of our iconic brands, turn around consumption trends in several key categories, and expand into new category and geographic whitespaces,” said Kraft Heinz CEO Bernardo Hees, in the company’s quarterly report. “We are pleased with those actions, the returns on our investments, and the momentum built for 2019. However, profitability fell short of our expectations due to a combination of unanticipated cost inflation and lower-than-planned savings. Going forward, our global focus will remain on leveraging our in-house capabilities, developing our talented people, and delivering top-tier growth at industry-leading margins.”
The company noted positive Q4 net sales increases ($6.9 billion, up 0.7%) and organic net sales increases (2.4%), but posted significant losses including “non-cash impairment charges of $15.4 billion to lower the carrying amount of goodwill in certain reporting units, primarily U.S. Refrigerated and Canada Retail, and certain intangible assets, primarily the Kraft and Oscar Mayer trademarks.”
In total, the charges resulted in a net loss of $12.6 billion and diluted loss per share of $10.34 attributable to common shareholders.
In addition to negative financial results, Kraft Heinz announced a U.S. Securities and Exchange Commission investigation into the company had begun in October.
“The company received a subpoena in October 2018 from the U.S. Securities and Exchange Commission (the "SEC") associated with an investigation into the company's procurement area, more specifically the company's accounting policies, procedures, and internal controls related to its procurement function…” Kraft Heinz noted in its financial statement. “In the fourth quarter of 2018, as a result of findings from the investigation, the company recorded a $25 million increase to costs of products sold as an out of period correction…”
Following news of Kraft Heinz’s financial woes, Kraft Heinz curbed its regular quarterly dividend sharply, and the company’s stock plunged sharply, leading major investor Warren Buffet to tell CNBC’s Becky Quick that his company, Berkshire Hathaway, had “overpaid for Kraft.”
“It's still a wonderful business in that it uses about $7 billion of tangible assets and earns $6 billion pretax on that,” Buffett told the Squawk Box host. “But we, and certain predecessors, we paid $100 billion in tangible assets. So for us, it has to earn $107 billion, not just the $7 billion that the business employs.”
The company has subsequently employed investment bank Credit Suisse to review options for—and a potential sale of—Kraft Heinz’s Maxwell House brand, according to a CNBC report.
Will Kraft Heinz part with Maxwell House? What will the inevitable restructuring of one of the U.S.’s largest food companies look like? Deli Market News will continue to report.
