Kraft Heinz discloses SEC probe, $15 billion write-down;
shares dive 20 percent
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 [February 22, 2019]
By Uday Sampath Kumar and Nivedita Bhattacharjee
(Reuters) - Shares of Kraft Heinz Co
slumped 20 percent late on Thursday after the food company posted a
quarterly loss, disclosed an SEC investigation and wrote down the value
of its iconic Kraft and Oscar Mayer brands as it highlighted the tough
environment for the packaged food industry.
The gloomy results and forecast from the company, which is one of
billionaire Warren Buffett's largest investments, reflect changes in
consumer trends away from processed foods to healthier alternatives.
The after-hours slump erased $12 billion from Kraft Heinz's stock market
value and left its shares trading at their lowest point since H.J. Heinz
Co bought Kraft Foods Group Inc in 2015, to create the world's fifth
largest food and beverage company.
"Kraft Heinz results confirmed all our worst fears – plus more,"
Guggenheim Partners' analyst Laurent Grandet said in a note.
The $15.4 billion write-down indicates declining fortunes of the iconic
brands and other losses in asset value, meaning the company views those
assets as less valuable than before the merger.
"We expect to take a step backwards in 2019," Chief Financial Officer
David Knopf told analysts on a post earnings conference call, promising
"consistent profit growth" starting in 2020.
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.
On a post-earnings call with analysts, Chief Executive Officer Bernardo
Hees said the entire packaged foods industry will likely remain
challenged, blaming the rising popularity of private label brands and
higher commodity costs.
"Kraft Heinz is in a worse position than many other consumer packaged
goods companies because it has got a very weak portfolio of brands. They
are not delivering the level of growth that's needed in this sort of
market," GlobalData Retail managing director Neil Saunders said.
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Bottles of Heinz tomato ketchup of U.S. food company Kraft Heinz are
offered at a supermarket of Swiss retail group Coop in Zumikon,
Switzerland December 13, 2016. REUTERS/Arnd Wiegmann/File Photo
The company, which competes with General Mills Inc and Kellogg Co, cut its
quarterly dividend to 40 cents per share from around 63 cents per share on
Thursday.
Buffett's Berkshire Hathaway Inc and Brazil's 3G Capital control Chicago-based
Kraft Heinz.
In addition to lower-than-expected earnings, the company disclosed it had been
subpoenaed by the U.S. Securities and Exchange Commission in October, related to
an investigation into its accounting policies, procedures and internal controls
related to procurement.
The company said it was working on ways to improve its internal controls and
determined the problems required it to record a $25 million increase to the cost
of products sold.
"That has really made a bad set of results even worse because it has also thrown
some uncertainty into the mix," Saunders said.
For the quarter ended Dec. 29, Kraft had a net loss of $12.6 billion. It earned
84 cents per share on an adjusted basis, missing Wall Street estimates of 94
cents, according to IBES data from Refinitiv.
Net sales of $6.89 billion fell short of analysts' estimates of $6.94 billion in
the reported quarter.
(Reporting by Uday Sampath and Nivedita Bhattacharjee in Bengaluru; Editing by
Shounak Dasgupta and Lisa Shumaker)
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