Kraft Heinz shares fall as appetites wane


Kraft Heinz said after the close Thursday that it earned 84 cents per share in the fourth quarter on revenue of $6.891 billion versus expectations of 94 cents and $6.94 billion.

All this and weak fourth quarter earnings figures caused the stock price to be down almost 21% in after market trade.

The losses from Kraft Heinz will likely impact Berkshire Hathaway's profits.

Kraft Heinz and other food makers that dominated grocery shelves for much of the post-World War II era have been whipsawed by a seismic shift in what consumers want.

Kraft Heinz has recorded a $25m rise in costs for ingredients and other expenses that should have been recorded in previous quarters by its procurement arm amid an investigation by the US Securities and Exchange Commission into its accounting policies.

Changing consumer tastes and shopping habits have decimated sales at the largest food companies in the USA, as shoppers gravitate to more natural and organic options, rather than pre-packaged and sugar-laden products. That has clashed directly with some of Kraft Heinz' most well-known brands like Jell-O and Kool-Aid and Oscar Mayer hot dogs.

The company also announced a 36 percent cut in its quarterly dividend.

Wall Street was doing just that Friday. The results raise existential concerns about the investment thesis of a company that was created in a 2015 merger orchestrated by Warren Buffett and 3G Capital, a private equity firm known more for its cost-cutting zeal than its ability to nurture consumer brands.

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But the strategy apparently didn't work as planned at Kraft Heinz.

But said it did not expect that inquiry to be "material" to financial results.

This is not the only issue as Kraft Heinz revealed non-cash impairment charges of $15.4bn after writing down the value of assets including the Kraft and Oscar Mayer brands.

As for the SEC investigation, Kraft Heinz said the subpoena prompted it to launch its own review, which resulted in a $25 million charge for expenses that should have been accounted for previously.

"We see the 3G model as highly dependent on deal-making and synergy realization and at some point having best-in-class margins doesn't matter if the sales growth doesn't eventually come", Guggenheim Partners' analyst Laurent Grandet said in a note.

Kraft's bond yield spread over Treasuries-a market gauge of company credit risk-briefly jumped by about 40 basis points on Friday morning.

Stifel downgraded the stock to "hold" from "buy" and more than halved its price target to $35, well below the current median target of $52.

Two years later, Kraft Heinz tried and failed to acquire Unilever for $143 billion in a deal that might have allowed it to continue cutting costs and increasing margins, analysts said. And executives are considering more asset sales, they said on the earnings call, specifically businesses "with no clear path to competitive advantage".