Kraft Heinz fail leaves Buffett and 3G well fed



Kraft Heinz Co. plummeted the most on record Friday, one day after writing down the value of some of its best-known brands by US$15.4 billion, an acknowledgment that changing consumer tastes have destroyed the value of some of the company's most iconic products. Those operations handle interactions with outside suppliers. That has clashed directly with some of Kraft Heinz' most well-known brands like Jell-O and Kool-Aid and Oscar Mayer hot dogs.

Warren Buffett's Berkshire Hathaway is Kraft Heinz's largest shareholder.

Over the previous year, shares in the company have been on a downward spiral as cost cutting and price reductions are being used to try and revive sales growth.

The almost $13 billion loss in the most recent quarter is a devastating recognition that efforts to change the trajectory of the company have not been as successful as once thought.

It has cut costs aggressively, but it appears that the effect has not been what was expected.

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's inability to do a big acquisition under Chief Executive Officer Bernardo Hees has put a spotlight on its failure to boost sales.

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

The company's ratings "incorporate our belief that the company has a renewed emphasis on significantly de-leveraging its balance sheet", S&P wrote, though the process could take "several years".

The dividend cut was most worrisome to Growe.

"Investors for years have asked if 3G's extreme belt-tightening model ultimately would result in brand equity erosion", JPMorgan analyst Ken Goldman said.

"They're still very, very good businesses", he said.

The company chose to cut its dividend to 40 cents per share from 62.5 cents per share, which frees up $1.1 billion of extra cash this year.

"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.

Shares of food company Kraft Heinz Co (NASDAQ: KHC) were trading lower by 25 percent early Friday in reaction to a concerning earnings report, dividend reduction and disclosure of a SEC investigation.

Others like Kraft Heinz, including General Mills Inc. and Campbell Soup Co., plunged as well.

The packaged-food giant's charge to reduce the goodwill value of the Kraft and Oscar Mayer trademarks and other assets, coupled with disappointing fourth-quarter earnings and an accounting subpoena from securities regulators, sent the shares tumbling toward what would be a record low if the declines hold in US trading Friday.

The firm's shares, which have been sliding for about two years, fell below $35 Friday.

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