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MarketScreener Homepage  >  Equities  >  Nasdaq  >  The Kraft Heinz Company    KHC

THE KRAFT HEINZ COMPANY

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Kraft Heinz Marks Down Brands Again -- WSJ

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08/09/2019 | 02:47am EDT

Shares fall 9% as CEO says company has been too focused on present, 'firefighting'

By Heather Haddon and Micah Maidenberg 

Kraft Heinz Co. reported falling sales and wrote down the value of its brands for the second time in six months, as the food maker struggles to improve its products to satisfy shifting consumer tastes.

Chicago-based Kraft Heinz said on Thursday that it had booked charges reducing the values of its assets by $1.22 billion for the first six months of its fiscal year. That included $744 million related to businesses including international divisions and its U.S. refrigerated-foods unit, along with $474 million in declining value reflecting the company's lower stock price.

"We've been too focused on the present and literally on firefighting," Chief Executive Miguel Patricio told investors on a call. "We need to work on our competencies for the future."

Kraft Heinz's shares fell nearly 9% to $28.22. The stock is down about 34% this year.

Big food makers are facing enormous pressure to improve their products and add new brands as consumers gravitate toward foods they perceive as fresher and healthier. General Mills Inc., Kellogg Co. and Campbell Soup Co. are some of the companies that have seen sales suffer in recent years as customers eschew their cereals, soups and other packaged foods. They have also been affected by competition from private-label products and higher costs for ingredients and other inputs.

Kraft Heinz, one of the world's largest packaged-food makers, has been hit harder than most. Some former employees and suppliers say the company's cost-cutting drive left well-known brands too diminished to compete. Kraft Heinz also hasn't acquired smaller brands more focused on healthfulness or natural ingredients or updated its products to the same degree as some competitors.

Kraft Heinz in February wrote down the value of its Oscar Mayer and Kraft Heinz brands by $15.4 billion and slashed its dividend. The food giant said in June that Velveeta, Cool Whip, A1 steak sauce and many other brands could also face downward revisions if sales continue to deteriorate. The maker of Oscar Mayer hot dogs, Heinz ketchup and Kraft macaroni and cheese said its net sales fell 5% in the first half of this year compared with the first two quarters of 2018 to $12.37 billion. Organic sales, which exclude currency fluctuations and the impact of deals, dropped about 2%.

Weaker sales in the U.S. reflected lower prices that Kraft Heinz implemented for some products in an effort to gain market share and reflect lower prices for some ingredients, including nuts and coffee, the company said. Other food makers, including Mondelez International Inc. and Hershey Co., posted strong sales in the latest quarter after raising prices.

Mr. Patricio said the company hasn't done enough to advertise its brands to potential new consumers, such as Hispanic customers. It also needs to do more to come up with products for international markets, such as condiments in China, he said.

Kraft Heinz had delayed the release of its results for the first half of the year, and said it would continue delaying filings associated with that period as it considers further write-downs on the value of its brands.

Mr. Patricio said the company would stop offering forecasts for its future earnings as it sorts out its problems. "We have a big agenda to build," Mr. Patricio said. "I think that working on short-term targets will not help."

Kraft Heinz belatedly released its full-year 2018 financial results in June after completing an internal investigation into accounting misstatements by employees. The irregularities understated the costs of goods sold across roughly three years by $208 million, an amount that Kraft Heinz said wasn't material to its revenue of around $26 billion annually. The company continues to face a federal probe into its accounting practices and lawsuits alleging insider trading by executives and top shareholders.

Mr. Patricio, a former Anheuser-Busch InBev SA executive who took over at Kraft Heinz in June, is tasked with bringing the company back from its biggest crisis since investment fund 3G Capital LLC and Warren Buffett helped broker the merger of Kraft Foods with H.J. Heinz in 2015.

Mr. Buffett said earlier this year that he overpaid for Kraft Heinz but didn't plan to sell his 27% stake. Berkshire Hathaway Inc. reported upbeat earnings last week, though those results didn't include Kraft Heinz because of the food company's delayed financial disclosure. After Thursday's results and share drop, Mr. Buffett's stake in Kraft Heinz is worth around $9 billion, compared with a $13.8 billion valuation last year.

Kraft Heinz has tried to shed some of its weakest brands to reduce debt. But the company has struggled to find bidders for old brands such as Maxwell House, according to people familiar with those discussions. Mr. Patricio has said he would put attempted sales on hold until he gets a better sense of the company.

3G is known for its zero-base budgeting approach through which a company justifies all of its spending each year. Some former employees and suppliers say Kraft relied too much on that approach, leaving its brands starved of innovation as the company boosted profits early after the merger. Mr. Patricio on Thursday defended zero-base budgeting, but said the company's brands needed more investment. "Our brands are icons. It's our job to ensure they are living icons," Mr. Patricio told investors.

Kraft Heinz has introduced new products and marketing campaigns in recent months to boost sales. It launched a new line of frozen meals co-branded with Oprah Winfrey last week, and recently listed the Oscar Mayer Wienermobile as a place to stay on Airbnb Inc. Kraft is seeing sales declines in big categories that include coffee and cheese in the year through July 13, according to a UBS market analysis.

Kraft Heinz executives said on Thursday that sales suffered after retailers reduced their inventories during the year. Net income for the six-month period fell to $854 million, or 70 cents a share, from $1.76 billion, or $1.43 a share, during the comparable period last year.

Write to Heather Haddon at heather.haddon@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
ANHEUSER-BUSCH INBEV 1.93% 88.07 Delayed Quote.52.63%
BERKSHIRE HATHAWAY INC. -0.41% 313700 Delayed Quote.2.52%
CAMPBELL SOUP COMPANY 0.32% 46.76 Delayed Quote.41.74%
CHEESE FUTURES (CSC) - CMG (ELECTRONIC)/C1 0.00% 1.903 End-of-day quote.38.00%
CORN FUTURES (C) - CBR (FLOOR)/C1 -0.54% 370.75 End-of-day quote.-0.60%
GENERAL MILLS -0.11% 54.33 Delayed Quote.39.52%
KELLOGG -0.02% 63.73 Delayed Quote.11.79%
LONDON COFFEE -1.07% 1765 End-of-day quote.0.00%
LONDON SUGAR 0.80% 326.3 End-of-day quote.-2.31%
MONDELEZ INTERNATIONAL -0.71% 54.65 Delayed Quote.36.52%
THE HERSHEY COMPANY 0.32% 153.94 Delayed Quote.43.63%
THE KRAFT HEINZ COMPANY -0.04% 28.14 Delayed Quote.-34.62%
UBS GROUP -0.65% 11.425 Delayed Quote.-6.62%
WHEAT FUTURES (W) - CBR (FLOOR)/C1 -0.77% 484.25 End-of-day quote.-3.03%
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Financials (USD)
Sales 2019 25 232 M
EBIT 2019 4 917 M
Net income 2019 2 272 M
Debt 2019 28 209 M
Yield 2019 5,83%
P/E ratio 2019 15,1x
P/E ratio 2020 10,9x
EV / Sales2019 2,48x
EV / Sales2020 2,43x
Capitalization 34 331 M
Chart THE KRAFT HEINZ COMPANY
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Technical analysis trends THE KRAFT HEINZ COMPANY
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TrendsBullishNeutralBearish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 20
Average target price 29,47  $
Last Close Price 28,14  $
Spread / Highest target 77,7%
Spread / Average Target 4,74%
Spread / Lowest Target -18,3%
EPS Revisions
Managers
NameTitle
Bernardo Vieira Hees Chief Executive Officer
Alexandre Behring da Costa Chairman
Joao Araujo Head-Global Operations
David H. Knopf Chief Financial Officer & Executive Vice President
Melissa Alves Werneck Senior VP-Global People, Performance & IT
Sector and Competitors
1st jan.Capitalization (M$)
THE KRAFT HEINZ COMPANY-34.62%34 331
NESTLÉ S.A.34.36%308 874
MONDELEZ INTERNATIONAL36.52%78 814
DANONE30.78%57 331
GENERAL MILLS39.52%32 837
THE HERSHEY COMPANY43.63%32 263