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

THE KRAFT HEINZ COMPANY

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Kraft Heinz Nears Deal to Sell Part of Cheese Business to Lactalis -- 2nd Update

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09/15/2020 | 11:56am EDT

By Cara Lombardo and Annie Gasparro

Kraft Heinz Co. is nearing a deal to sell a big chunk of its cheese business to France's Groupe Lactalis SA for about $3.2 billion as the struggling U.S. food company seeks to jump-start growth in its other businesses, according to people familiar with the matter.

The deal is expected to be announced Tuesday, the people said, assuming there isn't a last-minute hitch. The transaction involves Kraft Heinz's natural-cheese business and consists of a mix of brands in the U.S. and Canada and the company's cheese business outside of North America, some of the people said.

Kraft Heinz has struggled in recent years with consumers defecting to foods that seem trendier or healthier and the pressure to revive sales has tempered its ability to improve profitability. That is reflected in a stock that has lost more than half its value and now gives the company a market capitalization of about $40 billion, not much more than its debt load of nearly $30 billion. Some proceeds from the sale are earmarked for debt reduction, one of the people said.

Kraft is holding a virtual meeting with its investors on Tuesday and already announced it plans to cut $2 billion in costs over five years, returning to the strategy that inspired the company's formation in a merger five years ago.

Closely held Lactalis, a global dairy company based in France, produces brie, ricotta and other cheeses in the U.S. and sells them under brands including President.

The company, which entered the U.S. about 40 years ago, has been on an expansion spree here, acquiring Stonyfield organic yogurt from Danone SA in 2017 in a deal valued at $875 million.

Adding the Kraft cheese business would boost the company's footprint further at a time when demand for staple groceries is higher than ever amid the coronavirus pandemic.

The sale will include Kraft shredded and blocks of cheese and the Cracker Barrel brand in the U.S., Breakstone's cottage cheese, and some other assets. Kraft Heinz will keep Philadelphia cream cheese, Velveeta, Cheez Whiz and Kraft Singles in the U.S. It will also retain its macaroni-and-cheese business world-wide.

In 2018, Kraft agreed to sell its Canadian natural-cheese business to Parmalat for over $1 billion.

Plans for the latest sale come as Kraft Heinz reorganizes its business under new platforms that it says are more focused on what consumers want, such as more convenient meals and snacks.

"We wandered away from the consumer," Kraft Heinz Chief Growth Officer Nina Barton said at the meeting Tuesday. "We are rebuilding the connection."

In the years following the merger, Kraft Heinz slashed about $1.7 billion in annual costs. Its sales growth and market share suffered.

That contributed to several of its biggest brands, losing value. Since February 2019, Kraft Heinz has written down the value of its brands by about $20 billion.

Kraft Heinz has also faced pressure from lower-priced store brands in cheese, deli meat and coffee. Kraft Heinz owns Oscar Mayer and Maxwell House, among other many other well-known brands.

Kraft Heinz Chief Executive Miguel Patricio said the company, which is partly owned by Brazilian investment firm 3G Capital, was too focused on cost cuts and made shortsighted decisions under its prior leadership. "We are changing that mindset," he said in an interview.

Last year, Mr. Patricio took over at Kraft Heinz after several years as chief marketing officer at Anheuser-Busch InBev SA, another company in which 3G's partners are invested.

Mr. Patricio said Kraft Heinz will be more strategic about how it cuts costs and will invest more of the savings in marketing its brands, rather than passing it all on to the bottom line like the company did in the past.

"Do we need to reduce margins to grow brands? The answer is no," he said.

Write to Cara Lombardo at cara.lombardo@wsj.com and Annie Gasparro at annie.gasparro@wsj.com

 


Stocks mentioned in the article
ChangeLast1st jan.
CHEESE FUTURES (CSC) - CMG (ELECTRONIC)/C1 0.00% 2.297 End-of-day quote.12.21%
DANONE -0.51% 50.34 Real-time Quote.-31.88%
FEEDER CATTLE?FUTURES (GF) - CMG (ELECTRONIC)/C1 -0.02% 133.8 End-of-day quote.-7.52%
LIVE CATTLE (LE) - CMG (ELECTRONIC)/C1 -0.15% 103.175 End-of-day quote.-17.14%
THE KRAFT HEINZ COMPANY -0.67% 31.23 Delayed Quote.-2.80%
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Financials (USD)
Sales 2020 25 683 M - -
Net income 2020 295 M - -
Net Debt 2020 25 576 M - -
P/E ratio 2020 129x
Yield 2020 5,09%
Capitalization 38 438 M 38 438 M -
EV / Sales 2020 2,49x
EV / Sales 2021 2,46x
Nbr of Employees 37 000
Free-Float 52,4%
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Technical analysis trends THE KRAFT HEINZ COMPANY
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TrendsBullishNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 20
Average target price 36,53 $
Last Close Price 31,44 $
Spread / Highest target 52,7%
Spread / Average Target 16,2%
Spread / Lowest Target -10,9%
EPS Revisions
Managers
NameTitle
Miguel Patricio Chief Executive Officer
Alexandre Behring da Costa Chairman
Flavio Torres Head-Global Operations
Paulo Basilio Global Chief Financial Officer
Gregory Edward Abel Independent Director
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