The Chicago-based company also highlighted "very, very volatile" pork prices due to problems in China including the deadly coronavirus, African swine fever and trade uncertainties. Four of the company's eight factories in China are closed, Kraft Heinz said in an interview with Reuters.
Shares of Kraft Heinz, whose products include Philadelphia cream cheese and Planters peanuts, were down 7% at $27.93 on Thursday afternoon.
Kraft Heinz's sales have been muted for 14 straight quarters as consumers turn to cheaper private-label brands, online shopping and fashionable, nonprocessed and organic food. Thursday's results mark the one-year anniversary of Kraft Heinz reporting a surprise loss and taking a $15.4 billion writedown of key brands - a move that rocked the consumer goods industry and led to the ousting of former chief executive Bernardo Hees and several other executives.
At the time, the company also slashed its dividend by 36% and disclosed an investigation into its accounting practices by the U.S. Securities and Exchange Commission. In the year since, Kraft Heinz has announced further writedowns, scrapped its full-year adjusted earnings outlook, and is still under SEC investigation.
"Our turnaround will take time, but we expect to make significant progress in 2020," said CEO Miguel Patricio, who was recruited last year to stabilize the company.
Brazilian private equity firm 3G and billionaire Warren Buffett engineered the merger of H.J. Heinz and Kraft Foods in 2015, and since that deal the value of Kraft Heinz's stock has sunk about 60%. Under executives installed by 3G, the company made aggressive cuts using a tool called zero-based budgeting (ZBB) that incentivizes managers to meet strict cost targets - critics say this ate in to investment in brands.
The company still believes in ZBB, and will continue to cut costs but will focus more on efficiency, Patricio told Reuters in an interview. Under his management, very few employees will now have all their targets based on reducing costs.
The company said on a post-earnings call that currency fluctuations, divestitures, supply chain costs and bonuses related to the turnaround would likely lead to a decline of about $460 million in full-year earnings before interest, taxes, depreciation and amortization (EBITDA).
"We see this as a good sign that the incoming CEO is taking the necessary steps to stabilize the business rather than rearranging the deck chairs," Bernstein analyst Alexia Howard said.
The company, which also makes Oscar Mayer cold cuts and Kraft cheese slices, said fourth-quarter sales declined 5.1% due to lower U.S. demand for cheese, coffee, bacon and other products. The company said this was prompted by higher costs for key raw materials - including dairy and meat - that forced Kraft Heinz to raise U.S. prices by 3.1 percentage points.
"We have never seen such big volatility in meat, specifically in pork, as we are seeing now," Patricio said. Most of the world's pork is consumed by China, which accounts for 2% of Kraft Heinz's sales.
"We don't know what's going to happen with consumption in China - nobody knows because right now, the restaurants are closed."
Kraft Heinz took a $453 million charge in the fourth quarter ended Dec. 28 due to lower goodwill in businesses in Australia, New Zealand and Latin America. It also wrote down the value of its Maxwell House brand by about $213 million. According to media reports, Kraft Heinz hired investment bankers last year to review options - including a potential sale - for the nearly 130-year-old coffee brand.
Excluding items, the company earned 72 cents a share, beating analyst expectations of 68 cents per share according to Refinitiv. Sales fell to $6.54 billion, short of the analyst estimate of $6.61 billion.
(Reporting by Richa Naidu in Chicago; Editing by Steve Orlofsky and Matthew Lewis)
By Richa Naidu