Kraft Heinz Co. recorded a $15.4 billion noncash charge to write down assets including some of its most well-known brands, a striking acknowledgment that changing consumer tastes have destroyed the value of some of the company's most iconic products.
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 trading today.
The charges resulted in a net loss of $12.6 billion, or $10.34 a share. Kraft Heinz shares plummeted almost 20 percent in after-hours trading in New York.
Formed in a 2015 merger orchestrated by Warren Buffett and the private-equity firm 3G Capital, Kraft Heinz's portfolio plays mainly in the center of the grocery store, an area hit hard by secular shifts in eating and shopping habits, and the one at greatest risk of being disrupted by Amazon.com Inc.
The company has tried to spruce up a long-standing suite of brands -- from organic Capri Sun to natural Oscar Mayer hot dogs. But the bigger question in the mind of investors has been management's ability to pull off the large, transformative deals that shareholders crave.
Kraft Heinz tried to purchase Unilever in 2017 in a move that would have allowed management to do what it does best: slash overhead costs. But Unilever rebuffed the $143 billion deal, and Kraft Heinz shares have since lost about half their value as investors wait for the next big move.
On Thursday, the company's fourth-quarter earnings missed even the lowest analyst estimate. It also flagged to investors in its quarterly results a subpoena it received last year from the U.S. Securities and Exchange Commission related to its procurement practices. Kraft Heinz said that as a result of an investigation with the help of an outside lawyer, it recorded a $25 million "increase to costs of products sold."
Kraft Heinz will cut its quarterly dividend to 40 cents a share from 62.5 cents, helping it pay down debt more quickly and adjust to its smaller size after selling some businesses. The company had been paying out dividends at the highest ratio to earnings of its U.S. packaged-food peers.
Business on 02/22/2019