Advertise with fastmoving.co.za
 
 

A $15.4bn write-down indicates declining fortunes for Kraft Heinz and other losses in asset value, meaning it views those assets as less valuable than before its merger.
A $15.4bn write-down indicates declining fortunes for Kraft Heinz and other losses in asset value, meaning it views those assets as less valuable than before its merger.

What Kraft Heinz’s write-down means for other consumer brands

RETAILER NEWS

By Uday Sampath Kumar and Nivedita Bhattacharjee - Feb 27th, 09:45

Shares of Kraft Heinz slumped 20% after the food company posted a quarterly loss, disclosed a Securities and Exchange Commission (SEC) investigation and wrote down the value of its Kraft and Oscar Mayer brands. 

The gloomy results highlighted the tough environment for the packaged food industry. The forecast from the company, which is one of billionaire Warren Buffett's largest investments, reflects changes in consumer trends away from processed foods to healthier alternatives.

The after-hours slump erased $12bn from Kraft Heinz's stock market value and left its shares trading at their lowest point since HJ Heinz Company bought Kraft Foods Group in 2015, to create the world's fifth-largest food and beverage company.

The $15.4bn write-down indicates declining fortunes of the iconic brands and other losses in asset value, meaning the company views those assets as less valuable than before the merger.

"We expect to take a step backwards in 2019," CFO David Knopf told analysts on a post-earnings conference call, promising "consistent profit growth" starting in 2020.

Kraft, which owns Velveeta cheese and Heinz ketchup brands, forecast adjusted earnings before interest, tax, depreciation and amortisation (ebitda) between $6.3bn and $6.5bn in 2019, lower than analysts' estimates of $7.47bn, according to IBES data from Refinitiv.

On a post-earnings call with analysts, CEO Bernardo Hees said the entire packaged foods industry would be likely to remain challenged, blaming the rising popularity of private label brands and higher commodity costs.

"Kraft Heinz is in a worse position than many other consumer packaged goods companies because it has got a very weak portfolio of brands. They are not delivering the level of growth that's needed in this sort of market," GlobalData Retail managing director Neil Saunders said.

The company, which competes with General Mills and Kellogg, cut its quarterly dividend to 40 US cents per share from about 63c per share.

Buffett's Berkshire Hathaway and Brazil's 3G Capital control Chicago-based Kraft Heinz.

In addition to lower-than-expected earnings, the company disclosed it had been subpoenaed by the US SEC in October, related to an investigation into its accounting policies, procedures and internal controls related to procurement.

The company said it was working on ways to improve its internal controls and determined the problems required it to record a $25m increase to the cost of products sold.

"That has really made a bad set of results even worse because it has also thrown some uncertainty into the mix," Saunders said.

For the quarter ended December 29, Kraft had a net loss of $12.6bn. It earned 84c per share on an adjusted basis, missing Wall Street estimates of 94c, according to IBES data from Refinitiv.

Net sales of $6.89bn fell short of analysts' estimates of $6.94bn in the reported quarter.
Business Live 

Related News

Watches of Switzerland sets its sights on more US acquisitions
25/03/2019 - 09:38
Watches of Switzerland expects to make further acquisitions in the US, which it first entered in 2017 with the purchase of jeweller Mayors, its CEO said.

Load shedding threatens jobs, economic recovery, says consumer body
22/03/2019 - 13:31
Load shedding, which has been escalated to Stage 4, is posing a significant risk to economic recovery, the Consumer Goods Council of South Africa said in a statement, as rotational blackouts continued to grip the country.

Retail sales recover in January after dismal December figures
22/03/2019 - 09:23
Retail spending showed signs of recovery in January, growing 1.2% on an annualised basis, slightly faster than analysts had expected.

4 Digital transformation communication strategies
20/03/2019 - 09:59
If you’re running a business in 2019, digital transformation should be on your mind. It doesn’t matter whether you’re a one-man band decorating cakes at home, or stand at the head of a multi-national corporation with hundreds of employees – it affects you. From how you engage with your customers, issue invoices, to how staff apply for leave or even claim expenses. The key issue for big organisations is without employee buy-in, you will struggle to reap the rewards. Effective communication is the key.

Tips for small business owners to survive load-shedding
20/03/2019 - 09:36
With small businesses already dealing with hikes in VAT and petrol, coupled with decreased consumer spending, load-shedding is a bridge too far, particularly for restaurateurs.