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Shares of Kraft Heinz (ticker: KHC) continued their slide last week, down $ 3.75, or 12%, to $ 27.36, after reaching their lowest level since the merger of Kraft Foods and HJ Heinz in 2015. The stock is 70% below its high of $ 97 in 2017, which represents a significant drop for a leading food company, which is generally stable, with products like ketchup Heinz and Philadelphia cream cheese.
Berkshire (BRK.B) now loses on Kraft Heinz as its once substantial earnings have melted. Berkshire's 27 percent interest – some 325.7 million shares – now stands at about $ 8.8 billion, compared with a cost of $ 9.8 billion. Berkshire made a paper profit of more than $ 20 billion at the top of Kraft.
Kraft Heinz shares may be close to the bottom after the last down current. They are trading for less than 10 times the projected earnings of $ 2.79 per share for 2019 and a return of 5.9%. The stock, which once had a premium, now has the lowest price / earnings ratio of its peers. And its dividend, one of the highest in the sector, seems safe after being reduced to 40 cents a quarter, from 62.5 cents in February. Its payout ratio is less than 60%, in line with the 2019 consensus.
Piper Jaffray badyst Michael Lavery did not play the game, but from Neuperal to Neutral on Thursday at the top of his note: "Many risks remain, but they now seem to be taken into account. . " They include additional expenses Critics of the company have called private marketing brands and potential divestments. But even if these factors reduced Lavery's estimate of earnings for 2020 to $ 2.50 per share from the projected $ 2.90, the P / E multiple would be reasonable, 11 he wrote.
The Kraft stock was very successful in February, falling by 30% in one day, to about $ 35, after a $ 15 billion depreciation of the value of its brands, disappointing financial forecasts for 2019 and a reduction the dividend. .
Buffett then told CNBC that he did not think the stock was cheap, claiming that he "had absolutely no intention of buying." He added: "There are other things for which you have more for your money and better prospects". He was right up until now.
Kraft is the biggest disappointment of Berkshire's $ 200 billion equity portfolio, largely managed by Buffett and trailing behind
S & P 500 Index
in the current decade.
Berkshire stalwarts like
Wells Fargo
(WFC) and
Coca Cola
(KO) were lagging behind, while a $ 14 billion investment in
IBM
(IBM) at the beginning of the decade was sold at near breakeven levels in 2017 – a notable success for Buffett, considering that the S & P 500 was up about 50% during this period . Other important holdings of Berkshire
Apple
(AAPL) and
Bank of America
(BAC) were winners.
Buffett has been deeply involved in Kraft Heinz, starting with Berkshire's $ 23 billion takeover of Heinz in 2013 and the Brazilian investment company 3G Capital, and then with the merger of Kraft and Heinz in 2015. Buffett sat on the board of Kraft Heinz from 2015 to 2018.
He has consistently defended Kraft Heinz's 3G makers against critics who claimed the company's cost-cutting program was harming the underlying business. At the annual Berkshire meeting in 2017, Buffett said about 3G that it "was very effective in making a business productive with fewer people." It is estimated that 3G has reduced the Heinz and Kraft workforce by more than 25%.
The last downward trend in the Kraft stock came after reports of weak recent sales of food products based on scanner data and a negative report from
Swiss credit
of the
Robert Moskow, who reduced his price target from $ 33 to $ 26 while maintaining a lower score than performance.
Mr. Moskow has reduced his earnings estimate for 2019 to $ 2.68 per share, compared to $ 2.68 in consensus. According to her, an ongoing investigation into the company's internal controls could reveal more failures and "negatively affect the future prospects of the company".
The bad news for Kraft may not stop there, but this possibility seems less and less taken into account in the depressed course of the food giant.
Write to Andrew Bary at [email protected]
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