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PITTSBURGH – Kraft Heinz revealed a survey by federal regulators and announced a $ 15.4 billion reduction in the value of its Oscar Mayer and Kraft brands, a major setback for a company trying to revitalize its renowned brands.
A wave of bad news, which also included a curtailment of the dividend and poor prospects for the year, pushed stocks down to 26% on Friday's opening bell, their biggest single-day drop. Before noon, the company had lost $ 16 billion of its market value.
Kraft Heinz cited the impairment charge for an exceptional loss of $ 12.6 billion in the fourth quarter.
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Kraft Heinz said that the investigation conducted by the US Securities and Exchange Commission was related to its accounting practices in the division that manages the interactions with suppliers. The SEC declined to comment.
The sharp decline in value and losses during the quarter is a devastating sign that the efforts to change the company's trajectory have not had the desired success.
Kraft Heinz and other food manufacturers who dominated the shelves of grocery stores for most of the post-war era were upset by a dramatic shift in consumer demand.
Families, particularly in the United States, have shifted away from the usual packaged foods in the midst of a proliferation of healthier products or promising new tastes. The trend has not been good for some Kraft Heinz brands such as Jell-O and Kool-Aid hot dogs and Oscar Mayer.
In the fourth quarter, Kraft Heinz said lower prices in the United States helped boost sales volume. Global overall sales also increased slightly, but earnings, excluding non-recurring charges, still did not meet Wall Street's expectations.
The links between Kraft and Heinz were developed in 2015 by Berkshire Hathaway and 3G Capital by Warren Buffett. The Brazilian investment company is known for taking back businesses and improving its results by reducing costs.
But the strategy apparently did not work as expected at Kraft Heinz.
"We were too optimistic to realize savings that did not materialize by the end of the year," said Bernardo Vieira Hees, CEO of Kraft Heinz. "For that, we assume full responsibility."
Ken Goldman, an analyst at JPMorgan, said the results cast doubt on 3G Capital's strategy of chasing growth by cutting costs.
"For years, investors have wondered whether the extremely tight 3G model will erode the brand's capitalization," wrote Goldman.
Goldman said the answer could be in the depreciation of $ 15 billion in intangible assets for the brands Kraft and Oscar Mayer.
Of course, Kraft Heinz brands are not the only constant on American grocery store shelves for decades.
General Mills Inc., Campbell Soup Co., Kellogg Co. and J.M. Smucker Co. occupy the same familiar place in the mind of the American consumer.
On Friday, these personalities threw lightnings on the S & P 500's worst-performing stocks list, perhaps signaling fears of a worsening coming this year for manufacturers of some iconic American brands.
Kraft Heinz stated that the subpoena prompted him to initiate his own examination, which resulted in a charge of $ 25 million for expenses that should have been recorded previously. The company said it was working to prevent similar mistakes from happening again.
The company cut its dividend by 36% on Thursday.
This was very worrying for Christopher Growe, a Stifel analyst, who withdrew his purchase note from the company's title. Growe said he did not believe Kraft Heinz was in a strong position as the industry consolidated, as Kraft Heinz is looking to sell more brands.
"The weak underlying performance of the company and the continued need to reinvest in the business will likely prevent it from continuing its consolidation in the near future," Growe said.
He added that Kraft Heinz would face rising costs and a strong dollar that could reduce profits.
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