Kraft Heinz Reports Huge Loss, Reduces Dividend, Reveals SEC Investigation

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The company reduced the value of its Kraft and Oscar Mayer brands by $ 15 billion, recorded a loss of $ 12.6 billion, reduced its dividend by 36% and announced that its accounting practices were being investigated by the Securities and Exchange Commission.

Kraft Heinz (KHC) stock dipped up to 20% in the trade after normal hours.

Customers were not the problem: sales rose about 1% in the fourth quarter. Bernardo Hees, CEO of Kraft Heinz, blamed the company's activities. Kraft Heinz suffers higher manufacturing and logistics costs than expected. The company predicted that the savings from its merger in 2015 would continue to help reduce costs, but these efficiencies have dried up.

"We are too optimistic to realize savings that would not have materialized by the end of the year," Hees said during a teleconference with investors Thursday. "For that, we take full responsibility, and we have taken steps to ensure that it does not happen again by planning processes, procedures, and organizational structure."

The prices of many products used by food companies are on the rise, such as agricultural products and materials such as aluminum and pulp for packaging. Transportation costs have also increased pressure on food companies, in part because of the shortage of truckers in the United States.
Kraft Heinz and other food companies have come under pressure from lower food prices and retailers such as Amazon (AMZN), Walmart (WMT) and Costco (COST).

The company was praised for managing its supply chain after Kraft's merger with Heinz. But the rapid rise in costs resulted in such large profits that the company's earnings were $ 1 billion below its own expectations. This forced him to write two of his most recognizable marks as well as the Canadian activities of the company.

Chief Financial Officer David Knopf said during a conference call with investors that the company's financial performance had deteriorated in the second half of the year. But he was convinced that Kraft Heinz still had a lot to gain from his merger.

"The synergies we have achieved are very intact," he said.

SEC probe

Kraft Heinz also revealed that regulators were studying issues "including, inter alia, agreements, side agreements, as well as changes or modifications to its agreements with suppliers". The SEC issued a subpoena on this subject in October 2018.

The company said "continue to cooperate fully with the probe". and stated that he had launched an independent review of his procurement practices after receiving the subpoena. Kraft Heinz reported a $ 25 million increase in product costs as a result of this investigation.

"At this point, the company does not expect that the issues being investigated will be important," the company said in a statement.

The SEC declined to comment.

Dividend cut

The maker of Velveeta cheese and Jell-O pudding also reduced its dividend from 22.5 cents to 40 cents per share, a reduction of 36%.

Kraft said the dividend cut would help the company reduce debt faster, improve its balance sheet, support commercial investments, and help the company divest activities that do not support net income.

"By doing this, we can improve our growth and returns over time," said Hees.

Hees told investors that "we still strongly believe that our model is working and has a lot of potential for the future".

CNN Business by Paul La Monica contributed.

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