Kraft Heinz Company faces new challenges after disappointing results

Kraft Heinz experienced a disappointing quarter, missing on both top and bottom lines, thanks to commodity price pressures. Credit: Mike Mozart.

Disappointing financial results reveal weaknesses inside one of the world’s biggest food producers as threats to business success mount.

Announced in its Q4 earnings, Kraft Heinz incurred charges of $15.4bn to lower the carrying amount of goodwill and intangible assets, referring to the Kraft and Oscar Mayer brands, which attributed to a common shareholders loss of $12.6bn and diluted loss per share of $10.34.

Kraft Heinz experienced a disappointing quarter, missing on both top and bottom lines, thanks to commodity price pressures. The company’s biggest shock in Q4 earnings was the issues with accounting practises which caused share price to drop by 27% on 22 February.

The company slashed its dividend by 36% to $0.40 per share and has seen $16bn of its market cap wiped out.

Currency headwinds, which are affecting retail businesses around the globe, made trading harder but despite this the volume of sales rose 2.4% giving the company some hope.

Kraft Heinz is chasing the market rather than leading it

Big shifts in consumer spending, as people continue to move towards healthier fresh food diets, have harmed performance.

Marketing has also failed to generate the desired results. $5m is believed to have been spent on a 60-second advert shown during the Superbowl in 2018 promoting the company’s new frozen food line.

Kraft Heinz is facing increasingly stiff competition from supermarkets where their own brands are becoming more popular.

Previously, supermarket’s own-branded products were simply to offer a cheap alternative to the likes of Heinz Ketchup, but now supermarkets are releasing alternatives that match product quality which is weakening Kraft Heinz’s selling power on the shelves.

Results cast doubt over value of 2015 merger

When Kraft and Heinz announced a merger between the two companies in 2015, it was due to become the fifth largest food producer in the world, with eight of its brands pulling in revenues over $1bn each year.

The $63bn merger was backed by majority shareholders Berkshire Hathaway and private equity company 3G Capital and was shock to many in the industry, more so now that the value of the merger has come back to devastate its balance sheet.

The company benefits from owning and controlling its own manufacturing and supply chains, and has distribution channels across 190 countries, but are clearly struggling to reach consumers.

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