Kraft Heinz Takes $9 Billion Writedown in Second Quarter

Kraft Heinz delivered more grim news to investors when reporting its second quarter financial results July 30. Net sales decreased 1.9% – all the fault of the North American reporting segment – organic net sales decreased 2.0% and the company took a $9.3 billion non-cash impairment loss, resulting in a net loss for the quarter of $7.8 billion against sales of under $6.4 billion.

“This impairment charge was primarily driven by a sustained decline in our share price and market capitalization,” the press release said. Meaning the venerable old company – actually two venerable old companies – ain’t worth what it/they used to be.

Kraft Heinz's stock price peaked at $92.20 a share on May 31, 2017. It closed today (July 31) at $27.46.

While the small International Developed Markets ($897 million in sales) and Emerging Markets ($698 million) eked out 1.3% and 4.2% increases, sales in North America, which accounts for 75% of revenue, fell by $164 million (3.3%). Gross profit was $2.2 billion.

Kraft Heinz sales were $26.5 billion one year after the 2015 merger. In the years since, only 2023 sales eclipsed that, and only by $153 million. Last year’s sales were $25.8 billion.

Company officers reaffirmed their earlier outlook for this full year:

• Organic Net Sales down 1.5-3.5% versus the prior year.

• Constant Currency Adjusted Operating Income down 5-10%.

• Adjusted earnings per share in the range of $2.51-2.67.

CEO Carlos Abrams-Rivera said, “We are excited about the future and the momentum we’re building across our business. We are generating strong cash flow, maintaining our target net leverage ratio, and returning capital to stockholders, providing us with solid financial flexibility.”

Nevertheless, Kraft Heinz since May has been “evaluating potential strategic transactions to unlock long-term shareholder value. The company is actively progressing with its evaluation which includes a rigorous review of a broad range of options. It remains laser-focused on driving profitable long-term growth and value creation.”

That could mean piecemeal sales of assets. Earlier this month, Kraft Heinz found a buyer for its infant and specialty food business in Italy. And its Oscar Mayer business reportedly has been for sale for more than a year.

But the elephant in the room – addressed only because of a question from one of the financial analysts – was if the company is considering a significant split up, as reported in a mid-July Wall Street Journal story.

Abrams-Rivera neither confirmed nor denied, defaulting to the boilerplate “Our board is working with urgency on an evaluation of those strategic options to unlock … long-term strategic value creation.”