The long honeymoon at Kraft Heinz Co. ended Friday (Feb. 22) as the company's stock plummeted a day after company executives wrote down the value of some of its best-known brands by $15.4 billion, cut the dividend and generally acknowledged that management's past success at simultaneously cutting costs and raising value was not working.
Kraft Heinz stock, which hit $92.20 on May 31, 2017, closed below $35 on Feb. 22.
The day before, the company reported an essentially flat fourth quarter and full-year 2018 net sales of $26.259 billion, up 4.5 percent from the previous year. Operating profit before the impairment charges dipped "only" by half a billion dollars, to $4.458 billion.
But the big news was: "During the fourth quarter, the company concluded that … the fair values of certain goodwill and intangible assets were below their carrying amounts. As a result, the company recorded non-cash impairment charges of $15.4 billion to lower the carrying amount of goodwill in certain reporting units, primarily U.S. Refrigerated and Canada Retail, and certain intangible assets, primarily the Kraft and Oscar Mayer trademarks."
At the Consumer Analyst Group of New York meeting that day, there was speculation that management's famously aggressive cost-cutting had gone too far, permanently damaging the value of those iconic brands.
It was those charges that resulted in a net loss attributable to common shareholders of nearly $12.6 billion for the fourth quarter and $10.2 billion for the year.
Oh, and there also was an accounting subpoena from securities regulators. It was chump change – $25 million in ingredient purchases may have been charged to the wrong quarter – but it added to the bad news.
As a result, the quarterly dividend was cut from 62.5 cents per share to 40 cents. "We believe this action will help us accelerate our deleveraging plan, provide us strategic advantage through a stronger balance sheet, support commercial investments and set a payout level that can both grow over time and accommodate additional divestitures," said CEO Bernardo Hees. "By doing this we can improve our growth and returns over time.”
The company evolved from the 2013 purchase of H.J. Heinz Co. by Brazilian investors 3G Capital and Warren Buffett’s Berkshire Hathaway. Then, in 2015, they engineered a merger with Kraft Foods and became a public company.
3G Capital was renowned for buying plateauing companies, slashing overhead costs and returning them to profitability – and public ownership – as it had done to Burger King in 2010. Kraft Heinz tried to purchase Unilever in 2017, but the Anglo-Dutch company rebuffed the $143 billion deal. Ever since, some investors have been waiting for Kraft Heinz's next big deal, but there have been none.
Berkshire Hathaway alone lost more than $4 billion on Friday as a result of its investment in Kraft Heinz, financial analysts reported.