Shares in the food and beverage giant Kraft Heinz fell nearly 25% in Friday trading, a day after the company wrote down by $15.4bn the value of its Kraft and Oscar Mayer brands.
The company, which has disclosed that in October it received a subpoena from the Securities and Exchange Commission (SEC), has been battling pressure on the value of its brands since it came into existence via a $49bn merger in 2015. Consumers, seeking healthier fare, have flocked away from famous products such as Heinz Tomato Ketchup, Jell-O and Kraft Macaroni & Cheese.
“We were overly optimistic on delivering savings that did not materialize,” Kraft Heinz chief executive Bernardo Hees conceded on a conference call with investors, after the company announced it would slash its dividend.
Investor Warren Buffett’s Berkshire Hathaway has been particularly hard hit, losing more than $4bn in a day as shares in Kraft Heinz plunged. Kraft Heinz is one of Buffett’s largest positions, with 325 million shares at the end of 2018.
Buffett’s faith may be seen as a rare misstep. Despite consumers’ shift away from pre-packaged food, as recently as last May the 88-year-old investor was still extolling the company’s virtues.
“It’s very, very, very hard to take share away from Heinz Ketchup,” he told CNBC. “It’s hard to take share away from Philadelphia Cream Cheese. They’re still very, very good businesses.”
That no longer appears true. Kraft Heinz chief financial officer David Knopf said on Thursday the company was considering selling some brands that have “no clear path to competitive advantage”. Doing so could position Kraft Heinz to merge with another food-maker, Knopf said.
On Friday, Kraft shares were trading at about $36.30, far below a 52-week low of $41.60 set in late December. Overall, the stock has fallen nearly 29% over the past year.
Kraft Heinz said the impairment charge was related primarily to its US refrigerated foods and Canadian retail divisions, as well as trademarks for its Kraft and Oscar Mayer brands.
Kraft Heinz management, which said the company was cooperating fully with the SEC, claimed to be making progress reforming its product lines and taking the right strategic steps. But analysts have largely declined to put an optimistic spin on the company’s prospects.
“With respect to the depth, duration and general proﬁtability eﬀects … customer- and consumer-building into 2019 is less clear and lowers our conviction on the name,” analyst Rob Dickerson said in a research note.