Kraft Heinz withdraws outlook after dismal results | Progresiv
Kraft Heinz Co reported weak quarterly sales, prompting the producer of packaged foods to write down the value of several business units by more than 1 billion dollars and drop its full-year forecast as it struggles to lure back customers. Shares fell to a record low as the Chicago-based company marked a 12th straight quarter of lackluster sales. 
Kraft Heinz, which counts billionaire Warren Buffett as its largest investor, has been battered by competition from private-label brands, changing consumer tastes and lower investment in its brands due to heavy cost-cutting under leaders installed by Brazilian private equity firm 3G Capital.
The earnings report, delayed by an internal investigation into accounting practices at Kraft Heinz’s procurement team, underscored these issues and pushed shares down by more than 15%.
Kraft Heinz’s struggles have rocked other major consumer goods companies this year, highlighting the industry’s struggle to cut costs without gutting marketing budgets amid soaring input and transportation costs.
“On the whole, we are dissatisfied with our financial performance year-to-date,” said Chief Financial Officer David Knopf, a 3G Capital partner. Knopf called Kraft Heinz’s earnings decline “simply unacceptable” and said sales were held back as U.S. and Canadian retailers cut inventory.
Warren Buffett - who teamed up in 2015 with 3G Capital to orchestrate the merger of Kraft Foods and Heinz Co - said in February that pressure from retailers’ store brand products had changed Kraft Heinz’s ability to price, adding that Costco Wholesale Corp’s Kirkland brand outsells all Kraft Heinz products. Buffett said at the time that his Berkshire Hathaway Inc had overpaid in the deal.
Kraft Heinz said it was withdrawing its previously announced full-year outlook of adjusted earnings before interest, tax, depreciation and amortization between 6.3 billion dollars and 6.5 billion dollars. The company also said net income halved in the first six months of the year.
The company took a charge of about 744 million dollars on its U.S. refrigerated, Latin American exports and Brazil units among others, blaming lower five-year operating forecasts. It also booked an impairment charge of about 474 million dollars in the second quarter to write down the value of six brands, including Velveeta and Cool Whip. The impairment charges are preliminary and subject to finalization of control procedures, it said.
This marks Kraft Heinz’s second major writedown since Feb. 21, when the company knocked 15.4 billion dollars off the value of its Kraft and Oscar Mayer brands, posted a surprise quarterly loss, and disclosed a U.S. Security and Exchange Commission investigation into its accounting practices.
After an internal review, Kraft Heinz said in May it had increased the initial brand writedown by about 13 million dollars due to misstatements in reports for 2016, 2017 and the first nine months of 2018. The U.S. Attorney’s Office for the Northern District of Illinois is working with the Securities and Exchange Commission to investigate this matter.
Net income attributable to the company’s shareholders fell more than 51% to 854 million dollars. Kraft Heinz said net sales fell about 5% to 12.37 billion dollars. The company, whose shares have lost a third of their value since February, said it expects better second-half sales and earnings growth. (uk.reuters.com)
