Warren Buffett-backed food behemoth Kraft Heinz (KHC) has pressed pause on its work to split into two separate businesses. This unexpected turn of events, twinned with a Q4 revenue miss, sent shares in the Chicago-headquartered firm 6% lower to $23.5 in pre-market trading.
| Share price: $23.5 (-6%) | PE: 9.8x |
| Market cap: $29.5bn | Yield: 6.5% |
The company behind Heinz ketchup and Philadelphia cream cheese announced plans to break up back in September.
The restructuring would have seen the company separate its ketchup, condiments and international sauces operations from the core North American packaged foods portfolio and unwound much of a blockbuster $46 billion merger from a decade ago.
Backed by Buffett’s Berkshire Hathaway (BRK.B), which remains Kraft Heinz’s biggest shareholder, the deal created one of the world’s biggest food companies.
Buffett is on record as being disappointed by the recent decision to split Kraft Heinz in two, one that new CEO Steve Cahillane has now reversed.
Fixable issues
Cahillane says many of the company’s issues are ‘fixable and within our control’. Kraft Heinz will now focus on a return to profitable growth.
He believes it is ‘prudent to pause work related to the separation’ and Kraft Heinz plans to invest $600 million to drive a turnaround of its US business.
The company plans to plough the money into marketing, sales and research and development. Cahillane said the investment will also go towards ‘product superiority and select pricing’.
Gloomy guidance
Q4 sales fell 3.4% to a worse than feared $6.4 billion at Kraft Heinz, while gross margin decreased 130 basis points to 33.1%.
However, the 20.2% drop in adjusted EPS (earnings per share) to $0.67 proved better than expected.
Kraft Heinz reported a bumper $4.7bn operating loss for FY25, primarily due to non-cash impairments totalling $9.3bn. The food and drink giant also issued a downbeat forecast for FY26, guiding for a dip in organic sales of between 1.5% to 3.5%.
Read the press release here: https://ir.kraftheinzcompany.com/news-events/press-releases
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