Kraft Heinz stock keeps plunging as new CEO feels Wall Street heat
Kraft Heinz Co.’s new chief is off to a tough start: Shares plunged to a record low during his first conference call as he failed to reassure investors about the troubled food maker’s prospects for a comeback.
Miguel Patricio, just five weeks after taking the reins, told wary shareholders that the strategy under his predecessor didn’t quite work. But he fell short of laying out his own plan to revitalize the big brands like Oscar Mayer and Maxwell House that are out of step with modern consumers’ tastes.
He said Kraft Heinz needs a “comprehensive strategy” but that he didn’t have enough confidence to issue guidance at this time. The company also withdrew its previous EBITDA guidance for the year.
“We’ve been too focused on the present and literally on fire fighting,” he said on a conference call. “We need to work on our competencies for the future with the mentality to make it better every day.”
The stock plunged as much as 16 per cent to US$26.05 Thursday, the lowest intraday level since the company was formed in a 2015 merger orchestrated by Warren Buffett and the private equity firm 3G Capital. The company has now seen about US$20 billion in market value wiped out this year. The shares ended the day at US$28.22, down 8.58 per cent.
A longtime executive at Anheuser-busch, Patricio took over the troubled food maker from Bernardo Hees after a slew of bad news rattled the company in February, including weak profit numbers, a US$15.4 billion writedown and an SEC subpoena. But while Patricio brings fresh blood into the struggling foodmaker, he was trained in the 3G style during his time at the beer maker, which is also backed by the founders of 3G, known more for slashing costs than building brands.
Kraft Heinz shares have been on a downward slide since February 2017, when its bid to acquire Unilever was rebuffed. Without a major deal like that, the company will have to try to boost sales and profit by selling more food, a difficult challenge with its aging brands.
At Kraft Heinz, healthier has largely meant giving a face lift to old favourites, like cutting artificial dyes in its macaroni and cheese with ingredients like paprika and turmeric, rather than a full-fledged overhaul. A strategy to offer more upscale options has worked in Heinz ketchup, however, Patricio said, pointing to better results in organic and sugar-free versions.
“The near-term challenges are substantial,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence. “Kraft Heinz is facing a long and difficult path to achieve sustainable sales and earnings growth. For the first six months of the year, EBITDA slipped 15 per cent in the company’s home market. Net sales fell too.
“The level of decline we experienced in the first half of this year is nothing we should find acceptable moving forward,” Patricio said as the company reported results.
The maker of Heinz ketchup and Jell-o also reported two new impairment charges totalling about US$1.2 billion. After reducing the value of some of its brands by more than US$15 billion in February, the new charges came after a review of the company’s operations during the first half of 2019. In the process of developing new five-year targets, Kraft Heinz found some weakness in its international businesses, chief financial officer David Knopf said on the conference call.