Outdated brands weighing down Kraft Heinz
Kraft Heinz’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 brands like Oscar Mayer and Maxwell House that are out of step with modern consumers. 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 percent to $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 $20 billion in market value wiped out this year.
A longtime executive at Anheuser-Busch, Patricio took over Kraft Heinz from Bernardo Hees after bad news rattled the company in February, including weak profit numbers, a $15.4 billion writedown and an SEC subpoena. But while Patricio brings fresh blood, he was trained in 3G style while at the beermaker, 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 such a deal, the company will have to try and boost sales and profit by selling more food, a difficult challenge for its aging brands.
At Kraft Heinz, healthier has largely meant giving a face lift to old favorites, like cutting artificial dyes in its macaroni and cheese with ingredients like paprika and turmeric, rather than a full-fledged overhaul. The premiumization strategy has worked in Heinz ketchup, however, Patricio said, pointing to better results in organic and sugar-free ketchups.
“The near-term challenges are substantial,” said Jennifer Bartashus 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 percent in the company’s home market. Net sales fell too. The maker of Heinz ketchup and Jell-O also reported two new impairment charges totaling about $1.2 billion.
“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.
He said the company would look for efficiencies in its supply chain, where costs had gone up, and opportunities for investments in its core brands instead of launching too many new ones. For now, the plan is just to make a plan.