Kraft Heinz
Co.


KHC -0.17%

on Thursday wrote down the worth of its Kraft and Oscar Mayer manufacturers by $15.Four billion, disclosed an investigation by federal securities regulators and slashed its dividend, sending its inventory down greater than 20% after-hours buying and selling.

Kraft Heinz mentioned it confronted unexpectedly increased prices final yr, and it has seen vital stress on the worth of its manufacturers since its $49 billion merger in 2015. The writedown prompted Kraft Heinz to swing to a fourth-quarter loss, marking a placing reversal after a number of years of radical cost-management efforts and better revenue margins that have been seen as a mannequin for the packaged-food {industry}.

“We have been overly optimistic on delivering financial savings that didn’t materialize,” Chief Govt Bernardo Hees mentioned on a convention name with traders.

Kraft Heinz Chief Monetary Officer David Knopf mentioned the corporate is contemplating promoting some manufacturers which have “no clear path to aggressive benefit” or have low revenue margins. He mentioned doing so may higher place Kraft Heinz to merge with one other meals maker.

The stream of developments comes at a pivotal second for the corporate, which has been struggling to maintain up with shopper shifts in the direction of less complicated substances and more healthy meals. Lots of the firm’s manufacturers, like Jell-O desserts and Kool-Help drink combine, conflict with present tendencies. Like different meals makers, Kraft Heinz is making an attempt to innovate whereas additionally sustaining its industry-leading profitability—a balancing act that fell aside within the newest quarter.

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The agency mentioned its manufacturers like Oscar Mayer scorching canine and Kraft Mac & Cheese returned to gross sales development after a number of years of declines. However revenue margins suffered in consequence, making the manufacturers much less worthwhile.

Mr. Hees, in acknowledging the stream of disappointing information on Thursday, tried to reassure traders by saying the corporate is positioning itself to be a part of “extra consolidation sooner or later that we consider is critical and can occur.”

Two years in the past, Kraft Heinz tried to merge with

Unilever

PLC however the deal fell aside, and Kraft Heinz has since been quiet on that entrance.

Kraft Heinz additionally mentioned Thursday the Securities and Change Fee is investigating its accounting practices in its procurement division. The corporate mentioned it has concluded an inside investigation into the matter, which led to a separate $25 million cost within the quarter. The cost associated to increased prices for substances and different bills that ought to have been recorded in earlier quarters.

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Kraft Heinz mentioned that it’s cooperating with the company and that the cost isn’t materials to earnings, as the corporate spends greater than $11 billion on procurement yearly.

Traders have lengthy punished the corporate, with shares down practically 30% from a yr in the past earlier than Thursday’s aftermarket drop to $38.24. The inventory is projected to open Friday at its lowest value because the merger.

JPMorgan analyst Ken Goldman mentioned that perhaps Kraft Heinz’s belt-tightening technique went too far, damaging the manufacturers and prompting the write-down.

Executives at Kraft Heinz slashed $1.75 billion in annual spending via its merger, however that effort wrapped up on the finish of 2017. The corporate continued its stringent budgeting method to eke out further financial savings by analyzing every value intently and never simply including to the earlier yr’s funds. The corporate popularized that technique, referred to as zero-based budgeting, spurring others within the {industry} to undertake it.

However final yr, the method didn’t generate sufficient to cowl the investments Kraft Heinz wanted to stoke gross sales development.

With gross sales stubbornly declining, Kraft Heinz spent a further $300 million final yr on advertising and marketing its manufacturers, creating new ones and renovating recipes to make them trendier.

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The transfer accelerated what would have been three years of investments into one yr. The cash additionally went into bettering its provide chain and including extra salespeople to go to shops and ensure merchandise are stocked appropriately.

Kraft Heinz’s revenue, excluding issues like curiosity funds, taxes and restructuring prices, fell 14% within the quarter. For years, this measure, referred to as adjusted Ebitda, had routinely risen on the firm due to its consideration to value reducing.

A number of the firm’s efforts to orchestrate a turnaround helped enhance gross sales of merchandise like Planters nuts, Oscar Mayer deli meat and Capri Solar. Comparable gross sales rose 2.4% within the fourth quarter.

Kraft Heinz additionally slashed its quarterly dividend to 40 cents a share from 62.5 cents, which Mr. Knopf mentioned would higher place Kraft Heinz for {industry} consolidation.

Total, Kraft Heinz posted a lack of $10.34 a share largely because of the write-down of its property. On an adjusted foundation, it logged earnings of 84 cents a share, down 6.7% from a yr in the past, and income of $6.89 billion, a 0.7% rise. Each measures fell beneath analyst projections, in accordance with FactSet.

Write to Annie Gasparro at [email protected]

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