--- title: "Can Kraft Heinz, the Company That Made Warren Buffett 'Step on a Mine,' Return to Its Peak?" description: "Kraft Heinz reported a 5.1% year-over-year decline in Q4 2019 revenue to $6.536 billion, missing expectations, and a 5% decline for the full year to $24.977 billion. The company's stock plunged 11% after the earnings call, and Fitch downgraded its credit rating to junk status, reflecting heavy debt and declining profits." author: "New Distribution" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2020-02-18" categories: "Capital, Earnings & M&A" language: "en" canonical: "https://xinjignxiao.com/en/articles/can-kraft-heinz-the-company-that-made-warren-buffett-step-on-a-mine-retu-c6e2cb06/" markdown: "https://xinjignxiao.com/en/articles/can-kraft-heinz-the-company-that-made-warren-buffett-step-on-a-mine-retu-c6e2cb06.md" original_source: "https://mp.weixin.qq.com/s/lshY5WkrWVnDJMhVf2sCUg" translation: "https://xinjignxiao.com/zh/articles/%E9%82%A3%E4%B8%AA%E8%AE%A9%E8%82%A1%E7%A5%9E%E5%B7%B4%E8%8F%B2%E7%89%B9-%E8%B8%A9%E9%9B%B7-%E7%9A%84%E5%8D%A1%E5%A4%AB%E4%BA%A8%E6%B0%8F-%E8%BF%98%E8%83%BD%E9%87%8D%E5%9B%9E%E5%B7%85%E5%B3%B0%E5%90%97-c6e2cb06.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/can-kraft-heinz-the-company-that-made-warren-buffett-step-on-a-mine-retu-c6e2cb06/" citation: "New Distribution. “Can Kraft Heinz, the Company That Made Warren Buffett 'Step on a Mine,' Return to Its Peak?.” New Distribution, 2020-02-18. https://xinjignxiao.com/en/articles/can-kraft-heinz-the-company-that-made-warren-buffett-step-on-a-mine-retu-c6e2cb06/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Can Kraft Heinz, the Company That Made Warren Buffett 'Step on a Mine,' Return to Its Peak? > Kraft Heinz reported a 5.1% year-over-year decline in Q4 2019 revenue to $6.536 billion, missing expectations, and a 5% decline for the full year to $24.977 billion. The company's stock plunged 11% after the earnings call, and Fitch downgraded its credit rating to junk status, reflecting heavy debt and declining profits. **-01-** ** **Not long ago, Kraft Heinz released its fourth-quarter and full-year 2019 financial results. According to the report, **Kraft Heinz's Q4 revenue was $6.536 billion, down 5.1% year-over-year, missing market expectations.** **For the full fiscal year 2019, the company's revenue was $24.977 billion, down 5% year-over-year.** **Net income attributable to common shareholders was $1.935 billion, compared to a net loss of $10.19 billion in the same period last year.** Observant investors noticed that Kraft Heinz's stock price plunged 11% within days of the earnings release, and the stock is down about 70% from its peak in February 2017. **The main reason is that during the earnings conference call, the company did not provide enough details to satisfy investors; unlike previous years, it did not give formal 2020 revenue guidance or outline a detailed turnaround plan.** Investors and analysts are eager for more detailed information. Last Friday, Fitch downgraded Kraft Heinz's credit rating from BB+ to BBB- (junk status), noting that the company is heavily indebted, with declining profits and poor prospects. According to public information, Kraft Heinz is burdened with heavy debt, and operating profit is expected to decline in 2020. Turning this around will not be easy. The company said that despite a 2% price increase, sales fell 2.2% year-over-year, and changes in volume and product mix dragged down 4.2%. On the positive side, although the heavy debt is concerning, it decreased by about $3.1 billion year-over-year. Kraft's book debt stands at about $27 billion, and it made some progress on its balance sheet in 2019. According to Kraft Heinz CEO Miguel Patricio: "While our 2019 results were disappointing, our performance in the final months of the year was in line with our expectations and driven by the factors we anticipated. Over the last six months, we have taken key actions to re-establish visibility and control over the business. We continue to believe that Kraft Heinz has the potential to deliver first-class financial performance as we begin to transform our capabilities and make the necessary investments in our brands, based on deep consumer insights. Our transformation will take time, but we expect to make significant progress in 2020 and build a solid foundation for future growth." These words indicate that Kraft Heinz **has a deep understanding of the mistakes it made and the problems it currently faces, but whether this means the company is now on the right path remains to be seen.** **-02-** Going back a few years, Warren Buffett's Berkshire Hathaway partnered with private equity firm 3G Capital to acquire Heinz for about $28 billion on Valentine's Day 2013. The two companies later jointly acquired Kraft Foods and then merged Kraft with Heinz. When the combined company went public, it was valued at $89 billion; however, today Kraft Heinz's market capitalization is less than $33 billion. 3G Capital is a Brazilian multi-billion-dollar private equity firm known for aggressively cutting costs to boost profit margins, with little interest in nurturing consumer brands. After the Kraft Heinz merger, 3G Capital significantly reduced staff, closed factories, and implemented various cost-cutting measures, reducing headcount by 20% and administrative expenses by 40%; this boosted Kraft Heinz's operating margin from 18% to 26% within 18 months. However, anyone with a discerning eye can see that this short-term profit growth has many drawbacks, because this growth is ultimately not organic. Such an M&A approach can even lead to a vicious cycle of needing to continuously acquire new companies to drive growth. In contrast, **Kraft Heinz's fundamental problems—aging products and stagnant or declining market space—have not been addressed, and may have worsened due to cuts in R&D and marketing expenses.** **-03-** Kraft Heinz has been continuously exploring ways to change the status quo. **The attempt to acquire Unilever was clearly one of Kraft Heinz's efforts to improve operations.** If the merger had gone through, production costs would have dropped significantly, and Kraft Heinz could have easily piggybacked on Unilever's channels in emerging markets to boost product sales. However, due to Unilever's strong opposition, Kraft Heinz had to abandon the plan. Even without Unilever, Kraft Heinz is still making changes. Patricio told analysts on the recent earnings call that to turn the business around, the company plans to reduce its roster of creative agencies from 36 to 19 this year, while increasing consumer-facing marketing (media spending) by 30%. In 2020, Kraft Heinz will shift more funds to support its flagship brands while reducing spending (or waste) on innovation and new product launches. In fact, Kraft Heinz's CEO only took the helm in July. Faced with the company's mess, he has publicly expressed confidence, saying he is excited and happy to have the opportunity to lead Kraft Heinz into its next phase. "When I look to the future, I am very excited about the opportunities for Kraft Heinz." Kraft Heinz has been operating for over 150 years and is one of the largest food and beverage companies in the world, with a wide range of products. But precisely because of these more than fifty different product categories, comprehensive innovation becomes extremely difficult. The company may plan to discontinue some underperforming product lines and sell some brands. Divesting product lines and simplifying the business will help it focus on brands with the highest growth potential. --- ## Citation metadata - Publisher: New Distribution - Author: New Distribution - Published: 2020-02-18 - Canonical: https://xinjignxiao.com/en/articles/can-kraft-heinz-the-company-that-made-warren-buffett-step-on-a-mine-retu-c6e2cb06/ - Original source: https://mp.weixin.qq.com/s/lshY5WkrWVnDJMhVf2sCUg ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. Contact: zhaobo258@gmail.com · +86 158 5481 7671