The best thing that can be said about Kraft Heinz’s results on Thursday is that it was only the second worst day of 2019 for the sprawling food company—so far, at least.
shares were down by 11% in afternoon trading after the company announced it had suffered a 5% sales drop in the first half of the year from a year earlier and that it took $1.22 billion in impairment charges. Back in February it revealed a $15.4 billion write-down in the value of its Oscar Mayer and Kraft brands, sending the stock crashing by 27%. The shares hit an all-time low on Thursday.
It seems quaint that food companies thought to be in Kraft Heinz’s crosshairs, or those of Brazilian private equity company 3G, which teamed up with Warren Buffett’s Berkshire Hathaway to take control of the company, used to rise on acquisition hopes. 3G’s radical cost-cutting model now looks discredited.
While the packaged foods business remains severely challenged by secular trends such as changing tastes, aggressive pricing by supermarkets and the rise of store brands, those that have invested, such as
have fared better.
Kraft Heinz Chief Executive Officer Miguel Patricio diagnosed what he said were some opportunities for targeted spending and marketing, but his tone was one of exasperation rather than optimism.
“Our brands are icons. It’s our job to ensure they are living icons,” he said.
Those icons seem unlikely to come close to recapturing the widespread appeal they once had. In many consumers’ minds there is little difference between Kraft Singles American cheese and private-label brands, for example.
There is no guarantee that increased ad spending will rekindle consumer preferences for Kraft Heinz’s brands. Yet the alternative approach of lowering prices to recapture market share not only risks creating margin pressures but exposes the company to commodity prices swings, especially in its cheese and meat categories.
That the company is facing these problems when consumers in the U.S., where it generates over two-thirds of its sales, are doing well only underscores the straits it is in. One hesitates to think of what might happen if the American economy weakens.
Write to Justin Lahart at firstname.lastname@example.org and Spencer Jakab at email@example.com
Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8