Summary
- Overview of just what happened to Kraft Heinz stock at the end of FY18 and evaluate key numbers from 3Q19.
- Discuss what to look out for in Kraft's FY19 report next month and how they tie to key focus areas for Kraft.
- The takeaway: While Kraft still faces headwinds, the company's shares appear very attractive in today's highly valued market.
The Kraft Heinz Backdrop
Kraft Heinz (KHC) astonished investors in its quarterly report issued in February 2019. This fourth-quarter report for fiscal 2018 included a $15.4 billion write-down for its Kraft and Oscar Mayer brands and a dividend cut of more than a third. The company also announced an investigation by the Securities and Exchange Commission (SEC) looking into Kraft's accounting policies, procedures, and internal controls related to its procurement function. The investigation delayed SEC filings, as 1Q19 and 2Q19 were both reported in August 2019. The company in May reported that its own investigation and review identified required adjustments of approximately $208 million.
(Illustration by Tam Nguyen/Ad Age)
In April Kraft's board had appointed a new CEO, Miguel Patricio, who took the helm of the company at the start of July 2019. By late August, it was obvious Miguel had his work cut out for him as shares bottomed out as low as $25 per share.
In October, Kraft's second largest shareholder, 3G Capital Partners, unloaded 25.1 million shares citing liquidity reasons. It's hard not to be skeptical, however, 3G still remains the second largest shareholder in Kraft Heinz and has stated that it's not selling more shares. Jorge Paulo Lemann, Kraft Heinz board member and 3G founder, increased his personal stake in Kraft by $100 million, giving merit to Kraft's low valuation, especially when considering 3G sold the shares at $28.44 per share. It's also worth noting that Berkshire Hathaway (BRK-A), Kraft's largest shareholder, hasn't sold shares.
