The Kraft Heinz Co. KHC, a major holding of Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. BRK.ABRK.B, announced on Tuesday a long-term restructuring plan that aims to return the company to "consistent and sustainable growth" according to CEO Miguel Patricio. The company also announced it entered a definitive agreement to sell its natural, grated, cultured and specialty cheese products to a U.S. affiliate of Groupe Lactalis, a French producer of dairy products.
The Pittsburgh and Chicago-based food and beverage giant's operating model contains several primary elements, which include people with purpose, consumer platforms and a partner program. Patricio said that the company plans to leverage its assets and "placing the consumer at the center of everything we do."
Company targets cost cuts and reasonable net leverage
Kraft said in its press release that through 2024, its "Ops Center" targets $2 billion of gross productivity efficiencies to offset inflation and bolster the company's growth initiatives. Through its "Fuel Our Growth" initiative, Kraft expects to strengthen its long-term position and reduce net leverage to below four on a consistent basis.
The company announced several other long-term targets, including organic net sales growth of between 1% and 2%, adjusted Ebitda growth of between 2% and 3% and adjusted earnings per share growth of between 4% and 6%.
Company announces sale of several cheese businesses to French dairy manufacturer
Kraft also announced in a separate press release that it entered into a definitive agreement to sell multiple cheese businesses to Groupe Lactalis for a purchase price of $3.2 billion. The proposed transaction, which includes Kraft's grated cheese business in Canada and the entire international cheese business, is expected to close in the first half of 2021 subject to regulatory approval. Kraft will retain its Philadelphia Cream Cheese, Kraft Singles, Velveeta Processed Cheese and Cheese Whiz brands.
Stock rises on restructuring deal
Shares of Kraft closed at $31.97, up 0.31% from Monday's close of $31.87. The stock is modestly undervalued according to its GF Value Line, a new way to value a stock according to GuruFocus' own method.
As of the June-filing date, Berkshire owns 325,634,818 shares of Kraft Heinz, giving the position 5.13% weight in the equity portfolio. It is also the firm's fifth-largest position.
Disclosure: No positions.
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