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James Li
James Li
Articles (895)  | Author's Website |

Warren Buffett’s Kraft Heinz Sets New All-Time Low

Company delays 1st and 2nd-quarter report filing on SEC subpoena, reports weakening net sales

August 08, 2019 | About:

The Kraft Heinz Co. (NASDAQ:KHC), a major holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B), set a new all-time low on news the company delayed its first-quarter and second-quarter report filings to the Securities and Exchange Commission as a result of its subpoena received during fourth-quarter 2018.

The Chicago-based packaged foods company reported net income of $854 million for the six months ended June 29, down approximately 51% from net income of $1.757 billion in the prior-year period.

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Company net sales continue to decline

First-half net sales of $12.4 billion were down 4.8% from the prior-year period, a level of decline that CEO Miguel Patricio said is “nothing we should we should find acceptable going forward.” Chief Financial Officer David Knopf said during the earnings call several factors that drove revenue declines included higher supply chain costs and lower retail inventory, especially from the company’s retail partners.

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GuruFocus warns that Kraft Heinz’s revenue has declined approximately 7.90% per year on average over the past five years, a sign of low profitability.

Shares tumble to new all-time low on delayed quarterly report filings and impairment write downs

Shares of Kraft Heinz tumbled to an all-time low of $26.40, down approximately 14.4% from Wednesday’s close of $30.87.

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Kraft Heinz reported goodwill impairment charges of approximately $744 million to its EMEA East, Brazil, U.S. Refrigerated and Latin America Exports businesses and a further $474 million in impairment charges related to other intangible assets, driven by a higher discount rate to reflect the market’s perceived risk in the company’s valuation. The company also filed a “Notification of Late Filing” document to the SEC, saying it is not able to file its first-quarter and second-quarter reports by the prescribed due dates due to the company’s ongoing test of impairment asset controls. Kraft Heinz disclosed in its Dec. 29, 2018, annual report it found a “material weakness” related to the level of precision used in the review of cash flow projections used as a basis for performing impairment assessments related to goodwill and indefinite-lived intangible assets.

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Buffett’s conglomerate has not released its second-quarter portfolio report as the deadline is 45 days after the quarter ends. As of the first quarter, which ended March 31, Berkshire owns 325,634,818 shares of Kraft Heinz.

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Buffett said to CNBC he “made a mistake” by paying too much for his investment in Kraft Heinz, according to a June 25 article from CNBC reporter Becky Quick.

Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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