No. of Recommendations: 1
" Kraft Heinz’s (KHC) fourth quarter results reflected higher commodity costs and targeted price increases that undermined sales in certain categories, resulting in a significant erosion in the company’s unadjusted profit and compressed its profit margin.
Led by softer sales in North America, net sales were down 3.5% in the final quarter of the year to $6.35B, missing expectations by $20M. The 4.1 percentage point decline in volume/mix was primarily driven by declines in cold cuts, coffee, bacon, and its Ore-Ida frozen business.
Accordingly, softer sales and other charges contributed to an unadjusted profit of $0.55, down 69% from a year ago. This reflected a recognized $3.0B non-U.S. deferred tax asset and associated valuation allowance of $600M related to the transfer of certain businesses to a Netherlands subsidiary. Excluding these and other items, earnings declined 20% to a less than feared $0.67 per share, beating expectations by $0.06.
Adjusted gross profit margin decreased 130 basis points to 33.1%.
For FY26, Kraft Heinz (KHC) expects organic net sales to be down 1.5% to down 3.5%, which includes a ~100 basis point impact from SNAP headwinds. This will contribute to an adjusted profit of $1.98 to $2.10 per share, below the consensus estimate of $2.49.
The results, however, were eclipsed by the company’s announcement to pause its divestiture plan and invest $600M to return the business to profitable growth.
“Since joining the company, I have seen that the opportunity [to build meaningful shareholder value, better serve customers, and contemporize iconic brands] is larger than expected and that many of our challenges are fixable and within our control.” said Kraft Heinz CEO Steve Cahillane. “My number one priority is returning the business to profitable growth, which will require ensuring all resources are fully focused on the execution of our operating plan. As a result, we believe it is prudent to pause work related to the separation and we will no longer incur related dis-synergies this year.”
With the blessing of the board of directors, Kraft Heinz (KHC) announced plans to split into two separate companies last year, capitalizing on the growth in its condiments and boxed meals segment, while separating its stagnant Lunchables and Oscar Mayer brands. The split was expected to take place during the second half of 2026.
Although the board was behind the split, it was not wholly endorsed by the company’s largest shareholder and the architect of the original merger of the Kraft and Heinz businesses.
"If we are approached about selling our shares, we wouldn’t accept the block bid unless the same offer is made to other Kraft Heinz holders," Warren Buffett told CNBC. "It certainly didn't turn out to be a brilliant idea to put them together, but I don't think taking them apart will fix it."
The Kraft and Heinz businesses were joined in 2015 by Buffett’s Berkshire Hathaway (BRK.B) (BRK.A) and 3G Capital under the terms which gave Kraft shareholders a 49% stake in the combined company and Heinz shareholders a 51% stake, creating North America’s third-largest food and beverage company.
The KHC results and reaction by the stock to the split announcement are weighing on peers such as Campbell's Company (CPB), Post Holdings (POST), and General Mills (GIS)."
I wonder what Don Lemon thinks? ::))
