Kraft Heinz sees ‘step backwards’ in 2019, gets SEC subpoena

February 22, 2019

(Reuters) – Kraft Heinz Co reported disappointing quarterly results, including a $15 billion charge related to the value of its marquee Kraft and Oscar Mayer trade marks, and said it had received a subpoena from the U.S. Securities and Exchange Commission about its accounting practices.

The company’s shares fell 11 percent in extended trading on Thursday.

The Chicago-based company, which owns the Velveeta cheese and Heinz ketchup brands, also cut its dividend and its chief financial officer said he expected the company to “take a step backwards in 2019,” setting a bleak tune for 2019.

Kraft said it expects adjusted earnings before interest, tax, depreciation and amortization between $6.3 billion and $6.5 billion in 2019, lower than analysts’ estimates of $7.47 billion, according to IBES data from Refinitiv.

The company also cut its quarterly dividend to 40 cents per share from around 63 cents per share, saying the industry would remain challenged from cost inflation in the near term .

Kraft’s results underscore the challenges of an industry that is already struggling with rising raw material and operational costs.

“Profitability fell short of our expectations due to a combination of unanticipated cost inflation and lower-than-planned savings,” Chief Executive Officer Bernardo Hees said.

Additionally, the company said the SEC subpoena received in October was related to an investigation into the company’s accounting policies, procedures and internal controls related to its procurement function.

Kraft said it had taken a $25 million increase to costs sold and did not expect the matter to be material to the current or past quarters. But it said it has launched an investigation into its processes following the subpoena.

“The company is in the process of implementing certain improvements to its internal controls to mitigate the likelihood of this occurring in the future and has taken other remedial measures,” the company said.

The tater tots maker also took a $15.4 billion goodwill impairment related to its U.S. Refrigerated and Canada Retail units, and certain brands, meaning the company views those assets as less valuable than when H.J. Heinz Co and Kraft Foods Group merged in 2015 to create the third-largest North American food company.

The charge pushed Kraft to a net loss of $12.6 billion attributable to shareholders in the quarter ended Dec. 29. It earned 84 cents per share on an adjusted basis, missing Wall Street estimates of 94 cents, according to IBES data from Refinitiv.

Nearly every major consumer goods company in the United States struggled with sky-rocketing commodity and transportation costs last year, exacerbated by a shortage of truck drivers.

Net sales of $6.89 billion fell short of analysts’ estimates of $6.94 billion in the reported quarter.

Warren Buffett’s Berkshire Hathaway Inc and Brazil’s 3G Capital control Kraft Heinz. 3G handles day-to-day operations, though Berkshire owns a slightly larger, nearly 27 percent stake.

(Reporting by Uday Sampath and Nivedita Bhattacharjee in Bengaluru; Editing by Shounak Dasgupta)

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