Kraft Heinz future - summary
- Kraft Heinz pauses planned split as growth concerns dominate investor expectations
- Six hundred million investment aims to revitalise Kraft Heinz brands globally
- Berkshire Hathaway begins selling stake creating uncertainty around Kraft Heinz future
- CEO Steve Cahillane shifts focus towards sustainable growth before revisiting split
- Investors seek clearer strategy consistent volume gains and stronger long-term performance
The past five months have been a rollercoaster for The Kraft Heinz Company.
First came September’s announcement that the food giant was to split into two separate entities, confirming what many already suspected – one of the biggest mergers in food industry history had failed.
Next came the news that Steve Cahillane had been appointed CEO, ready to lead the company into its new phase.
Then – something Kraft Heinz had no control over – its biggest investor Berkshire Hathaway took steps to sell its entire stake in the company, a move that rocked the multinational.
And now, the company known for big-name brands including Heinz Ketchup and Philadelphia, has thrown the industry another curveball – the split’s on hold and the focus is on growth.
All this raises some big questions...
Will Kraft Heinz abandon its plans to split altogether?
Is Berkshire Hathaway’s move to sell its stock the real reason Kraft Heinz backed off the split?
And, will Berkshire Hathaway actually sell its stock?
Splits and sell-offs
Kraft Heinz is unlikely to have fully abandoned its plans to split into two companies, despite pausing the move. Mostly because it’s already made several significant steps towards the separation, including mapping out the structure and function of the two new businesses.
What’s more, the reasons behind the split have not magically disappeared.
Kraft Heinz brands have been experiencing declining consumer interest for years, as the company continually failed to adapt to changing tastes, leaving it trailing behind its competitors.
The rise of the health and wellness trend also hit hard, as the multinational’s product portfolio doesn’t offer the healthier, less processed options shoppers are seeking.
“Consumers are now ditching classic brands for healthier options, especially in ready-to-eat meal categories,” says Mahsa Shahbandeh, food and agriculture research expert at market insights firm Statista. “A good example of this is the high-protein mac and cheese brand Goodles – at double the price – which sells better than Kraft and Nestle’s mac and cheese packaged products.”
Having said that, new CEO Steve Cahillane’s words that the business is “not yet healthy enough to stand alone as two entities” implies the split could be many months, if not years, away.
Although the fact Berkshire Hathaway, the aforementioned main investor, has announced public support for the pause could make the plans more permanent.
Though its support could also be a result of the fact financial analysts say the stock is undervalued, meaning investment could help to bump up the price.
“We believe the stock is modestly undervalued,” says John Baumgartner, managing director of food and healthy living at global investment banking and securities firm Mizuho Securities, Research Division. “The initial plan to separate the company was geared to improving execution, at each successive company via enhanced focus, as a means to create value.”
However, as Baumgartner explains, the specifics of how execution would change for the better, post-separation, weren’t detailed, leaving investors skeptical that a corporate split would directly lead to value creation. “KHC shares have been weak since the news of the corporate split.”
What investors want
When it comes to keeping investors happy Kraft Heinz needs to deliver a “clearer strategy and one that achieves profitable volume growth,” says Mizuho Securities’ Baumgartner.
Kraft Heinz dividend, says Baumgartner, has been unchanged since the merger in 2015. And although income investors would like to see the dividend increased, their real focus is strategy.
“The needle that management needs to thread is investing sufficient financial and human resources to have a positive impact on sales and generating consistent volume growth – or at least flat volumes at a minimum – without sacrificing excessive profit margin in its pursuit.”
And growth is looking increasingly difficult to achieve, even with the $600m (€507m) investment programme announced last week.
“Right now, it’s hard to say with conviction that KHC is positioned for sustainable growth,” says Baumgartner. “We view the $600m programme as a very positive first step and we have seen instances in the past where KHC has renovated products to reclaim market share growth.”
The question now, he says, is what will be the return on investment of that $600m?
“It’s great that KHC is investing to that magnitude, but investors are now waiting to see whether those resources can drive volume growth in a consistent manner.”
In the meantime, Baumgartner predicts there could be additional asset sales to enhance Kraft Heinz’s focus, while the main separation is on hold.
Kraft Heinz’s future
All of this leaves Kraft Heinz at a critical inflection point. With the split paused, the company has bought itself some time, but not much.
The success of the $600m investment plan will determine whether it can reverse years of sluggish growth and reconnect with consumers who have moved on to fresher, healthier and more innovative brands.
Cahillane now faces the task of reshaping a business that has been defined for years by efficiency drives and cost-cutting. Investors want a strategy that is both clearer and bolder – one that modernises Kraft Heinz’s legacy portfolio, sharpens its innovation pipeline and builds brands capable of competing in categories that have evolved faster than the company itself.
Whether the reset can deliver consistent volume growth –something Kraft Heinz has struggled with for the past decade – will be the ultimate test.
And, of course, watching most closely will be its biggest investor, Berkshire Hathaway.
Its move to begin selling its shares was one of the most jarring moments of the past five months for Kraft Heinz, not least because Berkshire Hathaway chairman Warren Buffett, once described Kraft Heinz as a “dream” investment.
If Berkshire continues to unwind its position, the implications could be huge. A full exit might invite activist pressure, accelerate asset sales or reignite debate about the split. While remaining invested would signal confidence in the business.
One thing’s for certain, Kraft Heinz is entering a period that will define its future, and we’ll all be watching.
Kraft Heinz and Berkshire Hathaway have yet to respond to request for comment.
