Commentary

Kraft Heinz Falters As Legacy Brands Age

Kraft Heinz looks like a guy trying to squeeze the very last dollop of ketchup out of an oversized bottle. It reported  desultory preliminary first-half results yesterday and, in an earnings call to discuss them, new CEO Miguel Patricio failed to calm investors' fraying confidence in the future for the packaged-good conglomerate.

“Patricio, just five weeks after taking the reins, told wary shareholders that the strategy under his predecessor didn’t quite work. But he fell short of laying out his own plan to revitalize the big brands like Oscar Mayer and Maxwell House that are out of step with modern consumers’ tastes,” observesBloomberg’s Craig Giammona  and Deena Shanker.

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“The stock plunged as much as 16% to $26.05 Thursday, the lowest intraday level since the company was formed in a 2015 merger orchestrated by Warren Buffett and the private equity firm 3G Capital. The company has now seen about $20 billion in market value wiped out this year,” they add.

“Patricio, a former chief marketing officer at Anheuser-Busch InBev, brought the promise that his brand-building skills would revive growth. But he admitted on Thursday he didn’t have enough clarity yet to provide financial guidance,” CNBC’s Lauren Hirsch writes  under the ominous headline “Kraft Heinz’s latest tumble begs question what is value of its brands.”

“We have a big agenda to build. … But I think that working on targets will not help. But … since I’ve been here just for 40 days, I wouldn’t feel comfortable about [giving] a guidance that I still do not have the necessary confidence about that number,” Patricio told analysts on the earning call transcribed  by Seeking Alpha and cited by Hirsch.

“The refusal to provide a forecast frustrated analysts who had gone six months without a quarterly filing, and hoped they would finally have insight into how the company expects to regain its footing,” she points out.

“Patricio diagnosed what he said were some opportunities for targeted spending and marketing, but his tone was one of exasperation rather than optimism,” write  The Wall Street Journal’s Justin Lahart and Spencer Jakab in a “Heard on the Street” column.

“Our brands are icons. It’s our job to ensure they are living icons,” he said.

“Those icons seem unlikely to come close to recapturing the widespread appeal they once had. In many consumers’ minds there is little difference between Kraft Singles American cheese and private-label brands, for example,” Lahart and Jakab observe.

Patricio, 53, who was CMO at Anheuser-Busch InBev from 2012-2018,  succeeded Bernardo Hees in late June.

“The level of decline we experienced in the first half of this year is nothing we should find acceptable moving forward,” Patricio said yesterday in a statement cited  by MarketWatch’s Tonya Garcia.

“In February, Kraft Heinz shares plummeted to a new low after the company announced that it had received a subpoena from the Securities and Exchange Commission about its accounting policies, reported dismal fourth-quarter earnings, slashed its dividend, and took a $15.4 billion impairment charge related to the valuation of a number of businesses, including the Kraft and Oscar Meyer brands,” Garcia reminds us.

“Meanwhile, the write-downs continued Thursday, with Kraft Heinz recording non-cash impairment charges over the first two quarters of the year totaling about $1.2 billion related to the value of various segments of its business based on new five-year operating forecasts for how they are expected to perform and other issues,” Teresa F. Lindeman reports  for the Pittsburgh Post-Gazette.

“In the first six months, the maker of Oscar Mayer weiners, Heinz ketchup and Lunchables reported net sales of $12.4 billion, compared to $13 billion a year ago, a decline of about 5%.”

Kraft Heinz’ financial woes can be traced to a lack of strategic vision. 

“The success of plant-based food company Beyond Meat (BYND) since its initial public offering and all the buzz about privately held Beyond rival Impossible Foods, which has partnered with Burger King on an Impossible Whopper, shows how behind Kraft Heinz is,” writes  Paul R. La Monica for CNN Business.

“Patricio even noted that although the company was among the first to launch a veggie burger -- Kraft Heinz owns the Boca Burger brand -- it now finds itself ‘far behind’ other companies in the plant-based food segment,” he adds.

“We must understand the future so we can lead, not follow. We must understand the consumer better than any other company,” he said.

In other words, like the guy who’s run out of ketchup, Patricio is going to have to try something different to spice up that meatless burger on the plate in front of him.

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