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Can We Get Serious About Kraft Heinz?

Mar. 05, 2019 8:10 AM ETThe Kraft Heinz Company (KHC)90 Comments
Michael Ambrozewicz profile picture
Michael Ambrozewicz


  • Kraft Heinz has declined rapidly after dismal Q4 2018 earnings.
  • Changing consumer preferences and an SEC-issued subpoena have further added to Kraft Heinz's sell-off.
  • The fundamentals of the global economy and the strategic restructuring of Kraft Heinz have catapulted the company into a prime position for sustainable future long-term growth.


Kraft Heinz (NASDAQ:KHC) has been hit hard this past week. Literally overnight, the company lost $16 billion in market capitalization value after experiencing its largest ever one-day sell-off. Shares of Kraft Heinz dived 27% to a 52-week low of $31.82 as investors rushed to sell their position in reaction to the company’s dismal fourth-quarter results.

Source: Yahoo Finance

To summarize Kraft Heinz’s results:

  • $12.61 billion quarterly loss. (About $10.34 per share).
  • $0.84 EPS. (Down from Avg. Analyst Estimate: $0.94 EPS).
  • Increase in revenue from $6.84 bn to $6.89 bn. (Down from Avg. Analyst Estimate: $6.94 bn).
  • Decrease in dividend to $0.40 quarterly per share from $0.625 quarterly per share.

Adding Salt to the Wound

Adding to the disastrous results, Kraft Heinz has acknowledged a down-trending valuation to two of its major trademarks; Kraft and Oscar Meyer, which led to more than $15 billion being written down by the food giant. The Securities and Exchange Commission has also placed the company under investigation and issued a subpoena as a result.

In the short term, it’s obvious that slashing costs to appeal to changing consumer preferences has had a deleterious effect on the company’s margins as evidenced by the adjusted EBITDA margin declining 460 basis points. Organic sales are also on the decline and expected to remain negative in Q1 2019 stemming from the shift of the Easter holiday to the second quarter of 2019 and unfavorable trade timing.

Despite this, Chief Financial Officer David Knopf stated, “While we expect to take a step backwards in 2019, we remain confident in delivering consistent profit growth from 2020 onwards, driven by fully leveraging our advantage brands, cost structures and capabilities.”

The Positive

Let’s get real, one only has to examine the fundamentals behind this stock to determine why this recent decline is

This article was written by

Michael Ambrozewicz profile picture
Toronto-based freelance financial analyst.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (90)

zcharles profile picture
"Millennials need to buy store brands so we can save some cash to pay off the debt past generations have left us"

if they have to buy store brands the price of store brands will go up.
It will be like the famine in Ireland in the 19th century. the price of potatoes went up because it was a relatively cheap substitute for other more expensive food.
zcharles profile picture
Editing it out doesn't cut it. rewriting history was a favorite tactic of communist russia. I suspect the author of this article will get my point.
Kraken profile picture
I have to admit this is pretty embarrassing for both the author and SA. You claimed you were misinformed but someone that is giving advice about a stock to the public should at least know who management is. Nonetheless this has been hilarious to read.
No Guilt profile picture
But Kraft because of income inequality!!!!

Me XMan profile picture
Bought KHC and play the bounce.
We don't use any of these brands. Hard to buy a stock if I won't buy their products.
zcharles profile picture
straight out of the book of the most famous hedge fund manager ,peter lynch, at Fidelity(NOW Retired). he said only invest in companies if you like their products.
I might take a crack at it if it gets below 30, but not before. It's hard to believe how mismanaged this company is, especially when WB was on the board for so long. He's a nice guy but a board member can do so much, I guess.
pearls before swine profile picture
Where's the growth?

These brands don't have much cachet... store brands are usually as good.

Buffett himself seemed to say as much, noting that even thought KHC had 100 years of advertising behind it, it didn't have the pricing advantage he had counted on.
The only brand in that list that I sometimes use is Heinz. Maybe once a month I'll put some ketchup on my meat.

From the other brands, I know Kraft, Philadelphia, KoolAid, and never ever buy them.
The rest are completely unknown to me.
No Guilt profile picture

How many nights per week are you making Jello and how often do you eat hot dogs for dinner or drink Kool Aide???
Buffet stated quite clearly that whilst not selling, he is also not interested in buying at these prices.
This implies that with updated information there is yet to be a sufficient margin of safety at current prices.

So have patience, wait for a lower price and then strike.
I didn’t read the Robert Kraft reference? Anyways the article did have some valid points.
Robert Kraft reference has been edited out.
buckiowa profile picture
That dam# cream cheese is delicious
Don’t worry. I thought Robert Kraft was Kraft-Heinz also until I a week ago.
I even bought some khc after the news because I figured that’s why it dropped. Now I find out kraft sucks. Hoping for some kind of bounce to get out
I am definitely considering not purchasing any more KHC products for my family given Robert Kraft's involvement with the company. Very disappointing.

Chip Seeker profile picture
The persistence of this thread shows that Tom Brady would do wonders promoting Kraft Mac & Cheese.
@kathyjoe1967 Oh. Well why didn't anyone mention that in the comment stream?

Are you positive he's not involved?
I wouldn't put my money in this equity. Not feeling the brands and it's a broken company. So many better opportunities vs KHC. In my opinion it not worthy. Peace
Searching4Value profile picture
You write all these these words like 'cheap' and 'long term... Opprtunity' but you do not put current price into perspective to some valuation... So, useless in my view...
If the stock was at 1000 USD per Share, and had fallen to 500, would your write up be any different?
Very unfortunate that Seeking Alpha allows Michael Ambrozewicz to post opinions on a major company when he associates a scandalous headline on Robert Kraft, indicating that he has something to do with KHC. Clearly Ambrozewicz is very uninformed or familiar with this company and this brings into question anything he has to say regarding this company.
Tom Brady is about as “overrated” as breathing. He’s got the wife, G5, and rings to prove it. Jealousy is one of the deadly sins.
I think it’s important to bring up kraft in this regard just because it allows me to mention how much I dislike the patriots on a completely unrelated thread.
Tom Brady is overrated. Discuss:
peacewarrior profile picture
I'm A Raider fan and have very limited opportunity (if any) to discuss the weaknesses of other teams, especially the Patriots. God help us if Brady adds a better receiving corp to his will to win.
At least you will be able to see games in LV in a couple of years, instead of in that dump Oakland. I recently had a tour of the new LV stadium and I see it being a great hit.
Michael, I appreciate your positive attitude to take others' comments as a learning opportunity. As long as you are writing with the right intentions, then you are most likely improving in your writing skills and due diligence. Thank you for trying your best!
Good point. An honest and immaterial mistake. Robert Kraft will get over it.
Michael Ambrozewicz profile picture
Thanks! Rightfully noted so I will be more careful going forward!
For the average consumers there are no change; we will eat foods.

but for traders and investors.... SEC subpoena and billions of dollars in lost is a no touch for me. that was a big deal that will not go a way soon.

may be in few days will consider options like a call-spread . limiting the risk
peacewarrior profile picture
Not sure why they took that big hit all at once (maybe I'm incorrect but it didn't seem necessary to do so?).
However, with this type of scale, Intellectual property and branding, if they don't get it right now, the Chinese intelligence will gladly take this off the hands of the panicked and put it into their long game domination strategy to continue KRAFT for another 150 years IMHO
KMR holder profile picture

I believe that their stock price took the big hit when it did, because the market finally really realized that the emperor truly was running naked.
Blind investors reaching for yield and believing that the "Buffett factor" insured outperformance lead to a very highly inflated market price. Market prices in the seventies, eighties and nineties made little economic sense. KHC was never worth more than the fifties, and today may not even be worth that much. I got my shares in the merger transaction and got out in 2016 and back in recently at $35.
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