Kraft Heinz shares fell to a record low on a slew of bad news, mainly centering on a multibillion-dollar write-down, which had investors wondering if years of rigorous cost cuts came at the expense of losing the value of its marquee Kraft and Oscar Mayer brands. Before noon, the company had lost $16 billion of its market value.
Kraft Heinz Co. might need a new recipe.
Finally, the company disclosed it received a subpoena in October from the SEC related to an investigation into the company's accounting policies, procedures and global controls. The SEC declined to comment.
Kraft Heinz and other food makers that dominated grocery shelves for much of the post-World War II era have been whipsawed by a seismic shift in what consumers want. That has clashed directly with some of Kraft Heinz' most well-known brands like Jell-O and Kool-Aid and Oscar Mayer hot dogs.
The combined company cut $1.7 billion in expenses, beating the target it released when the deal was announced.
Wall Street was doing just that Friday. That was the plan at Kraft, and it worked for almost two years.
Kraft Heinz has also struggled as unanticipated cost inflation and lower than planned savings meant profitability "fell short of expectations" according to chief executive Bernardo Hees.
JPMorgan analyst Ken Goldman said the entire strategy of 3G Capital to seek growth through cost cuts is now questionable.
But said it did not expect that inquiry to be "material" to financial results.
The packaged-food giant's charge to reduce the goodwill value of the Kraft and Oscar Mayer trademarks and other assets, coupled with disappointing fourth-quarter earnings and an accounting subpoena from securities regulators, sent the shares tumbling toward what would be a record low if the declines hold in USA trading Friday.
Kraft Heinz is already taking steps to shore up its cash flow. Over the years, speculation about potential targets has centered on food peers like Mondelez International Inc., General Mills Inc., Campbell Soup Co. and Kellogg Co. Berkshire stock was down almost 2 percent Friday morning. Kraft Heinz said that as a result of an investigation with the help of an outside lawyer, it recorded a $25 million "increase to costs of products sold".
"It is more than fair to ask if any fundamental value for 3G [Capital] has been created since the Kraft Heinz merger", Goldman wrote.
On Friday morning, Barclays analyst Jay Gelb slashed Berkshire's fourth-quarter earnings estimate by more than half-from $3,522 to $1,726 for Class A shares and $2.35 to $1.15 for Class B shares-noting that, in addition to Kraft Heinz, Berkshire also faces problems from its holdings in the insurance sector due to a high number of natural disasters in 2018.
Stifel downgraded the stock to "hold" from "buy" and more than halved its price target to $35, well below the current median target of $52.
Kraft Heinz said it "continues to cooperate fully with the probe". "They are not delivering the level of growth that's needed in this sort of market", GlobalData Retail managing director Neil Saunders said.