What's going on?
On Friday, shares of Kraft Heinz (of mayo and ketchup fame) dipped 27% after the company revealed a trifecta of concerns in its fourth-quarter update late on Thursday (tweet this).
What does this mean?
First, Kraft Heinz’s quarterly earnings were short of analysts’ expectations. Second, the company disclosed that US regulators are investigating some of its accounting policies (specifically, how it adds up the cost of buying goods and services). And third, Kraft Heinz posted a $13 billion loss after writing down (when a company admits that it’s overvalued its assets and lowers their value on paper) the value of its Kraft and Oscar Mayer brands by $15 billion.
Why should I care?
For markets: Cut too close to the bone.
Kraft Heinz’s second-largest shareholder is 3G Capital, which has a reputation for “zero-based budgeting” – where all company spending needs to be justified for each period, as opposed to working off of previous budgets. So it’s possible that Kraft Heinz hasn’t had the spending approved to splash on new trends – hurting the company as consumers grow more health conscious. Other historically unhealthy companies, meanwhile, are turning to healthier options – like Pepsi – or diversifying their businesses, like Coca-Cola. Investors in companies with 3G Capital behind the wheel may well question the value of its penny pinching in these changing times: sometimes it’s adapt or die.
The bigger picture: The world doesn’t revolve around Brexit.
Two years ago, rival food maker Unilever politely declined a $143 billion takeover offer from Kraft Heinz. 3G Capital has form when it comes to pushing for deals – whether wanted by the company being courted or not. So, likely to protect itself from further unwelcome advances, Unilever considered relocating its headquarters from the UK to the Netherlands – where laws are more favorable for avoiding hostile takeovers. At the time, many insisted that Brexit was the main motivation to up sticks – but perhaps it wasn’t.