What's going on?
Kraft Heinz – of Kool-Aid and Jell-O fame – reported preliminary results for the last six months that left a sour taste in investors’ mouths, and its stock fell 9%.
What does this mean?
Kraft Heinz’s revenue was 5% lower than a year ago. It sold fewer products and – unlike most other consumer staples companies – what it did sell was priced lower than last year. Changing consumer tastes may be to blame for household names like Oscar Mayer sitting idle on the shelves, while this year’s strong US dollar means cash earned abroad translated into less Stateside profit.
The bigger dip in Kraft Heinz’s profit came from yet more “writedowns” of two business segments. In other words, the company admitted it’d overvalued those assets and lowered their value on paper.
Why should I care?
The bigger picture: Even the investing masters struggle.
Warren Buffett’s investment firm Berkshire Hathaway owns more than a quarter of Kraft Heinz, making it the company’s largest shareholder. But in its latest update, Berkshire revealed it sold more stocks than it bought across the board – perhaps because Buffett thinks stocks have been too expensive since 2018. If Berkshire decides, however, that Kraft Heinz does still have potential, the investment firm might see this stock price drop as an opportunity to buy up more shares using some of its record $122 billion cash pile.
For markets: Can investors keep the faith?
Kraft Heinz has bought up several consumer brands in the past few years. Trouble is, it now isn’t sure what some of them are worth, which is why it reduced the value of two of its biggest earlier this year. And as more and more consumers shun processed foods, that may not be the last time it needs to reassess. Add to that an accounting scandal, an investigation by regulators, and a lack of guidance on what else investors can expect this year, and it’s not certain whether investors will ever regain their faith in the company.