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Kraft Heinz Halts Plans to Split Company as New CEO Shifts Strategy
Kraft Heinz announced Wednesday it is suspending plans to divide into two separate entities, marking a significant strategy shift under new leadership. The food manufacturing giant will instead invest $600 million in marketing, sales and product development initiatives.
Steve Cahillane, who took over as CEO on January 1 after leading Kellogg through its own corporate split last year, cited unexpectedly large opportunities within the existing business structure as the primary reason for the change in direction.
“I have seen that the opportunity is larger than expected and that many of our challenges are fixable and within our control,” Cahillane said in a statement. “We are confident in the opportunity ahead and believe this investment will accelerate our return to profitable growth.”
The original plan, announced in September 2023, would have created two distinct companies. One would house stronger-performing brands including Heinz, Philadelphia cream cheese and Kraft Mac & Cheese, while the other would contain slower-growing lines such as Maxwell House, Oscar Mayer, Kraft Singles and Lunchables. The split was expected to be completed in the latter half of 2024.
Investor reaction was muted, with Kraft Heinz shares trading flat on Wednesday morning despite the company reporting disappointing quarterly and annual results. Robert Moskow, an analyst with TD Cowen, suggested in a research note that investors likely harbor concerns that Kraft Heinz believes its businesses aren’t strong enough to operate independently.
The company reported that net sales fell 3% to $6.35 billion in the October-December period, slightly below Wall Street’s forecast of $6.37 billion. While North American sales declined by 5%, the company did see growth in its international markets. Net income plummeted 69.5% to $651 million for the fourth quarter, though adjusted earnings of 67 cents per share exceeded analysts’ expectations of 61 cents.
The announcement comes amid a challenging period for the food manufacturing giant, which was formed a decade ago through the merger of Kraft and Heinz. That combination began taking shape in 2013 when billionaire Warren Buffett partnered with Brazilian investment firm 3G Capital to acquire H.J. Heinz Co. for $23 billion—at the time, the most expensive deal ever in the food industry.
After the merger, Kraft Heinz aimed to leverage its unprecedented scale in the packaged food industry. However, shifting consumer preferences toward less processed foods and more affordable store brands have complicated the company’s growth strategy. Kraft Heinz has struggled to adapt to these market changes despite several strategic moves, including the 2021 divestiture of both its Planters nut business and natural cheese operations.
The company’s revenue has consistently declined since 2020, when it experienced a temporary boost from pandemic-related buying. In April 2023, Kraft Heinz was forced to lower its full-year sales and earnings guidance, citing weakened consumer spending in the U.S. and the impact of tariffs.
Adding to the company’s challenges, Warren Buffett’s Berkshire Hathaway appears to be reconsidering its significant investment in the food manufacturer. Two Berkshire representatives resigned from the Kraft Heinz board last spring, and Berkshire subsequently took a $3.76 billion write-down on its Kraft Heinz stake. Buffett himself had expressed disappointment with the planned split.
In a recent regulatory filing, Kraft Heinz warned investors that Berkshire Hathaway, under the leadership of Buffett’s successor Greg Abel, may be looking to sell its substantial holding of 325 million shares in the company.
As Kraft Heinz pivots from its separation plans, the company faces the considerable task of revitalizing its portfolio of iconic but increasingly challenged food brands in a rapidly changing consumer marketplace. The success of Cahillane’s new strategy will likely hinge on how effectively the company can deploy its $600 million investment to address changing consumer preferences while stabilizing its financial performance.
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5 Comments
Kraft Heinz’s decision to scrap the split and instead invest in their existing business model is a bit surprising. I wonder if they’re aiming to streamline operations and boost efficiency rather than divide the company. Curious to see if this helps them return to profitable growth as they’ve stated.
You raise a good point. Consolidating the business may give them more scale and flexibility to improve their underperforming brands. It’ll be interesting to see if the increased marketing and product development investment pays off.
I’m somewhat skeptical of Kraft Heinz’s claim that their problems are ‘fixable’. Food manufacturing is a highly competitive industry with constantly shifting consumer preferences. Investing in marketing and product development is a good start, but they’ll need to demonstrate real innovation to turn things around.
Interesting move by Kraft Heinz to pause their planned split. Sounds like the new CEO sees more potential in the existing structure and wants to focus on improving marketing, sales, and product development. Curious to see how this strategy shift plays out.
I agree, it’s a bold decision to forgo the split and instead double down on the existing business. Investing $600 million could pay off if they can effectively revitalize the slower-growing brands.