Kraft Heinz slumps on SEC subpoena over accounting, $15.4B in writedowns

Kraft Heinz Co. plummeted after reporting profit that missed even the lowest analyst estimate and flagging to investors a subpoena it received last year from the U.S. Securities and Exchange Commission related to its procurement practices.

Included in the results was a $15.4 billion non-cash impairment charge related to the Kraft and Oscar Mayer trademarks and other assets. These charges resulted in a net loss attributable to common shareholders of $12.6 billion and diluted loss per share of $10.34.

The company said it received a subpoena from the SEC in October regarding its “accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors.”

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.”

Boxes of Kraft Foods Group Inc. macaroni & cheese are displayed for a photograph in Fog Hill Market in San Francisco.
Boxes of Kraft Foods Group Inc. macaroni & cheese are displayed for a photograph in Fog Hill Market in San Francisco, California, U.S., on Tuesday, Feb. 5, 2013. Photographer: David Paul Morris

The writedown of the big-name brands is a striking acknowledgment that changing consumer tastes have destroyed the value of some of the company’s key assets. The disappointing results also raise the pressure to grow via acquisitions. It hasn’t been able to pull off the large, transformative deal that investors crave since the collapse of the Unilever bid in 2017. Formed in a 2015 merger orchestrated by Warren Buffett and the private equity firm 3G Capital, the Kraft Heinz conglomerate’s game plan has been to widen margins by slashing overhead costs. In the results, it called out both “unanticipated cost inflation and lower-than-planned savings,” meaning cost headwinds haven’t yet abated.

Kraft Heinz shares fell as much as 9.7 percent as of 5:14 p.m. in New York. The shares have lost about half their value since the company was rebuffed in a bid to buy Unilever in February 2017. The day that news of the proposed $143 billion deal leaked, Kraft Heinz closed at a record high of $96.65.