US-based food heavyweight Kraft Heinz has issued a robust defence of its strategy after recording a huge fourth-quarter loss resulting from a US$15.4bn writedown on some of its major brands.
In a post-results release call with analysts, Kraft Heinz chief executive officer Bernardo Hees said: “We still believe strongly that our model is working and has a lot of potential for the future.”
He added: “First, let’s remember, we continue to be rated with leading industry margins and now, we are growing at the same level as the top-tier companies with similar portfolios. So that’s very important to put in perspective.”
Kraft Heinz’s strategy to grow profits has been built on M&A and driving synergies from the transactions to grow margins. However, Kraft Heinz’s management has, in recent quarters, sought to emphasise the work the company was putting in to try to grow its sales. On an organic basis, Kraft Heinz’s fourth-quarter net sales grew 2.4% year-on-year.
Neverthless, Piper Jaffray analyst Michael Lavery suggested Kraft Heinz’s organic growth “has had some struggles”, while the company has not made a major acquisition since the combination that created Kraft Heinz in 2015.
Hees replied: “If you see the second half performance of our commercial initiatives and returns of our investment, it’s going to see a very positive scenario in that sense. We’re having volumes, consumption and market share gains in the vast majority of our categories. Even categories that have been declining for quite some time are seeing a momentum, right? And we do know there is more to come.
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He added: “We will have a balance sheet that’s more flexible and more prepared for future consolidation.”
The company, which also revealed it has faced a US Securities and Exchange Commission investigation related to purchasing and accounting practices, saw its share price nosedive after reporting a $12.6bn fourth-quarter loss and the writedown on some assets.
Kraft Heinz CFO David Knopf told analysts the writedown “reflected revised margin expectations and this was for really three businesses of ours – first, the Kraft natural cheese business, second, our Oscar Mayer cold cuts business, where we’ve talked about issues that we had in the first part of the year, and then, third, our Canada retail business”.
He said Kraft Heinz’s second-half performance was driven by supply chain issues.
He added: “Since the merger, we’ve also seen significant pressure on valuations from a higher discount rate come into play.”
Hees would not be drawn by one analyst’s question about selling off assets to balance the books.
He said: “We’re not discussing here size or our soul. What [we are] saying is that we will work our portfolio to strengthen our balance sheet.”
Hees added: “With our competitive advantage by brands and category, [this] allows us to be in a very good position to understand the magnitude [of] what we can do or we cannot do. I don’t want to elaborate more than we are doing right now.”
Commenting on missed savings targets, Knopf said: “This savings miss was really a combination of two things – under-delivery from supplier negotiations and delayed manufacturing projects.”