A funny smell at Kraft Heinz

published 9 May 2019

946_MW_P07_shares_top — Kraft Heinz's empire is starting to wobble

"You can turn any investment into a bad deal by paying too much," lamented Warren Buffett of his Kraft Heinz holding during the recent Berkshire Hathaway shindig (see page 14). Berkshire took a $3bn impairment on its 26.7% stake in the consumer food group in February following its $15.4bn writedown to reflect the fall in the value of some of its top brands. Buffett insists that though he overpaid, Kraft is "still doing very well operationally". Yet this week's news that the US maker of Jell-O, Capri Sun and HP Sauce will restate earnings for almost three years because of "employee misconduct" casts new doubt on the Sage of Omaha's rosy assessment.

Kraft Heinz announced more than $180m in adjustments after it uncovered mistakes in how it books costs and rebates from suppliers, says Alistair Gray in the Financial Times. The changes equate to "between 0.7% and 1.5% of adjusted profits in each of the years in question". The food giant is now more than two months late in publishing a regulatory filing required for it to report first-quarter results, with analysts speculating that the delay is due to probes into its procurement and accounting practices by America's Securities and Exchange Commission.

Squeezed on all sides

Yet compare the travails of Kraft Heinz with the soaring market valuation of vegetable-based burger maker Beyond Meat, says Aaron Back in The Wall Street Journal. The latter has cannily expanded its appeal beyond vegetarians by seeking to convince meat eaters of the health and environmental benefits of its products. Kraft has appointed a new boss, Miguel Patricio, who will try to revive the neglected marketing operation. The success of Beyond Meat shows that investors in the "food aisle" are "hungry for new ideas".

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.