Kraft Heinz's second-quarter operating loss reached $6.4 billion after a $7.4 billion impairment charge, even as new CEO Steve Cahillane scrapped a planned business split and boosted marketing spending. Sales kept falling anyway, and the stock still trades far below where it started after the 2015 merger.
A $7.4 billion writedown
Kraft Heinz posted an operating loss of $6.4 billion in the quarter, driven by the $7.4 billion in impairment charges. The year-ago period carried $9.3 billion in similar charges. Adding the impairments back, the company earned $1 billion, still down more than 18% year over year. This year's writedown includes $2.4 billion for goodwill impairment and $4.9 billion for intangible asset impairment, with the intangible charge tied mainly to trademarks management no longer values as highly as it once did.
Sales keep sliding
Adjusted for currency and divestitures, second-quarter sales dropped 1.3% year over year. Higher prices added 1.3 percentage points, but lower volume and a shifting product mix subtracted 2.6 percentage points — a sign shoppers are resisting the price increases. For the year, management now expects sales to fall 0.5% to 2%, an improvement from its earlier forecast of a 1.5% to 3.5% decline.
Cahillane cancels the split
CEO Steve Cahillane, who started Jan. 1, called off the previously announced plan to split Kraft Heinz into separate grocery and sauces-and-spreads businesses. Instead, management chose to increase marketing, sales, and R&D spending by $600 million. That spending has not yet turned sales around.
A dividend built on shaky ground
Kraft Heinz has paid a steady $0.40 quarterly dividend since 2019, after the board cut the payout from $0.625 per share. Since the company began trading following the 2015 merger, the stock has lost 43.4% through Aug. 14. Including dividends, the total return was just 2.3%, versus a 584.1% return for the S&P 500 over the same stretch.
Given the ongoing sales and profitability pressures, one analyst covering the stock argues Kraft Heinz has the makings of a value trap rather than a value stock, despite its high 6.3% dividend yield and a price-to-sales ratio of 1.2 against the S&P 500's 3.8.
Source: The Motley Fool
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