$12.6 billion is a lot of money. It’s roughly the cost of a US navy aircraft carrier, a bit less than what Amazon paid to take over Whole Foods, and if you had it in your wallet you’d be the 100th-richest person in the world.
It’s also the amount of money Kraft Heinz lost in three months at the end of last year, according to its earnings report filed yesterday after markets closed. Needless to say, it was the largest quarterly loss in company history. What’s more, the packaged-food giant—known for its ketchup, of course, but also Grey Poupon mustard, Toblerone chocolate, Jell-O, and many other iconic foodstuffs—also slashed its dividend and, for good measure, revealed that US securities regulators served it with a subpoena in an investigation into its accounting practices.
Although the company’s constituent parts go way back, Kraft and Heinz came together in 2015, in a $63 billion mega-merger backed by Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital, run by former professional tennis player Jorge Paulo Lemann. The company made an audacious, but ultimately unsuccessful, bid to take over Unilever in 2017.
Kraft Heinz’s brands are growing increasingly stale: it appears to be struggling to retain the interests of consumers swapping Capri-Sun for freshly squeezed or Cheez Whiz for artisanal camemberts. Much of the fourth-quarter loss was due to huge write-downs in the value of brands like Kraft and Oscar Mayer, and changes to the value of “intangible assets” in a company’s accounts can have a very real impact for investors.
After Kraft Heinz’s earnings bombshell, cheesed-off investors sent the company’s share price to its lowest point in years, tumbling nearly 30% during trading today. The plunge wiped out some $16 billion in market cap at a stroke. Berkshire maintains a significant stake in the company, which is now worth a lot less than what it was a few days ago.
Precisely how Kraft Heinz hopes to recapture the hearts (and stomachs) of consumers is food for thought. It’s taking risks, though perhaps not the right ones. Last month, it spent big on saucy primetime ads for its line of frozen food that ran during the Super Bowl. These featured a young man troubled by an addiction to “food porn”—that is, hot and steamy images of processed mac and cheese. (The company reportedly also took out ads on an actual porn website to hammer an already unsubtle point home.)
Now, however, analysts and investors fear that four years of aggressive cost-cutting after the merger has left the company unprepared for changing tastes. Investors are hungry for growth, but Kraft Heinz is serving them awfully lean fare.