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Kraft Heinz On the Defense After Posting Huge Loss

Kraft Heinz On the Defense After Posting Huge Loss

The packaged-food giant wrote down the value of two of its best-known brands by $15 billion, posted a $12.6 billion loss, cut its dividend by 36 percent and disclosed a government investigation.

Kraft Heinz Co. (KCO) is defending its strategy after shares fell 20 percent following a brutal day of news Thursday.

To sum it all up, the packaged-food giant wrote down the value of two of its best-known brands by $15 billion, posted a $12.6 billion loss, cut its dividend by 36 percent and disclosed a government investigation.

Chief Executive Officer Bernardo Hees blamed operational issues for the company’s disappointing results.

“There is no question we are disappointed that profitability did not ramp up with consumption gains as anticipated. We were overly optimistic on delivering savings that did not materialize by year-end,” Hees said on a conference call with investors on Thursday reported by CNN. “For that, we take full responsibility. And we have taken steps to ensure this does not happen again by touching planning process, procedures and organization structure.”

The Pittsburgh company said that it is making improvements to its internal controls and taking other actions to prevent similar mistakes going forward.

Following the merger of Kraft with Heinz in 2015, orchestrated by Brazilian firm 3G Capital and Warren Buffett’s Berkshire Hathaway, the company had been praised for its supply chain management. However, it appears to have come at the expense of losing the value of its Kraft and Oscar Mayer brands.

Chief Financial Officer David Knopf was firm in his support of the merger. “The synergies that we realized are very much intact,” he said in a conference call.

Investors are now questioning the management’s ability to pull off the massive deals that industry watchers have anticipated.

“We have been bullish on KHC for its role as a likely consolidator in packaged food, but now believe we likely were overly optimistic in both its likelihood of getting a sizable deal done and of the quality of the growth profile for any ensuing company,” Piper Jaffray analyst Michael Lavery said in an interview with Real Money. “In light of its $15 billion write-down on its key Kraft and Oscar Mayer brands, we are not confident it can build or maintain brand equity needed to compete in today’s consumer environment in a sustainable, compelling way.”

Changing dietary trends have also eroded the value of some of the company’s most iconic products. As more consumers shift towards healthy and unprocessed foods, many of Kraft Heinz’ most well-known brands like Jell-O and Kool-Aid and Oscar Mayer hot dogs are left in the dust.

To top off the slew of bad news, the company announced its accounting practices are under investigation by the US Securities and Exchange Commission. Kraft Heinz said it is cooperating fully and that it launched an internal investigation into the matter after receiving the subpoena.