Friday 23 August 2019

Buffett backs Kraft Heinz after 'misconduct' revealed

No change: Kraft Heinz shares hardly moved in early trading in New York, though the stock is down about 25pc this year. Photo: Bloomberg
No change: Kraft Heinz shares hardly moved in early trading in New York, though the stock is down about 25pc this year. Photo: Bloomberg

Thomas Mulier

Packaged-food giant Kraft Heinz plans to restate earnings for 2016, 2017 and part of 2018, and said that it found evidence of employee misconduct in procurement that increased the cost of products sold.

The effects of the restatements for supplier rebates and other misstatements are expected to be less than 2pc in each year on adjusted earnings per share, the company said in a regulatory filing yesterday. Kraft Heinz shares barely budged in early trading in New York. The stock had dropped about 25pc this year, however.

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The company said it didn't find any evidence of misconduct by senior managers in its investigation, which is now complete.

It had delayed filing its annual report earlier this year because of the probe, and said it would do so as soon as practicable. Shareholder Warren Buffett said yesterday he's confident in the company.

Troubles are piling on at the company. In February, it took a $15.4bn (€13.7bn) writedown and disclosed a subpoena from the US Securities and Exchange Commission.

Adjustments to earnings before interest, taxes, depreciation and amortisation, excluding some items, totalled about $244m (€218m), the company said in the filing.

When reflected over the periods in question, they "are not quantitatively material to any prior year or quarter," it said.

Kraft Heinz also said in the filing that it had received a second subpoena from the SEC on March 1, related to its goodwill assessment and requesting documents related to its procurement practices. It said it's fully co-operating with the agency.

Mr Buffett played a crucial role in the formation of Kraft Heinz, teaming up with 3G Capital to help create the merger of Kraft Foods and HJ Heinz in 2015.

In a CNBC interview, he said he had been briefed earlier about the restatement issues.

"The company has my confidence," Mr Buffett said. "If we had just bought Heinz, it would have been a better investment."

Kraft Heinz said it is taking remedial steps, including personnel actions and changing some internal controls, to prevent such misconduct in the future.

Accounting rules require Berkshire Hathaway, which owns more than a quarter of the company, to include its share of Kraft Heinz's earnings in its results.

Berkshire said at the weekend that the carrying value of its stake is $13.7bn but the fair value based on Kraft Heinz's stock price is $10.6bn.



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