Kraft Heinz Co. has suspended plans to split into two companies, a surprising turnaround just weeks after bringing in a new chief executive with experience spinning off a food company.
Steve Cahillane, who took over as CEO on January 1, said he decided to temporarily pause the division to focus on increasing profitability. He also pointed to worsening consumer sentiment since the split was announced in September.
“Since joining the company, I have seen that the opportunity is greater than expected and that many of our challenges are solvable and within our control,” Cahillane said Wednesday in a statement reporting disappointing results. “As a result, we believe it is prudent to pause work related to the separation.”
Opportunity with security!
Cahillane said the company will instead invest $600 million in marketing, research and development, improving products and reducing some prices.
Kraft Heinz shares fell as much as 8.4% in premarket trading. The stock had risen 2.7% this year, compared with the S&P 500 index’s 1.4% rise.
Cahillane is changing course five months after Kraft Heinz announced plans to separate its fastest-growing brands, including condiments like Heinz ketchup and boxed ready meals, from slower-growing grocery items like Oscar Mayer deli meats and Lunchables. The company had previously said it expected to complete the split in the second half of this year.
US$46 billion deal
The split was essentially intended to undo Kraft Heinz’s $46 billion megamerger a decade ago. The tie-up has been disappointing for investors, with shares falling by about two-thirds since the deal was completed.
The market has been skeptical of the plan, and Kraft Heinz shares have fallen 11% since the end of August. Warren Buffett, who supported and helped finance the combination in 2015, was one of the critics when he expressed disappointment last year with the company’s separation. In January, Buffett’s Berkshire Hathaway said it was looking to sell its 28% stake in the packaged food company.
When the company announced in December that Cahillane — who led the Kellogg division — would replace former CEO Carlos Abrams-Rivera, speculation increased that Kraft Heinz could follow a similar path. Under Cahillane, former CEO of Kellanova, Kellogg was split into two publicly traded companies, both of which were later acquired by private entities.
Continues after advertising
Justification from the chairman of the board
Kraft Heinz Chairman John Cahill said he was confident the decision to pause the separation and focus on growth “is the right move at this time.”
In September, the company said the goal of the planned split was to transfer weaker-performing grocery staples to a new entity, which was expected to generate stable cash flow while giving more room for growth in the company’s more successful sauces and spreads.
In its earnings report released Wednesday, Kraft Heinz said organic revenue fell 4.2% in the fourth quarter, a larger drop than analysts’ average expectations.
Continues after advertising
