But just because the “Oracle of Omaha” may have overpaid back then doesn’t mean investors today would be running the same risk if they were to buy Kraft Heinz stock.
That’s in large part because of the turnaround work done by Kraft Heinz CEO Miguel Patricio, who has led the mac and cheese and Lunchables maker for almost four years.
“We had derailed, and the mandate from the board was to put the train back on track,” Patricio said on Yahoo Finance Live (video above) about his early days as CEO. “So we built a team, and we brought in great talent, and we started working on the culture. The first six months I was more of an evangelist than a CEO — I was talking to people, trying to make them believe, and redefining the values of the company.”
Patricio has had to climb a tall mountain to achieve the promising results now taking form.
For years, Kraft Heinz slashed investments in key brands in order to meet aggressive operating profit targets put in place at the time of its merger. Top talent left the company.
One of the final black eyes came in February 2019, when Kraft Heinz took a $15.4 billion write-down on its Oscar Mayer cold cuts, natural cheese, and Canadian retail businesses. Shares crashed, going on to hit a low of $20.04 in March 2020.
But Patricio, who entered as CEO in July 2019, was hard at work stabilizing the ship.
In September 2020, Patricio sold part of the company’s cheese business for $3.2 billion to France’s Groupe Lactalis. That sale was unveiled at an investor day, where the company outlined a more focused set of product priorities.
He promised to boost marketing by 30% in top brands such as Mac & Cheese, Lunchables, and Philadelphia cream cheese while also cutting $2 billion in costs through 2024.
All of this turnaround work came alongside the COVID-19 pandemic, which upended supply chains and triggered a boom in eating at home.
Today, Kraft appears to be a different company.
For one, Patricio is fresh off a first quarter earnings call where he promised $2.5 billion in cost savings by 2027 — up from the aforementioned $2 billion. Net sales rose 7.3% from a year ago to $6.5 billion, powered by demand for Lunchables and higher prices. Adjusted operating profits improved 10.3% year over year to $1.5 billion.
The company lifted its full-year adjusted earnings per share target to $2.83-$2.91 from $2.65-$2.75.
Long-term debt has also continued to trend lower.
“We have to earn it [the Street’s confidence],” Patricio said. “Reputation — you build with time. It’s not from one day to another. We’ve been proving that we know what are we doing.”
Shares have rallied from those early 2020 lows to more than $40.
“Kraft Heinz benefited significantly during the unique environment of the pandemic and lockdown, allowing the company to execute its new enterprise-wide strategy, reinvesting more heavily into the business, and doing this while growing sales and EBITDA [earnings before interest, taxes, depreciation and amortization],” Stifel analyst Matthew Smith said. “We believe this environment has accelerated the company’s transformation, setting the stage for achieving a stronger growth profile more quickly in future years.”
Smith rates Kraft Heinz stock a Buy.
Meanwhile, Kraft Heinz is back to doing what a packaged food company does best — creating new products that gain new shoppers. Patricio told Yahoo Finance Live that the company will soon launch frozen Mac & Cheese while also expanding into frozen dinners.
The company has also since expanded Lunchables into schools.
Patricio sounds like a CEO that amidst the budding turnaround, has fallen back in the good graces of its largest shareholder Buffett and his Berkshire disciples (Berkshire owns 26.5% of Kraft Heinz).
“Greg is one of our most important board members,” Patricio said. “They are really focused on the long-term. And that’s also our belief. So the relationship has been very good.”