Financial Performance

Kraft Heinz Discloses SEC Probe, Shares Tank

The company's Q4 report contained other bad news, including a $15.4 billion goodwill impairment charge and an earnings miss.
Matthew HellerFebruary 22, 2019
Kraft Heinz Discloses SEC Probe, Shares Tank

Kraft Heinz shares plunged in extended trading Thursday after the food giant disclosed a regulatory investigation of its accounting practices and a $15.4 billion goodwill impairment charge.

Investors got a dose of bad news in Kraft Heinz’s fourth-quarter earnings report, which also showed it swung to a loss and missed analysts’ estimates. In the after-hours session, its stock fell 20.6% to $38.24.

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According to the earnings release, the company received a subpoena in October 2018 from the U.S. Securities and Exchange Commission seeking information about “accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors.”

Kraft Heinz also said that as a result of its own investigation into the procurement area, it recorded a $25 million increase to costs of products sold.

“The company has struggled with both the changing tastes of shoppers and with cutting costs,” The New York Times said. “On that latter issue, the SEC’s scrutiny could add to investor concerns.”

For the fourth quarter, Kraft Heinz reported adjusted earnings of 84 cents a share on $6.89 billion in revenue, missing estimates of earnings of 94 cents on revenue of $6.93 billion.

Kraft Heinz CEO Bernardo Hees said earnings fell short because the company did not deliver sufficient cost savings. “For that, we take full responsibility,” he said on an earnings call.

As CNN reports, the prices of many commodities that food companies use are rising and transportation costs have also been increasing, due in part to a shortage of truckers in the U.S. for Kraft Heinz, rising costs crimped profits to such an extent that earnings were about $1 billion below its own expectations.

The impairment charge reflected in part a decline in the value of two of its most recognizable brands, Kraft and Oscar Mayer, and pushed the company to a net loss of $12.6 billion. In the year-ago period, it made a profit of $8 billion, or $6.52 per share.