Key takeaways
- Kraft Heinz has named Carlos Abrams-Rivera as its new CEO, with Miguel Patricio to move to a non-executive chairman role
- The company’s Q2 figures showed struggling sales despite raising prices
- Kraft Heinz’s share price has fallen 2.4% since the news emerged
Food giant Kraft Heinz has named a new CEO to guide the company through rough macroeconomic waters. Carlos Abrams-Rivera will take up the position in January, though he faces some tough challenges ahead.
With consumers cutting back on spending and opting for non-brand foods, plus a legacy merger that’s gone very wrong, it’s a tough break for any incoming CEO. Wall Street seemed to agree, but the company could orchestrate a turnaround still. Here’s the lowdown.
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Kraft Heinz names new CEO
Kraft Heinz, the maker of dozens of food products, including ketchup and packaged macaroni cheese, has appointed a new CEO. Carlos Abrams-Rivera, who is currently head of the company’s North American business, will step into the top job on January 1.
Abrams-Rivera will transition into the president role immediately; the current president and CEO, Miguel Patricio, will move into a non-executive chairman position. Patricio has been CEO of the company since 2019, steering the ship through the tough times of the pandemic and decades-high inflation levels.
It’s some big shoes that Abrams-Rivera, who first re-joined the business in 2020 having started his career at Kraft, has to fill. Under Patricio’s leadership, Kraft Heinz’s share price rose 11% during his tenure and saw sales grow 6%. However, pressures on consumer spending have weighed on the food conglomerate in recent months.
In a press statement, Kraft Heinz’s board of directors said the move “reflects the Board’s thoughtful succession planning, and we are confident that the Company will continue to accelerate growth with Carlos assuming the role of CEO”. Abrams-Rivera commented he is “excited to go into a bright future together”.
How did Kraft Heinz’s Q2 fare?
Heinz Kraft kicked off August with the company’s Q2 earnings beat, though the report wasn’t a happy one for investors. While the food company beat expectations on earnings, which arrived at 79 cents a share instead of the forecasted 76 cents, revenue was down on expectations at $6.72 billion.
The company reiterated its full-year guidance, saying it anticipates organic net sales growth to be 4% to 6% compared to last year. Kraft Heinz also expects adjusted earnings per share to be between $2.83 and $2.91.
The company share price fell 1.1% at the news, as even though Kraft Heinz has raised prices on its products, it wasn’t enough to topple the revenue expectations. The food giant has also tried to rejuvenate its portfolio recently with the likes of new Lunchables kits, a customizable sauce dispenser and limited edition sauces to distribute to restaurants.
Patricio stressed that “the action plans we laid out in the first quarter resulted in share trend improvement each month”, which would “drive momentum through the second half of the year”.
What was the market reaction?
Since the announcement on Monday, the stock has fallen 2.4% as investors were concerned Patricio’s tenure hadn’t been long enough, surmising there might be trouble ahead. Kraft Heinz’s share price has suffered a 17% decline this year, while the S&P 500 is up 15%.
In comparison, some of Kraft Heinz’s peers have performed better on the stock market this year despite the macroeconomic environment. Unilever has seen a slight 1.6% bump to its share price this year, while General Mills has seen a 14% fall in its stock.
Has the Kraft Heinz merger paid off?
On paper, the Kraft and Heinz merger was an investor’s dream. With a combined annual revenue of $28 billion and dozens of household-name brands on the roster, it was a no-brainer for the two food titans to join forces. However, the reality couldn’t be more different. Since the two companies merged in 2015, the share price peaked in 2017 before steadily declining. The stock has dropped 45% since the merger.
Brazilian private equity firm 3G Capital Partners was the mastermind behind the merger, joining forces with Warren Buffett’s Berkshire Hathaway; the stage was set for a mega-deal. But things soon soured as the plan to slash expenses and boosting profit margins didn’t pay off. Kraft Heinz saw its market share eroded by upstart new brands touting health and wellness, two words Kraft Heinz wasn’t particularly associated with.
Things went from bad to worse. In 2018, Kraft Heinz slashed its quarterly dividend to handle its $30 billion in long-term debt. A few months later, there was news that the company was subject to an SEC investigation around its accounting. Then soon after that bombshell, Kraft Heinz took an eye-watering $15.4 billion write-down.
It settled the SEC investigation for $62 million in 2021. In May this year, Kraft Heinz and 3G Capital Partners reached a $450 million settlement with shareholders who accused former management of fraudulently misrepresenting the company’s financial position after the merger.
It’s the merger from hell, which potentially gives more context as to why Patricio is stepping aside after only four years. But the silver lining is that Abrams-Rivera can start afresh with Patricio’s solid foundational work underneath him.
The bottom line
Kraft Heinz is a renowned food conglomerate, and its sheer size means it’s likely to weather the macroeconomic storms. The worst of the merger is now largely behind the company as well, giving Abrams-Rivera a more stable footing than what his predecessor had.
But it’s the fact Patricio has done such an excellent job at turning Kraft Heinz around that has investors worried. Can the company innovate enough to become relevant again and regain the market share it once had? Kraft Heinz seems to think so, having held firm on its full-year guidance. Now the pressure is on for the food titan to deliver and puts its troubled recent past to bed once and for all.
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