M&A In European Food
I'm not sure that consumer packaged goods is the area to be in, at least not in the U.S. and not based on names like Kellogg or General Mills.
For a quarter-century those manufacturers ratcheted prices as though they were tobacco companies but people find it easier to give up their Cheerios than their cigarettes.
The managements milked that approach for pretty much all it was worth so, as operating entities, they aren't all that attractive but someone will decide the only thing left to do is to asset strip or dividend recap the life out of the former cash cows.
Top o'the market to ya....
The 2015 merger between Kraft and Heinz created one of the largest food companies in the world. It had $28 billion in combined annual revenues and controlled dozens of food and beverage brands that for generations were staples of American households, including Heinz ketchup, Kraft cheese, Oscar Mayer meats and Planters nuts.
These days, however, the mega-merger is a mega-mess.
Sales and profits have slumped. After taking a $15.4 billion write-down in February and slashing its dividend by a third, the company reduced the value of its assets by an additional $1.22 billion last month. Securities regulators are looking into its accounting, and after an internal investigation uncovered employee misconduct, Kraft Heinz said it would restate its financials for 2016 and 2017. It faces numerous shareholder lawsuits. And after laying off thousands of people over the last four years, it announced more job cuts in the second week of August.
For the Brazilian-based investment firm 3G Capital and Warren E. Buffett’s Berkshire Hathaway, the deal has so far been a rare — and costly — misstep. While their earlier acquisitions have produced big returns, the Kraft Heinz deal has created billions of dollars in paper losses. The company’s stock has plummeted 51 percent in the past year. Last week, 3G sold more than 25 million of its Kraft Heinz shares, bringing its stake in the company down by almost 10 percent.
Some analysts and former Kraft Heinz employees place much of the blame at the feet of 3G and its use of a highly vaunted “zero-based budgeting” strategy that critics say focuses more on cutting costs than creating products that people want to buy.
Others analysts note that the company’s profit margins are much higher than at peers like General Mills and Kellogg. They argue that Kraft Heinz is facing the same headwinds as other large packaged goods companies, struggling to adapt as the public turns to healthier, and often organic, foods.
There is also competition from retailers like Walmart and Kroger, which have private-label brands. In August, Target announced plans for its own line of grocery products that it expects will include more than 2,000 items and become a multibillion-dollar brand by the end of next year.
“Kraft’s problems are in the marketplace,” said Jim Peterson, a former Kraft executive who left before the merger and is now the chief financial officer for Price Chopper Supermarkets. “Do its products have the same appeal as they used to? How are they going to grow revenues? That’s the dilemma they’re in, and it’s not easily answered.”...MUCH MORE
