Dive Brief:
- Post-merger, Kraft Heinz has reached profitability after aggressive cost cuts in the typical management style of 3G. But Warren Buffett of Berkshire Hathaway, which owns 27% of Kraft Heinz, still spent about 10% of his approximately 18,000-word annual letter defending 3G Capital, the private equity firm that arranged the Kraft Heinz merger.
- Buffett noted that 3G's cost-cutting style with Kraft Heinz differed from the strategy typically employed at Berkshire Hathaway, which finds companies that have already long been managed cost-efficiently. But he also praised 3G, saying the company has been "extraordinarily successful," and suggested other deals were possible in the future.
- Besides the defense of 3G, Buffett kept mention of Kraft Heinz's future to a minimum, citing only the financial gains the company has brought and will bring Berkshire in the coming year.
Dive Insight:
Analysts' two main focuses when it comes to Kraft Heinz are the company's successes with cost-cutting and when the company might be ready to acquire another major food company. RBC Capital Markets analyst David Palmer told The Wall Street Journal that Kraft Heinz's balance sheet is stronger than the balance sheet for either individual company pre-merger. He said this means that by the end of this year or in 2017, Kraft Heinz could be primed for an acquisition of another large company, depending on the company's debt load at that time.
Palmer pointed to Mondelez International as an appropriate target, suggesting Kraft Heinz look for a company with a strong presence outside of the U.S. to help Kraft Heinz reach an international scale. With Mondelez having originally spun off from Kraft in 2011, the reunion of the two companies could have unique synergies Kraft Heinz wouldn't find with another acquisition target.
Last year, Buffett shot down the suggestion that Kraft Heinz would acquire Mondelez in the near future. However, with Buffett's letter leaving the potential for more deals with 3G on the table, a merger with Mondelez isn't so far-fetched.
Last quarter, Kraft Heinz's profit jumped 28% on a pro forma basis from a year earlier, though revenue fell 5% to $7.12 billion.