Kraft Heinz considering sale of Breakstone's business
- Kraft Heinz is considering a sale of its Breakstone's brand, which makes cottage cheese, butter and sour cream, according to CNBC. The business could receive $400 million in a sale.
- The business network said Kraft Heinz has hired Royal Bank of Canada to review options for Breakstone's. CNBC said the review is part of a larger analysis of Kraft Heinz's dairy business, which includes its natural cheese products.
- A possible divestiture comes two weeks after reports that the CPG giant was considering options for its Maxwell House coffee business.
Kraft Heinz, a $49 billion mega-merger in 2015 that brought processed meat, cheese, coffee, ketchup and dairy brands under one corporate roof, is now looking to prune its business amid a host of challenges facing its operations. Once the darling of Wall Street for its aggressive cost cutting and careful spending, the company shocked the market in February by announcing a dividend cut, weak guidance outlook and the write-down in the value of its Kraft and Oscar Mayer brands by $15.4 billion. The announcement further highlighted that its portfolio of brands was largely out of touch with consumers who were turning to fresher, organic and better-for-you offerings.
After reports last month that Kraft Heinz is working with an investment bank to explore options for its Maxwell House coffee business, which could include a sale, the food maker is now looking into a similar move for Breakstone's, a popular maker of cottage cheese, butter and sour cream.
A sale of Breakstone's makes sense on several levels. For one, the brand only had about $400 million in revenue and $50 million in earnings before interest, taxes, depreciation and amortization, according to CNBC. This is a small amount for a company that generated sales of more than $26 billion in 2018. A sale of of the dairy brand, coupled with a divestiture of Maxwell House, would enable Kraft Heinz to pay down debt and focus on rejuvenating its portfolio of brands.
The dairy business as a whole has been struggling with a glut of supply and a consumer shift toward non-dairy alternatives such as soy, almond, coconut and oats. While little is known publicly about the overall health of the Breakstone's brand, it's possible that the dairy case staple may be feeling some of the same pressures facing other dairy-based companies.
Among the high-profile companies facing problems is Dean Foods, the owner of DairyPure and TruMoo. The dairy company, whose stock has plunged nearly 70% in the last year, announced in late February it is exploring "strategic alternatives to enhance shareholder value." The options include an outright sale, pursuing a joint venture or merger, shedding assets or continuing the company's current business plan.
It's uncertain who would be interested in purchasing Breakstone's, but the path that Dean selects going forward will likely determine if it places a bid. Other dairy companies — including Land O' Lakes or Dairy Farmers of America, a national milk marketing cooperative owned by farmers — could be among the potential buyers. Private equity firms also may consider placing a bid.
Regardless of the path forward, Kraft Heinz, which was formed as a melding of multiple brands, is now looking to slim down. CNBC noted that a sale of Breakstone's would be part of a broader review of the CPG's dairy business, which includes its natural cheese segment.
It's apparent that Kraft Heinz is looking to jettison brands that have fallen out of favor with consumers or are facing significant headwinds within their sector. However, it's interesting to see early focus on divesting a brand like Breakstone's that is directly adjacent to the processed cheese that made Kraft a success. As Kraft Heinz looks to improve the health of its underlying business, it would not be a surprise to see other brands within its portfolio put on the block in the near future.
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