- Kraft Heinz has pulled back on plans to sell its Breakstone's brand of cottage cheese, butter and sour cream, Plasmon baby food business and Ore-Ida frozen potato brand, according to CNBC. The company remains on track to sell its Maxwell House brand, but is reportedly being criticized about it.
- Sources told CNBC the reasons include new CEO Miguel Patricio's desire to review all the company's businesses, lackluster interest from potential acquirers, and wariness from private equity buyers. Kraft Heinz declined to comment to CNBC.
- Company shares have plunged 26% so far this year, and an earnings report released in February posted a $12.6 billion net loss following a $15.4 billion write-down of its Kraft and Oscar Mayer brands.
Kraft Heinz has been going through a rough patch lately, and clearly it's not out of the woods yet. The company's business model has focused on cost-cutting and deal-making rather than brand-building in recent years, so putting these asset sales on hold could put more pressure on the company. Especially with activist investors like private-equity firm 3G Capital Partners and Warren Buffett's Berkshire Hathaway, these backers probably won't just stand by while the company decides how to proceed.
Cutting operational costs through zero-based budgeting only goes so far before more money needs to be put behind brand-building efforts. Kraft Heinz may decide it hasn't done enough research in this area under its new leadership and needs to take a second look at brands that had been destined for the chopping block.
Having so much uncertainty about the future isn't the best environment in which to acquire or divest business units, so that could be contributing to the decision to stall sales while a reevaluation takes place. But Patricio is likely to come to the same conclusions about which brands to spin off, CNBC indicated, since Ore-Ida and Breakstone's had been considered expendable before.
As a legacy coffee brand, Maxwell House presents different issues. Private equity firms may wonder how much it will take to bolster the brand following years of cost-conscious management. Packaged coffee may not seem to be a promising growth area when consumers are flocking to buy premium brands, ready-to-drink products and coffeehouse-style beverages.
It's hard to tell whether the company will finish the businesswide review and continue on the same path or decide to revitalize the lagging brands. Patricio, who officially joined Kraft Heinz earlier this month from his previous position as chief marketing officer at AB InBev, has said he plans to focus attention on improving the company's brand-building, pace, organic growth and consumer focus.
The company's portfolio of brands has been viewed as out of touch with consumers who are trending toward fresher, organic and better-for-you offerings, but it's possible they could be reinvigorated with the right blend of marketing resources and expertise.
Alex Behring, chairman of Kraft Heinz's board of directors, touted Patricio's assets in these areas when announcing his appointment in April. Behring said in a release that Patricio was "a proven business leader with a distinguished track record of building iconic consumer brands around the globe."
Still, it's a delicate balancing act for a new corporate leader to come in and reassess divestment decisions that have already been made and make a convincing case for a directional shift to investors, management and consumers. Patricio will also be looking at how to reposition such legacy brands as Oscar Mayer, Velveeta, Planters and Jell-O to make them more appealing to today's health-conscious consumers.
One possibility is Kraft Heinz will decide to just spin off a single, more lucrative brand and use the proceeds to help pay down debt and move forward. That could make either Ore-Ida or Maxwell House the sacrificial lamb — or possibly both, since they've been considered worth $1.5 to $2 billion and $3 billion, respectively.
The company has $3 billion worth of debt coming due next year, CNBC noted, quoting analysts who say it may have to be refinanced. That deadline could hurry up divestment decisions and potentially result in lowered sale offers for some of these business units.