Kraft Heinz to Restate Financial Results Following Investigation -- 3rd Update

Date : 05/06/2019 @ 8:54PM
Source : Dow Jones News
Stock : Berkshire Hathaway Inc (BRK.A)
Quote : 273411.01  5457.01 (2.04%) @ 7:23PM

Kraft Heinz to Restate Financial Results Following Investigation -- 3rd Update

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By Heather Haddon 

Kraft Heinz Co. said errors in its accounting go back several more years than previously known, widening the scope of the internal problems the beleaguered food company has to resolve while facing a federal securities probe and shareholder lawsuits.

The company said Monday it is restating a host of its financial results dating as far back as 2016, after it determined they included certain misstatements. The adjustments now total $208 million.

Kraft Heinz, which is facing an investigation into its procurement practices by the U.S. Securities and Exchange Commission, said it had received an additional subpoena on March 1 pertaining to the write-down of some of its brands. The company said it is cooperating with regulators. It has missed a handful of financial reporting deadlines, and Kraft Heinz couldn't say Monday when the reports, including the full-year financial report for 2018, would be filed.

On Monday, shares in Kraft Heinz shares rose 1%, but were down 24% this year.

Investors have been seeking updates from Kraft Heinz in the three months since it disclosed the regulatory investigation and said it was writing down the value of some of its brands by $15 billion. Lead investor Warren Buffett has since said that Berkshire Hathaway Inc. and 3G Capital overpaid when they helped form Kraft Heinz through a merger in 2015. Mr. Buffett defended the company during his annual meeting over the weekend, but reiterated that deals can sour by paying too much.

Kraft Heinz is seeking to move beyond the wave of challenging developments and reassure investors about the company's management and growth potential. It said it didn't find that the financial misstatements were material, but involved the incorrect timing of reporting costs and rebates in contracts.

Its latest disclosure, however, shows the extent of the accounting problems that have contributed to the big food company losing nearly $20 billion in value.

Kraft Heinz's private-equity backers, 3G Capital, have also faced new questions over the cost-cutting approach that they wielded at Kraft Heinz and other companies to increase profits. 3G helped broker the merger of Kraft and Heinz, and worked to deliver profit by slashing the combined company's workforce, curbing expenses and pushing suppliers to give more favorable terms. It also cut research and marketing spending at a time when many of Kraft Heinz's signature packaged-food brands were losing favor with customers. Sales dropped as a result.

Kraft Heinz has since beefed up its sales force and marketing efforts with retailers. It is also looking to sell underperforming brands such as its Ore-Ida french fries and Maxwell House coffee divisions, according to people familiar with the matter.

Other 3G-backed consumer companies are also struggling with sales as they try to compete on staple brands while still keeping costs down. Anheuser-Busch InBev SA has faced stagnating sales in the U.S., while the holding company behind Burger King and Tim Horton's, Restaurant Brands International Inc., recently reported a decline in same-store sales growth.

Kraft Heinz said Monday that its internal investigation was nearly complete, and it revealed misconduct by several staffers in its procurement division. A number of staff in that division were let go. "The findings from the investigation did not identify any misconduct by any member of the senior management team," a Kraft Heinz spokesman said.

The company also telegraphed more change in its senior ranks. Eduardo Luz, Kraft Heinz's global brand officer and chief marketing officer in the U.S., is leaving at the end of May, the spokesman said. Last month, Kraft Heinz named a new chief executive, Miguel Patricio, to succeed current head Bernardo Hees as of July 1.

Meanwhile, several pension funds are suing Kraft Heinz in regards to the company's falling stock. Trading firm Timber Hill has filed a case detailing allegations of insider trading.

"The company intends to vigorously defend against these lawsuits," Kraft Heinz said in an SEC filing on Monday. Attorneys for Kraft Heinz have agreed to have the two cases consolidated under a U.S. District Judge in Chicago. A first appearance is scheduled for May 16.

The company is restating several financial statements beginning in 2016 and 2017. Its net income for 2016, 2017 and 2018 will change by less than a percentage point, the company has found so far. "The company is taking action to improve our policies and procedures and will continue to strengthen our internal financial controls," the company spokesman said.

--Alison Prang contributed to this article.

Write to Heather Haddon at


(END) Dow Jones Newswires

May 06, 2019 15:39 ET (19:39 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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