Kraft Heinz to Restate Financial Results Following Investigation -- 3rd Update
May 06 2019 - 3:54PM
Dow Jones News
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 heather.haddon@wsj.com
(END) Dow Jones Newswires
May 06, 2019 15:39 ET (19:39 GMT)
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