Kraft Heinz Inc. shares were suffering their biggest-ever one-day selloff as they plummeted toward record lows Friday, after the giant food conglomerate delivered bad news with no condiments to sweeten it.
Kraft Heinz KHC, -27.37% shares plunged 27% in very active morning trade, sending shares below the $36 level; the stock has not fallen below $41 since Kraft was spun out of what is now Mondelez International Inc. MDLZ, -1.63% in 2012.
Trading volume spiked to 40 million shares within 30 minutes after the open, enough to make the stock the most actively traded on major U.S. exchanges, and already more than six-times the full-day average.
Kraft and Heinz merged in 2015 in a deal backed by Warren Buffett’s Berkshire Hathaway Inc. BRK.B, -1.81% which dropped 1.8% in morning trade. Kraft Heinz ended Thursday’s regular trading session with a market capitalization of nearly $59 billion, but that was chopped down to below $43 billion with Friday’s stock selloff.
In its earnings report Thursday, Kraft Heinz revealed a multitude of concerns:
• Fourth-quarter results came in much lighter than expected. On an adjusted basis, the company claimed earnings of 84 cents a share, down from 90 cents a share and lower than the average analyst estimate of 94 cents a share. Revenue rose to $6.89 billion from $6.84 billion, but still came in below the consensus estimate of $6.94 billion, according to FactSet.
• Without adjustments, that bottom line looks much worse. Kraft Heinz reported quarterly losses of $12.61 billion, or $10.34 a share, thanks to a write-down of more than $15 billion related to a declining valuation of several of its businesses, most notably the Kraft and Oscar Mayer trademarks.
• The company slashed its dividend by more than a third, to a quarterly rate of 40 cents a share from 62.5 cents a share.
• Oh, there is also an investigation into Kraft Heinz’s accounting that resulted in a subpoena from the Securities and Exchange Commission that the company disclosed in its announcement.
Executives did not say that the problems would be solved in 2019, either. In fact, they pointed toward 2020 while predicting an adjusted Ebitda profit total of $6.3 billion to $6.5 billion for this year, down from $7.08 billion in 2018 and well lower than the average analyst estimate of $7.5 billion, according to FactSet.
“While we expect to take a step backwards in 2019, we remain confident in delivering consistent profit growth from 2020 onwards, driven by fully leveraging our advantage brands, cost structures and capabilities,” Chief Financial Officer David Knopf said in a conference call Thursday afternoon.
Kraft Heinz did not offer any more specific numbers for its 2019 forecast, as is typical for the company. The Ebitda forecast was out of character for a company that typically does not provide specific guidance.
Knopf also revealed that the company is evaluating the sale of unnamed businesses this year to pay down debt. Kraft Heinz has already announced two planneddivestitures, and said proceeds from those sales would also go toward restructuring the debt load.
Knopf also further addressed the SEC investigation in Thursday’s conference call.
“The company was notified by the SEC regarding an investigation into the company’s procurement area. Following this, we conducted a very thorough internal investigation with the support of an independent law firm and accounting firm, and we determined that we should’ve reported $25 million in prior periods which we booked in Q4 2018,” Knopf said. ”To put it into context how that compares, overall procurement was over $11 billion, which excludes Big Four commodity spend. So this misstatement was not material to our current or prior year financial statements, and finally, we did implement several improvements to internal controls and took remedial measures to mitigate the likelihood that this happens again.”
Even before any post-earnings decline, Kraft Heinz shares have fallen 48% in the past year, as the S&P 500 index SPX, +0.40% has gained 3.0%.