RPT-BREAKINGVIEWS-Kraft Heinz boldly jams ketchup back into bottle

By Jeffrey Goldfarb

NEW YORK, Feb 11 (Reuters Breakingviews) - Kraft Heinz KHC.O has stopped drinking the financial engineering Kool-Aid. New boss Steve Cahillane is nixing the packaged-food giant’s embrace of Wall Street gospel, shelving a breakup plan announced in September and dumping a decade of cost-cutting devotion. Spending money to boost sales instead is a more savory approach.

The $29 billion company, which sells everything from its famed flavored drink mix to Heinz Tomato Ketchup, became an unfortunate case study in cultish corporate efficiency. Private equity shop 3G and billionaire Warren Buffett's Berkshire Hathaway BRKa.N, which still holds a 28% stake, backed a merger of Kraft and Heinz in 2015, aiming to create value by hacking away at expenses. Following an initial surge, the stock price has since plummeted by nearly three-quarters from its peak. Earlier attempts to remake the strategy and even subsequent plans to undo the mega-merger failed to stop the slide.

Cahillane, who started on January 1 after joining from Kellogg, is dumping it all down the kitchen sink. Kraft Heinz's organic net sales, adjusted operating income and gross profit margin all declined in the fourth quarter. In an effort to reverse the momentum, the company said on Wednesday it had "paused" work on cleaving North American groceries from its condiments business and would put $600 million, or 5.5% of the top line, into sales, marketing, research and development, and prices.

It's amazing to think that emphasizing brand power, leaning into consumer nutrition trends and making products more affordable would be a novel concept, but such is the received wisdom of fund managers and corporate boardrooms. The short-term effect on profitability at Kraft Heinz, where Cahillane expects adjusted operating income using constant currencies to fall between 14% and 18% this year, initially sent shares tumbling, before they climbed back to flat.

After focusing on costs for so long and then raising prices, Kraft Heinz has a lot of rebuilding to do at a time when shoppers are eager to save money and the U.S. government has slashed food benefits. Cahillane at least brings credible experience, having helped diversify and grow Kellogg before carving it up and selling the rebranded Kellanova to Mars. Buffett's successor, Greg Abel, also endorsed the CEO's initiatives, helping with the ambitious attempt to squeeze the ketchup back into the bottle.

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CONTEXT NEWS

Kraft Heinz said on February 11 that it would “pause” a breakup plan unveiled in September and instead invest $600 million in sales and marketing to help reinvigorate slumping U.S. brands such as Lunchables and Mac & Cheese.

The company reported a 70% decline in fourth-quarter net income from a year earlier on a 3.4% drop in net sales, to $6.4 billion.

For 2026, Kraft Heinz expects organic net sales to slip 3.5% to 1.5% with adjusted operating income, on a constant currency basis, falling between 18% and 14%.