Kraft Heinz halts split, new CEO says problems are 'fixable'

By Juveria Tabassum

Feb 11 (Reuters) - Kraft Heinz <KHC.O> has halted efforts to split the company, with new CEO Steve Cahillane saying that most challenges are "fixable and within our control", a surprise move that sent its shares down 6% before the bell.

The packaged foods maker announced plans to split into two in September - one focused on groceries and the other on sauces and spreads, after failing to achieve the kind of growth expected when the company was formed a decade ago under a merger orchestrated by Warren Buffett's Berkshire Hathaway BRKa.N and 3G Capital.

Kraft Heinz has lagged its peers in the U.S. food sector, where sales have slowed as consumers pull back on spending following years of price hikes. The decision to split followed years of cost-cutting and underinvestment for the company.

"My number one priority is returning the business to profitable growth, which will require ensuring all resources are fully focused on the execution of our operating plan," said Cahillane, who took charge in January.

"As a result, we believe it is prudent to pause work related to the separation."

The company said it would not incur $300 million in dis-synergies, or the added costs related to a split, in 2026.

"We definitively view the plan to reinvest more significantly and pause the planned separation as the right set of first steps, but realize bending the trend on longer-term market share declines will likely take some time," said Andrew Lazard, analyst at Barclays, in a note.

NEXT STEPS TO PROFITABLE GROWTH

Cahillane outlined his strategy to restore the company to profitable growth.

He said Kraft Heinz would focus on marketing and research with a $600 million investment to drive recovery in its U.S. business where market conditions have worsened since the decision to split last summer.

Kraft Heinz, like other packaged foods companies, has been struggling with weak demand for its pricier condiments and pantry staples as consumers look for cheaper options, but has also lost out to rivals due to lack of innovation.

"To turn this around, we are increasing investments in R&D by approximately 20% in 2026 compared to 2025," Cahillane said, adding that the product innovation would also circle around nutrition and value.

Cahillane acknowledged that in the past few quarters the company raised prices to combat inflation but did not provide consumers with additional benefits and will now look to offer products at more affordable price points.

Snacks giant PepsiCo PEP.O last week said it had cut prices on key snacks such as Lay's and Doritos in the U.S. after consumer backlash against higher prices.

RARE REVERSAL FOR CORPORATE SPLITS

Kraft Heinz is among the few companies to reverse a major breakup, as only about one in 10 corporate spinoffs are canceled on average, according to a 2022 report by KPMG.

Kraft Heinz had expected to close the spinoff at the end of 2026, and brought on industry veteran and former Kellogg boss Cahillane to guide it through the split.

In January, Kraft Heinz's shares tumbled after it disclosed that Berkshire Hathaway BRKa.N may sell its 27.5% stake in the company and exit a more than decade-old investment that did not work out for Buffett.

Berkshire and the office of Greg Abel - Buffett's successor at the company - did not immediately respond to a Reuters request for comment on Kraft Heinz's decision to pause its split.

The new plan by Cahillane is a departure from the previous CEO Miguel Patricio's rationale to split the company. Patricio had then said the complexity of Kraft Heinz's "current structure" made it challenging to allocate capital effectively.

"The original rationale was to unlock shareholder value, but with multiple parts of the business now facing operational and demand challenges, a separation may not have delivered the value management initially envisioned," Arun Sundaram, analyst with CFRA Research, said.

CHALLENGING ENVIRONMENT

The company reported fourth-quarter results on Wednesday that fell short of estimates and forecast 2026 earnings below expectations as it lost out to cheaper rivals.

It forecast 2026 organic net sales to range between 1.5% and 3.5%, compared with estimates of a 0.17% rise and said the forecast included an impact of about 100 basis points from pressures related to the delay of food-stamp benefits in the U.S.