InvestIdeas

The coffee business has about $400 million in earnings before interest, taxes, depreciation and amortization and could attract a price of at least $3 billion in a sale, the sources, who were not identified, told CNBC.

Brazil's buyout fund 3G Capital and Warren Buffett's Berkshire Hathaway Inc together own more than 50 percent of Kraft Heinz.

J.P. Morgan downgraded Kraft Heinz stock to “neutral” from “overweight” and lowered its target price 29% to $37.

Deutsche Bank downgraded Kraft Heinz stock to “hold” from “buy.”

More competition from private label products, increased costs, and promotional spending to increase the demand could hurt the company’s sales and profitability.

Among the 22 analysts covering Kraft Heinz stock, 12 recommended a “buy,” six recommended a “hold,” and four recommended a “sell”.

Analysts have a consensus target price of $55.89 per share on Kraft Heinz, which could decline.

Warren Buffett owns almost 27% of it.

You have the unholy trinity of:-
1. the need to support brands
2. your raw costs are going up and
3. the consumer is turning against you

As of December 30, 2017, 87 percent of the company's total assets were comprised of goodwill and intangible assets and following the recent impairment charges related to goodwill and intangible assets, the ratio had dropped to 83 percent as of December 29, 2018.

As of December 29, 2018, the company's total debt balance exceeded $31 billion, and the company has not been able to de-lever its balance sheet as planned despite aggressively cutting costs since the merger.

The company's total debt is nearly twice as large as its tangible assets.

1. Warren Buffett
2. 3G Exit
3. New CEO
4. Reversion to the Mean
5. Divestitures
6. Acquisitions
7. Reinvest in Business

The best yardstick is a metric called Economic Value Added (or EVA).

And the EVA numbers show an absolutely shocking deterioration over the past three years.

In 2016, the first full year following the Kraft-Heinz merger, it generated a positive $305 million in EVA, equal to 1.1% of sales.

But by 2018, economic profit dropped to a minus $605 million, a swing of $910 million, to -2.3% of revenues.

From the period starting in 2015, when EVA was also strongly positive, only one in six U.S. food and beverage companies performed worse, measured by the 3-year trend of EVA as a share of sales.

Kraft Heinz’s EVA went the wrong way due to a confluence of three negatives.
1. Kraft Heinz couldn’t grow the top line
2. Cost-cutting got swamped by falling margins
3. Big spending on capex, but no returns

There was no profit warning, their statements during the Q3 2018 earnings release were mainly positive regarding their outlook and they said they did not believe additional marketing and other costs will occur in Q4.

Based on our experience, this procedure is typical when management and the largest shareholders want to take a company private at a higher valuation.