Kraft Heinz is reportedly contemplating spin-offs of much of its grocery business, as more health-conscious consumers in America are steering clear of processed foods.
The $31 billion food and beverage giant, formed from the Kraft-Heinz merger in 2015, is said to be considering establishing a new entity with several craft products, potentially worth around $20 billion, according to reports from The Wall Street Journal.
The remaining business is anticipated to include items like sauces and seasonings, such as Grey Poupon mustard, as noted by the Journal.
Following this news, Kraft Heinz’s stock jumped nearly 4% shortly after the report was released around 1:30 PM ET, with shares trading at about $27 by 3:30 PM ET.
Kraft Heinz executives, who are shifting focus towards more in-demand items like hot sauces and dressings, believe that the two distinct units could surpass the company’s current market valuation of $31 billion.
Sources indicated to the Journal that the separation could be finalized in the next few weeks. A spokesperson for Kraft Heinz commented on Friday, “As announced in May, we are evaluating potential strategic deals to unlock shareholder value. Beyond that, we won’t comment on speculation.”
Despite discussions of possible breakups, there are other scenarios being considered by Kraft Heinz’s advisors, and the board has yet to make a final decision.
The company is also deliberating on which brands will fall under the new spin-off division, as reported.
Kraft Heinz had previously failed to meet expectations following the merger of iconic brands, which was facilitated by Warren Buffett’s Berkshire Hathaway and Brazilian investment firm 3G Capital.
When the two merged, they were generating roughly $28 billion in annual revenue, including staples like Oscar Mayer meats, Maxwell House coffee, and Heinz ketchup. However, by 2019, the company had recognized rising costs and brand value pressures, leading to a $15 billion write-down related to Kraft and Oscar Mayer.
The previous CEO, Bernardo Hees, admitted, “We were overly optimistic about providing savings that didn’t come true,” shortly before his resignation.
Since the merger, the company has struggled with stagnant sales and decreasing profits, seeing its stock plummet over 60%, resulting in a loss of around $57 billion in market value.
Kraft Heinz’s stock has experienced significant fluctuations over the past decade, peaking at nearly $96 in early 2017 before entering a prolonged decline. Recently, it opened at $26.90, with a 52-week low of $25.44, which is considerably lower than its historical highs.
Core products like Lunchables, Capri Sun, macaroni and cheese, and mayonnaise have struggled in the current market. The company has made attempts to rebrand by investing in healthier options, including a recent commitment to eliminate artificial dyes from its U.S. product range.
Kraft Heinz is also exploring the sale of some underperforming brands, such as Oscar Mayer and Maxwell House, although these attempts have not yet yielded success.
In May, the company had stated it was still evaluating strategic deals to enhance shareholder value, announcing that Berkshire Hathaway would no longer have board representation, a shift interpreted by analysts as a significant change.
Berkshire and 3G initially joined forces in 2013 to purchase H.J. Heinz for over $23 billion, with Kraft merging in two years later. (They had also attempted to acquire Unilever but were declined.) By the end of 2023, 3G had exited its entire stake in Kraft Heinz.
Berkshire remains the largest shareholder, holding approximately 28% of the company.
The company has not yet responded to requests for comment from Berkshire Hathaway.
