Kraft Heinz Company (KHC)

[FUNMAN]

Kraft Heinz's new CEO seeks to rebuild business momentum


TERESA F. LINDEMAN
Pittsburgh Post-Gazette
SEP 12, 2019 2:34 PM

https://www.post-gazette.com/business/money/2019/09/12/kraft-heinz-shareholders-unhappy-miguel-patricio-ketchup-pittsburgh-meeting/stories/201909120115

The fact that Kraft Heinz was holding its annual shareholder meeting in September was just one indication of the kind of year that the malnourished food giant has been having.

Typically, the meeting comes in the spring, but everything got pushed back as management waited to be able to make its required regulatory filings. In February, the company announced a $15.4 billion write-down of assets and an investigation into its procurement practices.

This summer Miguel Patricio was installed as CEO and he’s been pushing over the past couple of months to sort through what it’ll take to turn around results for the maker of well-known brands — Heinz ketchup, Oscar Mayer hot dogs, Kraft macaroni and cheese, Planters nuts, Classico sauces and many more.

“We are determined to rebuild our business momentum,” he told shareholders at the meeting in a 13th floor conference room in the Reed Smith building, Downtown, saying he’s confident that sales growth can be achieved.

In August, Kraft Heinz reported net sales of $12.4 billion in the first half of the year, a drop of about 5% from the same period a year earlier. Net income attributable to common shareholders fell to $854 million from $1.76 billion.

After the meeting Mr. Patricio said he shared investors’ frustration with the earlier results, but he’s more optimistic now than he was when he took the chief executive position. “When I arrived, I only knew the problems,” he said.

He’s been on a listening tour of the global company, trying to determine what his assets are and what to do first — talking with hundreds of employees and urging them to be honest with him. Kraft Heinz, formed by a megamerger in 2015, claims headquarters in both Chicago and Pittsburgh.

Mr. Patricio met with a group of employees in Pittsburgh on Wednesday and was heading up to the company’s research and development center in Warrendale later Thursday.

“I feel much more energized, much more passionate after two months working here,” he said.

The company has made several management changes since he started, included bringing back its former chief financial officer.

Mr. Patricio is in the process of developing an agenda for the next three to five years at Kraft Heinz, a vision that the market is eagerly anticipating. He’s promised to do a better job with marketing and with paying attention to what consumers want and how their tastes are shifting.

When an advocate for a shareholder resolution presented the case during the meeting for the company to issue a report detailing how Kraft Heinz plans to diversify its protein sources and explore plant-based alternatives to dairy and meats, Mr. Patricio responded positively.

“I agree with you that protein is a great business opportunity” as well as an environmental issue, he said.

That resolution and a second one pressing Kraft Heinz to address the use of pesticides on farms supplying its fruits and vegetables did not pass, although shareholders approved the company’s directors and endorsed executive pay packages, according to preliminary voting results.

Some shareholders who attended the meeting hope that better days are ahead.

“I want to know when the stock is going to make a turnaround,” said Terry Abbott, an Upper St. Clair shareholder in an interview before Thursday’s meeting.

On this day a year ago, Kraft Heinz shares closed at $59.12. On Thursday, the stock sold for $29.03.

“I’m here because the stock’s in the toilet and I want to know the reason,” said Donald Sheeler, of Cleveland, Ohio, before the meeting. Mr. Sheeler sees other food companies putting up better results and he’s impatient with Kraft Heinz.

Things looked better after private equity group 3G Capital and Warren Buffett’s Berkshire Hathaway bought Pittsburgh’s H.J. Heinz Co. in 2013. But Mr. Sheeler is convinced the partners overpaid when they orchestrated the merger of Heinz with Kraft Foods.

In particular, he pointed to the zero-based budgeting mantra brought in, which requires that every new budget start from scratch and every expense be justified. “It isn’t working — the great 3G plan of cutting everything to the bone.”

He’d like to see an intervention in the form of more leadership direction from Mr. Buffett’s team at Berkshire Hathaway.

When interviewed after the meeting, Mr. Patricio noted that nothing is sweeter than a turnaround and he wants one, too. “We’re here for the long term,” he said.

He smiled when asked the perennial Pittsburgh question: Will the company keep its name on the North Shore football stadium that’s home to the Steelers?

“Hopefully, yes, for sure,” he said. “We want to.

“We get along very well with the Steelers. We are happy to be their partners,” he said.

The 20-year, $57 million deal for the Heinz Field name expires in 2021.

“They have to see what’s better for them,” Mr. Patricio added. “We have to see what’s best for us.”

Teresa F. Lindeman: [e-mail] or 412-263-2018