Kraft Heinz stock sinks 14% after preliminary report shows more than $1.2 billion in first-half impairment charges
Kraft Heinz Co. shares fell 14.5% in early Thursday trading after the food company released preliminary first-half results, indicating a steep earnings decline and more than $1.2 billion in impairment charges.
The company also announced that it would not meet the deadline for filing its 10-Q with the Securities and Exchange Commission.
Kraft Heinz KHC, -6.09% said net income more than halved to $854 million, or 70 cents per share, in the six-month period, from $1.76 billion, or $1.43 per share in the same period last year. Adjusted EPS was $1.44 compared with $1.89 last year. Sales of $12.37 billion were down 4.8% from $12.99 billion in 2018.
For the second quarter, the company had EPS of 37 cents, down from 62 cents a year ago. Adjusted EPS came to 78 cents, ahead of the current FactSet consensus of 75 cents. Sales fell to $6.406 billion from $6.690 billion, below the $6.564 billion FactSet consensus.
“The level of decline we experienced in the first half of this year is nothing we should find acceptable moving forward,” said Kraft Heinz Chief Executive Miguel Patricio in a statement. Patricio stepped into the CEO role on July 1, succeeding Bernardo Hees.
In February, Kraft Heinz shares plummeted to a record low after the company announced that it had received a subpoena from the Securities and Exchange Commission about its accounting policies, reported dismal fourth-quarter earnings, slashed its dividend, and took a $15.4 billion impairment charge related to the valuation of a number of businesses, including the Kraft and Oscar Meyer brands.
The impairment charge was one of the largest in history.
Kraft Heinz announced on May 6 that it will restate its financial statements in its 2016 and 2017 annual reports, and for each quarterly period for the first nine months of 2019. Last month, the company filed its annual report, with Alex Behring, the company’s board chairman, saying the company was “returning to a path of normalization.”
This morning, the news was far from normal. The company said in an 8-K filing that a preliminary first-quarter financial statement includes an estimated $620 million non-cash impairment loss in sales general and administrative expenses (SG&A) related to the EMEA East, Brazil and Latin America Exports reporting units. Changes in management structure and revised expectations for the coming year were among the factors that led to the “triggering event.”
The second quarter includes non-cash impairment losses of $124 million for SG&A related to goodwill, and non-cash impairment losses of about $474 million related to “indefinite-lived intangible assets” related to six brands including Miracle Whip, Velveeta and Lunchables.
“These amounts reflect our best estimate of the losses at this time; however, we continue to evaluate the amount of the impairments and execute and test certain internal controls associated with the assessment,” the filing said.
Kraft Heinz stock, which was down nearly 11% in afternoon trading, is down more than 54.4% for the last year while the S&P 500 index SPX, -0.66% is up 2.5% for the period.
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