These Warren Buffett stocks are losing in the market. Can its new CEO satisfy investors' appetite for better returns?
Kraft Heinz (NASDAQ: KHC ) estimates that at least one of its products is on the shelves of nearly every U.S. household -- a market dominance if ever there was a consumer food company. And yet Kraft has provided lackluster returns to investors. Its shares have fallen more than 40% over the past five years, while the S&P 500 has risen nearly 60%.
On August 14, Kraft Heinz announced that chairman and CEO Miguel Patricio would transition to a non-executive chairman role early next year. In his place, Carlos Abrams-Rivera has been promoted from his current duties as the company's executive vice president and president of its North American operations. Is this the move Kraft Heinz needs to make to generate better returns for investors? Let's take a closer look.
What went wrong for Kraft Heinz
Warren Buffett's Berkshire Hathaway owns more than 325 million shares of Kraft Heinz as of the company's last filing, more than a quarter of the company. Kraft Heinz's market dominance undoubtedly attracted Buffett to the stock. After all, Buffett often talks about the importance of having a competitive moat. And given its ubiquity, Kraft Heinz seems to have one.
This means that Kraft Heinz stock was not a good investment for Berkshire Hathaway. In fact, it's the biggest loser on Buffett's scorecard right now in dollar terms. I believe three main factors have contributed to the 40% decline in Kraft Heinz's stock price over the past five years.
First, the company, saddled with ten billion dollars in long-term debt, drastically cut its dividend to focus on paying it off. Second, billions of dollars in goodwill impairment charges are being written off, indicating that management has overpaid for past acquisitions. And third, Kraft Heinz simply wasn't growing its business in a way that excited investors.
Setting realistic expectations for investors
A change in CEO does not change the current reality of Kraft Heinz. The company still has $19.3 billion in long-term debt as of the most recent quarter, which is currently costing the company more than $200 million in quarterly interest expense. And it still has nearly $31 billion of goodwill on its balance sheet, which may need to be reduced by additional impairment charges in the future.
Abrams-Rivera can't undo what happened. Therefore, it is important to ask whether it can solve the third problem mentioned above by stimulating further growth of Kraft Heinz's business. But I don't believe that's a reasonable expectation for investors right now either.
When it comes to growth, Kraft Heinz doesn't seem to have high expectations. For starters, at the company's 2020 Investor Day presentation, management set the bar for organic net sales growth at just 1% to 2% annually. The EPS forecast was only slightly better at 4% to 6% year-over-year growth.
The problem with the organic net sales metric is that it doesn't take into account things like divestitures and the impact of foreign currency fluctuations that impact Kraft Heinz's top line. In fiscal 2022, the company's organic net sales grew 9.8%, significantly beating management's long-term outlook. But real net sales were up only 1.7%, which isn't much growth at all.
In addition, Kraft Heinz management in its 2020 Investor Day presentation talked about finding billions of dollars in gross savings by 2024. However, overall operating expenses continue to grow faster than revenues. And its overall gross profit grew more slowly than sales. Both metrics indicate that management is not finding the promised cost savings.
Still, in a press release announcing the leadership change, Kraft Heinz's board of directors praised current CEO Patricia, saying his leadership "helped turn the company around." But it seems very generous to call recent results a turnaround. The financial results look more like usual to me.
Abrams-Rivera's appointment as CEO is being talked about as the next step in Kraft Heinz's turnaround, not a sudden turn in a new direction. Therefore, I would expect much of the same from the company going forward.
To be fair, as head of Kraft Heinz in the US, Abrams-Rivera has forged some interesting partnerships, including incorporating the company's Lunchables brand into the National School Lunch Program. School lunches are expected in the fall, which should provide some growth. But terms of the deal weren't disclosed, so investors can't put a dollar amount on the news just yet.
However, I do not believe that Kraft Heinz's change in management will be the main catalyst for the business. I continue to expect the company to grow modestly while focusing on reducing its significant debt load. And that may not be a good enough recipe for improving the stock's outlook.
When our team of analysts has a stock tip, it can pay to listen. After all, the Motley Fool Stock Advisor newsletter they've been running for over a decade has tripled the market.*They just revealed what they believe are the ten best stocks investors can buy right now... and Kraft Heinz wasn't one of them! That's right - he thinks these 10 stocks are an even better buy. has no position in any of the listed stocks. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. The Motley Fool has a
In the field of investing, Warren Buffett's name is synonymous with success. However, recent market trends have shown that even the most well-known stocks can face challenges. This article looks at the performance of Warren Buffett-backed stocks that are currently underperforming the market. With a new CEO at the helm, investors are eagerly anticipating whether this change in leadership can satiate their hunger for better returns.
Warren Buffett Stock Performance
For decades, Warren Buffett-backed stocks have been seen as golden opportunities for investors looking for steady, reliable returns. But the tides have shifted, and one such stock is now struggling to keep up with the broader market. This unexpected drop prompted a significant reassessment by both analysts and investors.
Current market challenges
The stock, once known for its steady growth, has faced headwinds in the current market. Factors such as changing consumer preferences, evolving industry trends and global economic shifts have all played a role in the stock's recent underperformance. Investors are watching closely to see if the new CEO can effectively address these challenges and steer the ship back to its former glory.
Change in leadership
With the appointment of a new CEO, there has been a renewed sense of hope among investors. New leadership brings new perspectives and strategies, which can be a catalyst for turnaround. The CEO's track record in previous roles and his commitment to innovation fueled expectations of a revived growth trajectory.
Investors' expectations and tastes
In the world of investing, returns are the ultimate measure of success. Shareholders expect the new CEO not only to solve current problems, but also to exceed their expectations for better returns. This leadership transition represents a pivotal moment for the company as it seeks to re-establish itself as a market leader.
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