Kraft Heinz Cut to Junk by Fitch Following Lackluster Earnings
Comment of the Day

February 14 2020

Commentary by Eoin Treacy

Kraft Heinz Cut to Junk by Fitch Following Lackluster Earnings

This article by Jonathan Roeder for Bloomberg may be of interest to subscribers. Here is a section:

Kraft Heinz Co. was downgraded to junk status by Fitch Ratings, which predicted the company’s leverage will remain high for an extended period as the maker of Jell-O and Classico pasta sauce works to stabilize declining sales.

The food company was cut to BB+ from BBB- by the credit-ratings company, with a stable outlook. Fitch said the company may need to divest a sizable portion of its business in order to reduce its debt.

The downgrade follows Thursday’s earnings report, in which Kraft Heinz reported a drop in fourth-quarter sales that sent its bonds and stock tumbling. It was the latest sign that the company’s turnaround plan still has a long way to go.

Kraft Heinz said Thursday it would release a more detailed turnaround plan around the time of its next earnings report in early May, though many investors and analysts had been looking for it sooner.

Eoin Treacy's view

Kraft Heinz’ dividend was 62.5¢ in 2018, 40¢ in 2019 and is expected to be 20¢ in 2020. The decline in the share price has supported the yield, which is currently 5.98% but the outlook for additional dividend cuts puts that under question. The company is likely to be a case study in how intangible values cannot be used to underpin a credit rating during a time of technological and social upheaval.

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