LONDON/BOCA RATON, Fla. (Reuters) – Mounting troubles at Kraft Heinz, revealed late on Thursday with a triple-punch of bad news, call into question its reliance on cost-cutting as a way to generate profit growth.
Shares of Kraft Heinz fell 27 percent on Friday to their lowest level since the 2015 merger of the eponymous cheese and ketchup makers that formed the world’s fifth-largest food and drinks company.
Thursday - Kraft - Oscar - Mayer - Brands
Late on Thursday, it revealed a $15.4 billion write-down tied to its Kraft and Oscar Mayer brands, slashed its dividend by about a third and disclosed an SEC investigation of its procurement accounting practices.
The news validated investors’ concerns about the health of the company’s brands and its pricing power in an environment of rising commodity and transportation costs and more competition.
Half - Group - Market - Value - Years
Half of the group’s market value vanished over the last two years even before Friday, dampening enthusiasm for its backers, private equity firm 3G Capital, and its notorious embrace of a tool called zero-based budgeting (ZBB), used to keep costs low and profit margins high.
“At some point, having best-in-class margins doesn’t matter if the sales growth doesn’t eventually come,” said Guggenheim analyst Laurent Grandet.
Kraft - Heinz - Spokesman - Company - ZBB
A Kraft Heinz spokesman said the company’s ZBB efforts continued to drive savings that can be invested in growing the business.
“In 2019, we will increase brand support, go-to-market with a more innovation than ever and invest in talent… and this will be partially funded by ZBB savings,” spokesman Michael Mullen said. 3G could not immediately be reached for comment.
ZBB - FIT - FOR - EVERYONE
ZBB FIT FOR EVERYONE?
Zero-based budgeting is an approach requiring corporate managers to justify each item of spending every year, or even build their budgets from scratch, rather than the more common process of using the prior year’s budget as a starting point.
Former - US - President - Jimmy - Carter
Former U.S. President Jimmy Carter wanted to apply it to federal spending, but...
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