Berkshire’s Greg Abel to cut Kraft Heinz loss in post-Warren Buffett era

While the move to exit Kraft Heinz wasn’t unexpected, it comes just 21 days into Abel’s tenure at the top of Berkshire.

• Berkshire Hathaway to sell its 28% stake in Kraft Heinz after years of losses
• Kraft Heinz shares drop 5.6% after Berkshire exit and company split news.
• Kraft Heinz to split into two companies later this year.

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It took just three weeks for Berkshire Hathaway’s Greg Abel to cut the final tether to one of Warren Buffett’s rare mistakes: The decade-long underperformance of Kraft Heinz Co.

Berkshire is seeking to sell its 28% stake in the packaged foods company, according to a filing, the final step in a separation months in the making. Last May, it ceded its seats on the Kraft Heinz’s board. In August, it took a $3.8 billion impairment charge on its stake to reflect the stock’s steady declines.

The next month, Kraft Heinz announced plans to separate, essentially undoing the $46 billion mega-merger that Buffett championed and helped to finance a decade ago. While the initial investment is still in the black, Kraft Heinz shares have fallen more than 70% since the end of 2017.

While the move to exit Kraft Heinz wasn’t unexpected, it comes just 21 days into Abel’s tenure at the top of Berkshire. He’s already shaken up the management team, adding a general counsel for the first time in years and said goodbye to two important executives. He is also sitting on $382 billion in cash, renewing investor calls for a dividend – historically anathema to Buffett.

Berkshire and Kraft Heinz did not immediately respond to a request for comment.

Despite the months of run-up, investors were disappointed by the news, sending Kraft Heinz shares down 5.6% at 12:17 p.m. in New York trading on Wednesday. The stock declined 21% last year versus a 16% advance for the S&P 500 Index.

Mizuho analyst John Baumgartner, who has a neutral rating on Kraft Heinz shares, wrote that the news reinforced Buffett’s “disappointment” in the decision to break up the company while adding to “skepticism that a split can enhance growth.”

He added that details about the company’s plan “remain limited regarding differentiated execution for each successive business while retail market shares remain soft,” and the move may suppress demand from longer-term investors.

Erin Lash, an analyst with Morningstar, wrote that the move likely “reflects Abel’s desire to clean up its investment portfolio early in his tenure.” Investors are looking for “durable improvement in volumes” at Kraft Heinz, she wrote.

The chairman of Kraft Heinz has blamed the company’s poor performance on an overly complex corporate structure and the inability to focus on capital allocation and the right projects to prioritize.

Following the breakup, one company will sell its famed Heinz ketchup, other condiments and boxed foods that comprise the fastest-growing global brands with $15.4 billion in annual sales. The other entity will include slower-growing grocery products, such as Oscar Mayer hot dogs and Lunchables, which currently generate revenue of $10.4 billion. The split is expected to be completed in the second half of this year.

Kraft Heinz also replaced its chief executive officer at the start of this month.