Kraft Heinz Decides To Postpone Previous Split Plans. Good Or Bad?
"Collect A 6% Yield While You Wait"
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Current Price: $24.80
Portfolio Purpose: Income 💰
A long-time holding of Berkshire Hathaway (BRK.B), Kraft Heinz (KHC) has been around since the 1800s and owns some of the most recognizable brands in America — Heinz Ketchup, Oscar Mayer, Lunchables, Maxwell House, and Capri Sun.
Yet despite its iconic portfolio and a dividend yield north of 6%, shares have struggled badly. Since my prior coverage in July 2024, the stock is down more than 20% while the S&P 500 has gained over 20% during the same period.
After reviewing the latest quarter and management’s updated strategy, I’m downgrading Kraft Heinz from Buy to Hold.
Let’s break it down.
What Happened to the Split? 🤷🏾
Last September, Kraft Heinz announced plans to split into two companies:
Global Taste Elevation Co. (sauces, spreads, seasonings, meals)
North American Grocery Co. (Oscar Mayer, Kraft Singles, staples)
The idea was to unlock value and streamline operations.
However, Berkshire Hathaway — which owns roughly 27.5% — was reportedly not in favor of the split and indicated intentions to sell its stake.
Following Q4 earnings, management paused the separation plan. Instead, they’ll reinvest $600 million into marketing, R&D, and pricing initiatives in an effort to restore profitability.
While I originally believed the split could unlock value long-term, management clearly believes stabilizing the core business is the higher priority.
Earnings: Still Under Pressure 💵
Q4 results were mixed:
EPS: $0.67 (beat estimates by $0.06)
Revenue: $6.35 billion (missed by $20 million)
Earnings declined 20% year-over-year
North American organic sales fell 3.5%
This marks the 10th consecutive quarter of declining North American sales.
Margins also compressed due to:
Inflation
Tariffs on meat and coffee
Consumer trade-down behavior toward private label
International was a bright spot, with net sales rising nearly 3%, but not enough to offset domestic weakness.
2026 Outlook: Soft and Concerning 👀
Management guided for:
Net sales decline of 1.5%–3.5%
EPS of $1.98–$2.10
At the midpoint, that represents a ~21% earnings decline year-over-year.
Until revenue stabilizes and margins recover, multiple expansion is unlikely.
Dividend & Balance Sheet: The Bright Spot ⚖️
From an income perspective, the dividend remains covered.
Cash from operations: $4.5 billion (+6.6%)
Free cash flow: $3.7 billion (+15.9%)
Dividends paid: $1.9 billion
Free cash flow comfortably covers the dividend.
Leverage sits around 3.0x — within management’s target range — and liquidity remains solid with $2.1 billion in cash.
I see no near-term risk of a dividend cut. However, I also don’t expect dividend growth anytime soon.
Valuation: Cheap for a Reason 📉
KHC trades at roughly 12x forward earnings with a 6%+ yield.
That looks inexpensive on the surface.
But without earnings growth or margin improvement, shares could remain rangebound — or even drift lower — particularly if Berkshire continues selling.
Meaningful upside likely won’t materialize until profitability stabilizes, which I don’t expect until 2027 at the earliest.
Final Thoughts ✅
Kraft Heinz offers:
✔ A 6%+ yield
✔ Covered dividend
✔ Reasonable valuation
But also:
✖ Declining sales
✖ Margin compression
✖ Weak guidance
✖ Execution risk
For long-term income investors willing to wait 2–5 years, there may be value here.
For now, however, the uncertainty is simply too high to justify a Buy rating.
I am downgrading Kraft Heinz from Buy to Hold.
Sometimes discipline means waiting for proof — not chasing yield.
How do you feel about Kraft Heinz? Is the juice worth the squeeze? Let me know in the comments.
Happy Investing!
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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.
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