Warren Buffett Swallowed a $4 Billion Loss in 3 Hours Because of Kraft Heinz

Berkshire Hathaways owns 27 percent of Kraft Heinz, whose shares tumbled 25 percent on Thursday.

Warren Buffett swallowed a $4 billion loss from Kraft Heinz in half a day.
Warren Buffett swallowed a $4 billion loss from Kraft Heinz in half a day. Adam Jeffery/CNBC/NBCU Photo Bank via Getty Images

Packaged food giant Kraft Heinz Company, best known for its Heinz Tomato Ketchup and Kraft Macaroni & Cheese, saw the worst market disaster in its history on Thursday evening after company shares fell 25 percent in reaction to its hugely disappointing fourth-quarter results.

The stock crash cost Warren Buffett—whose Berkshire Hathaway owns 27 percent of Kraft Heinz, or 326 million shares—a whopping $4.2 billion in Thursday’s dark hours.

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It was truly a last-minute blow to Berkshire, as the investment conglomerate is slated to release fourth-quarter earnings on Saturday. Now, investors will be anxiously expecting Buffett’s comments on the food and beverage company in his new shareholder letter this weekend and during a CNBC interview on Monday.

Kraft Heinz’s market defeat was a reflection of a string of catastrophic news disclosed in Thursday’s fourth-quarter earnings, most notably a $15.4 billion goodwill value write-off on its two best known brands: Kraft and Oscar Mayer, which resulted in a net loss of $12.6 billion, or $10.34 per share, for the quarter.

Kraft Heinz also disclosed an accounting subpoena from the SEC that it received last year regarding its procurement practices. The company said the litigation costs related to the SEC probe had incurred an extra expense of $25 million on top of regular costs of products for the quarter.

On Friday morning, Barclays analyst Jay Gelb slashed Berkshire’s fourth-quarter earnings estimate by more than half—from $3,522 to $1,726 for Class A shares and $2.35 to $1.15 for Class B shares—noting that, in addition to Kraft Heinz, Berkshire also faces problems from its holdings in the insurance sector due to a high number of natural disasters in 2018.

“The most recent quarter also included substantial catastrophe losses for the global insurance industry, which we would also expect to negatively impact Berkshire’s earnings,” Gelb wrote in a note to clients.

Kraft Heinz is Berkshire’s sixth-largest holding behind Apple, Coca-Cola and a few banks.

The 88-year-old investment guru defended the consumer staple as recent as May of last year in an interview with CNBC.

“They’re still very, very good businesses,” he said. “If you take Heinz Ketchup, it’s very, very, very hard to take share away from Heinz Ketchup. It’s hard to take share away from Philadelphia Cream Cheese.”

And yet, there’s no denying that the food and beverage giant has been gradually losing its foothold in recent years amid shifting dietary trends and the challenge from emerging competitors like Amazon’s Whole Foods.

“Persistently weak organic sales growth generated by Kraft Heinz’s stable of branded cheeses, meats and coffee products has begun to weigh on its industry-leading operating margins,” commented Kenneth Shea, global food and beverage analyst for Bloomberg Intelligence. Warren Buffett Swallowed a $4 Billion Loss in 3 Hours Because of Kraft Heinz