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Kraft Heinz bonds can soon be considered rubbish



The stock sank last week after a dismal earnings report. Now, the credit rating agency warns Fitch that the company's bonds could be downgraded to rubbish status if things don't turn around.
Fitch revised its rating outlook to Kraft Heinz ( KHC ) to "negative" on Monday. That means the next move can be a downgrade. The company's bonds are currently ranked as "BBB-" by Fitch – the lowest rating that is still investment grade.

Fitch analysts said in a report that "growth trends remain challenging" for Kraft Heinz and other large food companies "due to brand maturity and changing consumer preferences."

Fitch is also concerned about the "lack of price power" in the food industry due to supermarket sector consolidation and increased shifts in food business against discount retailers such as Amazon ( AMZN ) Walmart [1
9659003] ( WMT )
and Target ( TGT ) . [19659002]

Kraft Heinz had no comment when CNN Business was asked about the Fitch report.

A downgrade to rubbish would be bad news for Kraft Heinz, a global giant selling dozens of food brands such as Kool-Aid and Jell -O in addition to namesake cheese and ketchup products.

Lower credit ratings make life financially tougher for debt-laden companies because it increases interest expenses. Kraft Heinz had almost $ 30 billion in debt, as of June. Companies with poor credit ratings often also find it more difficult to raise more money by selling new bonds.

Warren Buffett harmed by the problems at Kraft Heinz

Both S&P and Moody's also have Kraft Heinz's debt rated at a level above the rubbish territory. S&P downgraded Kraft Heinz in June, citing "reduced" outlook for the company's brands.

Kraft Heinz has struggled to adapt to changing consumer tastes in recent years.

The company has focused more on cost cutting and less on introducing innovative new food products. This is a key reason why earnings and sales have fallen.

Kraft Heinz has also had to handle an accounting probe from the Securities and Exchange Commission and the company has recently reworked earnings from 2016, 2017 and parts of 2018 after an internal review of the books.

The Company is a significant owner of both Warren Buffett's Berkshire Hathaway ( BRKB ) and private equity firm 3G. Miguel Patricio, long-time executive at Anheuser-Busch InBev ( BUD ) another company controlled by 3G, recently took over as CEO of Kraft Heinz and has pledged to focus more on new products.

But will it be too little too late?

Kraft Heinz has made many write-downs over the past year to reflect the lower value of carrier products such as Kraft macaroni and cheese, Oscar Mayer lunch, Miracle Whip, Philadelphia cream cheese and Maxwell House coffee.

Kraft Heinz shares fell 2% on Monday and the stock is now down 40% this year. The jump has wiped out more than $ 5 billion in the value of Berkshire Hathaway's stake in Kraft Heinz.


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