Stick around, Warren.
Kraft Heinz Company (KHC) - Get Report , controlled by Berkshire Hathaway Inc. (BRK.A) - Get Report and the private equity firm 3G Capital, has struggled like many companies in the consumer packaged goods sector. Yet, fresh from a quarter that beat estimates on Wednesday, May 2, it may be best for Berkshire Hathaway to hold the stock.
The stock was up 4% in late-morning trading to $57.17.
Here are four reasons to hold it:
Profitable First-Quarter 2018
The maker of Heinz ketchup, Oscar Mayer cold cuts and Philadelphia cream cheese reported a profit in the first quarter of 2018. Earnings were $993 million or 81 cents a share, compared with last year's first-quarter numbers of $893 million or 73 cents a share. Earnings per share of 89 cents beat analysts' estimates of 82 cents. Last year's EPS for the quarter was 82 cents. Revenue was down, $6.30 billion versus $6.32 billion for last year.
Expected Improvement in Second Half of Year
Wall Street is buying, for now, that the company's second half of 2018 will be better than the first has been. Some of management's reasons are: innovation with more new products and varieties, the end of nonrecurring investments in marketing, e-commerce and international distribution, low cost inflation and accelerated international growth.
An Acquisitive Company
Although the company's $143 billion play for consumer products company Unilever
fell through last year, it remains committed to acquisitions.
"Look, we dream big, and that's not going to go away," Kraft Heinz CEO and 3G Capital partner Bernardo Hees told TheStreet last month. "We like solid brands, we like businesses that could travel internationally and be global and we like businesses with synergies that you can capture and then reinvest."
He added that he's looking for the right strategic fit, regardless of a company's size.
Buffett's Long Game
Berkshire CEO Warren Buffett prides himself on investing in solid companies and holding onto the stock for many years. What may add strength to that conviction is that he and his company have also been integral to Kraft Heinz's current configuration.
In 2013, Berkshire Hathaway and 3G acquired the H. J. Heinz Company in a leveraged buyout, in which each contributed $4.25 billion in equity, and Berkshire took another $8 billion of the preferred stock in the new Heinz company, according to Bloomberg.
Two years later they joined forced again to combine Heinz with Kraft and create the Kraft Heinz Company, the third-largest food and beverage company in North America and the fifth-largest food and beverage company in the world, by paying shareholders $10 billion in cash, which left Berkshire and 3G with a combined 51% stake and shareholders with the remaining 49%.
When the deal closed in 2015, Berkshire's 27% share of the Kraft Heinz Company was worth a market value of $26 billion. As of December 2017, the value had slipped to about $18 billion.
And here's one big reason to ditch the shares:
A Nosediving Stock
Shares have dropped 37% since this time last year. The 52-week range has been $54.11 to $93.88.
Some analysts are more optimistic than others that the stock will move upward. Recent price targets are: Credit Suisse, $55, up from $54.20; J.P. Morgan, $61, down from $64; Jefferies, $80, up from $54.20.