Kraft Heinz Slides on Fitch Ratings Downgrade of Debt to Junk

Kraft Heinz tumbled Friday after Fitch Ratings downgraded the company's debt to junk status.
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Kraft Heinz (KHC) - Get Report, owner of such well-known food brands as Oscar Mayer, Planters, and Maxwell House, tumbled after Fitch Ratings downgraded the company's debt to junk status.

Shares of the Pittsburgh foods giant at last check were down 3.6% to $26.78. In 2020 through Thursday the stock was off nearly 14%.

Fitch cut the company to BB+ from BBB- with a stable outlook, saying it may need to divest a sizable portion of its business to reduce its debt.

The downgrade followed Kraft Heinz's mixed fourth-quarter earnings report.

On Feb. 13 Kraft's "commentary around 2020 operating headwinds [suggests] a nearly 8% Ebitda decline," and the company committed to maintain its dividend, Fitch noted.

The credit-rating firm "estimates the company may need to divest up to 20% of its projected 2020 earnings before interest, taxes, depreciation and amortization to support debt reduction necessary to reduce leverage to below 4 times versus 2019 leverage of 4.8 times." 

Kraft Heinz posted fourth-quarter net income of $182 million, or 15 cents a share, compared with a loss of $12.57 billion, or $10.30 a share, in the year-earlier quarter. Adjusted earnings fell to 72 cents from 84 cents but still beat the FactSet consensus of 68 cents. 

Sales fell 5.1% to $6.54 billion, missing FactSet's target of $6.61 billion.

The company also reported a $660 million goodwill-impairment charge linked to its Maxwell House coffee brand and some international operations.

"While our 2019 results were disappointing, we closed the year with performance consistent with our expectations and driven by factors we anticipated,” Kraft Heinz Chief Executive Miguel Patricio said in a statement.

"We have taken critical actions over the past six months to reestablish visibility and control over the business."

Fitch wrote that "[organic-growth] trends remain challenging for large packaged-foods companies across most developed economies," as brands mature and consumer preferences change. 

"In addition, the lack of pricing power reflects continued consolidation and shifts in distribution channels towards discounters, including hard-discount grocers. 

"Kraft Heinz competes with both large national and international food and beverage companies and numerous local and regional companies. 

"It competes with both branded products and private brands on the basis of product quality, innovation, consumer preference relevancy, brand recognition and the effectiveness of its marketing programs, distribution, shelf space, merchandising support, and price."

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