Updated to include details on Wednesday's announcement about layoffs.
NEW YORK ( TheStreet) -- Kraft Heinz's (KHC - Get Report) new cost-cutting owners 3G Capital Partners and Berkshire Hathaway (BRK.A) (BRK.B) sure have their work cut out for them in the sales department, which is why any potential buyout of candy and snack maker Mondelez (MDLZ) might not make much sense.
On Monday, the newly combined company reported second-quarter results for both Kraft and Heinz. Kraft Heinz is controlled by billionaire investor Warren Buffett's Berkshire Hathaway and 3G Capital Partners LP, which has a reputation for slashing expenses at acquired companies to boost profits. The two companies completed their merger on July 2, days after the second quarter ended for both companies.
The axe has already begun to swing at Kraft Heinz, days before an Aug. 14 conference call with bondholders. According to an Associated Press report on Wednesday, Kraft Heinz is cutting about 2,500 jobs, or 5.4% of its 46,600 person workforce. Most of the affected workers are in the U.S. and Canada. About 700 of the cuts will be in Northfield, Illinois, where Kraft was headquartered. The company expects to save about $1.7 billion in costs by the end of 2017.
When reached by TheStreet via email, Kraft Heinz spokesman Michael Mullen said most of the cost savings would go toward "increased investment in working media for our brands."
Kraft's net revenue fell 4.9% year over year in the second quarter. Excluding the impact of currency fluctuations, organic revenue dropped 3.3%. The company pinned the blame on lower demand for ready-to -drink products such as Capri Sun, as it sought to pull back on discounts for consumers during the quarter. Retailers allocating more shelf space to healthier products, likely at major retailers such as Wal-Mart (WMT - Get Report) and Target (TGT - Get Report), also played a factor in Kraft's lackluster sales.
The scene wasn't much better at Heinz, a $23 billion acquisition made by Buffett and 3G Capital that was completed in June 2013. Net sales for the ketchup maker declined 4.1%, largely because of a 9.4% hit from currency volatility. Heinz's sales volume rose just 1.7% as the company said major U.S. retailers had invested in more inventory in early 2014 ahead of changes at the newly-acquired company. The sluggish sales volume suggested that similar to Kraft, Heinz is experiencing challenges in getting health-conscious consumers in the U.S. to buy its products.
"The company is focused on the difficult and challenging process of integrating our two businesses," said Kraft Heinz CEO Bernardo Hees, echoing comments made by Buffett to CNBC on Monday morning.
"At Kraft Heinz, we have our work cut out for us for a couple of years," said Buffett, who also shot down speculation Kraft Heinz would make a play for candy and snack maker Mondelez, which was formerly joined with Kraft. Activist investor William Ackman recently revealed his company had taken a $5.5 billion stake in Mondelez in hopes the company could improve operations or be acquired by a rival like Kraft Heinz.
"Frankly, most of the food companies sell at prices that it would be very hard for us to make a deal even if we had done all the work needed at Kraft Heinz," Buffett said.
Kraft Heinz's current focus on the integration of the two companies likely means sales weakness will persist, as product innovation takes a back seat. Buffett's comments, and the difficulty in growing the top line at Kraft Heinz suggests Ackman's view that Mondelez should merge with or acquire Mondelez would be ill-fated.
Combining Mondelez with the struggling Kraft Heinz would also lead to a long drawn-out integration. In turn, all three companies would likely lose sight of what's needed the most for their long-term survival: new products that address new health demands by consumers and receive prominent placement on the shelves of big retailers.