Kraft stock down after investigation

The food company's stock is down after revealing an investigation by the US Securities and Exchange Commission.

US stock trader after Kraft stock is down Source: Bloomberg

Kraft Heinz stock has fallen by as much as much as 27% after revealing it received a subpoena from the US Securities and Exchange Commission (SEC). The food company’s stock also stumbled because of a weaker-than-expected fourth quarter (Q4) earnings report.

Why is Kraft stock down?

Kraft’s stock has fallen after a series of negative reports from the company. The earnings per share (EPS) decreased from 90 cents per share to 84 cents per share and the brand slashed its dividend by 36%. In addition to the decline in its dividend and EPS, the company wrote down $15 billion of impairment charges for its Kraft and Oscar Mayer brands. The write down of the value of the food divisions led to a high net loss of $12.61 billion for the corporation.

In addition to the increased losses, Kraft disclosed that it was being investigated by the SEC because of its accounting policies. The corporation’s chief financial officer, David Knopf, said that it conducted an inquiry into its contracts with vendors and made corrections to record keeping practices.

‘The company was notified by the SEC regarding an investigation into the company’s procurement area. Following this, we conducted a very thorough internal investigation with the support of an independent law firm and accounting firm, and we determined that we should’ve reported $25 million in prior periods which we booked in Q4 2018,’ said Knopf.

A Kraft spokesperson also vowed that the company would help the SEC with its inquiry.

‘We continue to cooperate fully with the SEC, and at this time the company does not expect matters subject to the investigation to be material,’ said the Kraft spokesperson.

What’s next for Kraft?

Financial analysts from Deutsche Bank are downgrading Kraft from buy to hold in the wake of the disappointing Q4 results. Knopf said that while the company will have weaker guidance for 2019, 2020 earnings should be higher.

‘While we expect to take a step backwards in 2019, we remain confident in delivering consistent profit growth from 2020 onwards, driven by fully leveraging our advantage brands, cost structures and capabilities,’ said Knopf.


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