The mac-and-cheese maker will initiate a $600 million turnaround strategy.
Kraft Heinz is pausing plans to split into two companies as new CEO Steve Cahillane says its problems are “fixable and within our control.”
One month after joining the company, Cahillane stated that the objective is to return the packaged-foods maker to “profitable growth,” meaning it is “prudent to pause work related to the separation.”
“We will no longer incur related dis-synergies this year,” Cahillane said on Feb. 11.
In September, Kraft announced plans to split the company into two. Cahillane had been tapped to run the new Global Taste Elevation division, which includes brands such as Heinz, Philadelphia, and Kraft Mac & Cheese. The second business—North American Grocery—would manage the company’s core grocery labels, including Kraft Singles, Lunchables, and Oscar Mayer.
The decision was made following years of lackluster growth, falling short of what the firm had projected when it was formed through the merger of Kraft Foods and H.J. Heinz under a deal put together by Warren Buffett’s Berkshire Hathaway and 3G Capital.
Kraft Foods Group announced in March 2015 a $46 billion merger with H.J. Heinz, creating one of the largest food companies in the world.
Despite initial cheers from Wall Street—the stock reached $90 in early 2017—the enthusiasm eventually faded amid sliding sales.
Buffett has since accepted that it was not a “brilliant idea” to bring the two companies together. However, in a phone interview with CNBC last year, he argued that separating the business would not fix its challenges.
The company has attempted to restructure operations repeatedly over the years, and Kraft Heinz is now trying again.
Cahillane, who previously led Kellogg and Kellanova, revealed in the fourth-quarter earnings report that the company will initiate a $600 million turnaround investment across marketing, sales, and research and development “to drive recovery” in its U.S. business through “product superiority and select pricing.”
The plan will be funded through its balance sheet and free cash flow, “positioning us well to fund these investments and execute on the plan, while still generating excess cash.”
The new executive has the backing of John T. Cahill, chair of Kraft Heinz’s board of directors.
“Kraft Heinz is already seeing the benefit of Steve’s deep industry experience and proven track record of building brands and leading large-scale transformations,” Cahill said in a statement.
“We are confident that our decision to pause the work related to the separation and fully focusing our resources in service of growth is the right move at this time.”
By Andrew Moran
