Don't invest in Kraft Heinz, 2025.01.28
$Kraft Heinz(KHC.US)
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Analysis of the long-term decline in Kraft Heinz (KHC) stock price
As of January 28, 2026, Kraft Heinz's stock price is around $23-24 (recently hitting a new 5-year low near $22), down more than 70% from its 2015 merger peak (~$90) and down about 18-27% over the past year. Despite the company's high dividend yield (~6-7%) and low valuation (P/B ~0.7), the stock has been under long-term pressure and is seen by many investors as a "value trap." Here are the main reasons for the decline (based on the latest earnings reports, analyst reports, and market trends):
1. Weak growth and persistent negative revenue growth
- The company's organic revenue has been declining for years (e.g., a ~2% drop in Q4 2025), with volume shrinking by 3-4% per quarter on average.
- Reason: Mature brands (e.g., Heinz ketchup, Kraft cheese, Oscar Mayer meat products) have stagnated and failed to keep up with changing consumer preferences. Consumers increasingly favor healthy, organic, or fresh foods over traditional processed foods.
- Multiple downward revisions to full-year sales and profit guidance in 2025 reflect weak demand and limited pricing power (inability to fully pass on cost inflation).
2. Weakening consumer demand and market share loss
- Under economic pressure, consumers are switching to cheaper private-label or competitor products, reducing demand for premium packaged foods.
- Fierce industry competition (e.g., Nestlé, General Mills, Unilever) has eroded Kraft Heinz's market share and pricing power.
3. Legacy issues from the 2015 merger
- The merger was highly leveraged (driven by 3G Capital), leading to high debt and excessive cost-cutting at the expense of innovation and brand investment.
- Massive goodwill impairment (2019) and accounting issues damaged investor confidence.
- The 2025 announcement to split into two companies (global condiments + North American grocery) by H2 2026 is seen as an admission of merger failure. Buffett publicly expressed "disappointment." While the split aims to unlock value, it adds short-term uncertainty and costs.
4. Recent trigger: Berkshire Hathaway's planned exit
- In January 2026, Berkshire, under Buffett's successor, disclosed a potential sale of its 27.5% stake (~325M shares), causing a 6-7% single-day drop to a 5-year low.
- This is seen as a major negative signal: Buffett was a key shareholder, and his exit reinforces market pessimism about long-term prospects.
5. Analyst and overall market pessimism
- Multiple downgrades (e.g., Morgan Stanley to Underweight, JP Morgan cutting target price), with consensus at "Hold" or "Sell."
- Despite stable cash flow and attractive dividends, the lack of growth catalysts makes it hard to attract growth investors. Total returns have been weak over the past decade.
Summary: Kraft Heinz's core issues are structural, not cyclical—aging brands, outdated growth models, and insufficient competitiveness in a changing consumer market. The split and cost controls may provide short-term relief, but long-term success requires proof of innovation and market share recovery. While the stock is "cheap," the downtrend reflects fundamental challenges. Check the latest earnings (next report: Feb 11) and consult professionals before investing. The stock market carries risks.
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