Kraft Heinz Cuts Dividend and Discloses a Subpoena From the SEC

Shares of Kraft Heinz were tanking on Thursday in after-hours trading after the company reported earnings and revealed that it was slashing its dividend and that it had a subpoena from the SEC.

The company has received a subpoena from the SEC as part of an investigation into the company’s procurement accounting policies. Kraft said it launched an internal investigation into the matter after receiving the subpoena and after the investigation it posted a $25 million increase to the cost of products sold after determining it was “immaterial to the fourth quarter of 2018 and its previously reported 2018 and 2017 interim and year to date periods.”

Kraft Heinz also said that it would cut its quarterly dividend to 40 cents a share as it looks to quicken the “deleveraging process to provide greater balance sheet flexibility.”

Wall Street was also disappointed with the company’s fourth quarter financial results. For the quarter, Kraft Heinz reported earnings of 84 cents a share on $6.89 billion in revenue. Analysts according to Refinitiv consensus estimates had been waiting for earnings per share of 94 cents and revenue of $6.93 billion.

CEO Bernardo Hees said on the earnings call, “Where we fell short in 2018 was operations, specifically, our entire EBITDA miss was driven by net savings versus expectations within our United States supply chain. To be fair, we must first recognize that our team operate at industry-leading levels globally; in quality, with top-tier performance in the industry; in safety, with our best results ever; and in customer service, achieving industry-leading case fill rates and on-time, in-full delivery rates as we saw volumes ramp up.”

“The core cause of our shortfall in 2018 was forecasting the pace and magnitude of our savings curve in 2018, not merger-related synergies and not an increase in DDB cost. In fact, DDB delivered savings across all of fixed-cost packets outside of our commercial investments and helped to fund our initiatives.”

He added, “To put our performance in context, we started 2018 expecting approximately 3% growth inflation, excluding key commodity costs with savings programs expected to offset gross inflation. We ended the year with approximately 3% inflation net of savings, specifically driven by higher supply chain costs and low operational savings in the United States. There is no question, we are disappointed that profitability did not ramp up with consumption gains as anticipated. We are overly optimistic on delivering savings that did not materialize by year-end. For that, we take full responsibility and we have taken steps to ensure this does not happen again by touching planning process, procedures and organizational structure.”

Disclaimer: We have no position in Kraft Heinz Co. (NASDAQ: KHC) and have not been compensated for this article.