Kraft Heinz, the owner of Oscar Meyer, Velweet and Planters' kernels, is now trying to make money that can be used to repay the long-term debt of nearly $ 31 billion.
"Its balance sheet has increased," JPMorgan Chase analyst Ken Goldman wrote in a report late last week.
Goldman noted Kraft Heinz's earnings were "flat," revenues were "lowered" and the balance was "leveled."
"This is not an ideal progression of financial performance," Goldman writes.
And this is not to mention the SEC's investigation into Kraft Heinz's books, which the company reveals. Debt Issues by Kraft Heinz serve as yet another reminder of the large sums of debt Corporate America has taken over a decade of exceptionally low interest rates (1
. General, Another US-based flooring company is also competing to disassemble to raise money that can be used to reinforce the balance. And GE, who has long boasted for a steady dividend, has reduced its profitable profit to a penny.
Kraft Heinz sits to $ 30.9 billion in long-term debt, compared to $ 28.3 billion a year ago. This is equivalent to a significant leverage that is 4.4 times higher than the adjusted earnings for 2018.
The balance may be even tougher this year. Kraft Heinz predicts profits for 2019 will drop sharply to about $ 6.4 billion. This will raise the level of leverage to an unpleasantly high set of 4.8. Deep cutting of costs goes back to the pursuit of Craft Heinz
Kraft Heinz's crash shows how accruing tons of debt can be problematic when the strategy of the management team is interrupted. Years of cost-cutting to bone finally returned to pursuing Kraft Heinz.
The company announced last week that it recorded the value of the Kraft and Oscar Mayer brands at $ 15 billion.
"The overwhelming emphasis on spending and improving margins is at the expense of the company's long-term health," said Morningstar's Erin Lash.
Lash said that "excessive leverage" has long been a problem in Kraft Heinz.
It noted that Heinz's leverage reached 4.8 times profit in the end of 2014 after the takeover of 3G Capital.
Kraft, on the other hand, had a robust leverage ratio of only 2.8 times the estimated earnings at that time.
Accelerating Clearing the Balance
The good news is that Kraft Heinz takes significant steps to tackle its balance.
Kraft Heinz said he planned to do the same with the money raised by the company's additional sales
The cut in dividends will save Kraft Heinz more than $ 1 billion per year – cash that can also be used to reinforce the balance sheet. less "to reduce the high leverage ratio of the company.
Kraft Heinz said his goal is to reduce the leverage ratio by up to three times the profit.
JPMorgan's Goldman warned that Kraft Heinz would not generate enough money to hit this target for "many years."
Kraft Heinz has paid nearly $ 3 billion in debt over the next two years, the leverage of the company will drop to 4.1 times by the end of 2020, JPMorgan said.
This may leave Kraft Heinz with some money to invest in tentative brands.
Reducing your credit score?
Last week, S & P Global Ratings announced Kraft Heinz's decline over the next two years. The credit rating of BBB of the company is only two levels above the garbage.
Kraft Heinz will be downgraded "if the business continues to fluctuate" if its credit ratios fail to improve or if the SEC's ongoing investigation reveals additional problems, says S & P 19659004] "Obviously, they have to withdraw There is no doubt about that, "S & P analyst Jerry Ferlan told CNN Business.
While Kraft Heinz's vendors have promised to clear the balance, their comments also show that the debt problem may return. In other words, Kraft Heinz wants to quickly come back to pay for more acquisitions. Perhaps he has not learned the painful lesson here about the traps of excess debt.