After Warren Buffett publicly criticized it, should we take his continued investment in Kraft Heinz Company (KHC) as a sign of a new era?

Although Warren Buffett was disappointed by the Kraft Heinz Company's plan to split into two companies, Berkshire Hathaway did not reduce its stake in Kraft Heinz Company in the third quarter. Berkshire's 13F filing shows that the company still holds 325,634,818 shares of Kraft Heinz Company, accounting for approximately 27.5% of the food giant's total shares, making it still the largest shareholder. In early September of this year, Kraft Heinz Company announced that its board had unanimously approved a split plan to spin off the company into two independent publicly traded companies. According to the announcement, the names of the split companies have not yet been determined. One of them, the "Global Flavor Lift Company," will cover existing seasoning and instant meal businesses, including brands such as Heinz condiments, Kraft Macaroni & Cheese, etc. This segment's sales in 2024 were close to $15.4 billion, with 75% coming from sauce, spread, and seasoning sales. The second company will be a "scaled combination of North American staples" including brands like Oscar Mayer hot dogs, Kraft cheese slices, Lunchables, with estimated net sales of approximately $10.4 billion in 2024. The split is aimed at simplifying operations so that the two new companies can focus on their development goals, achieve more efficient capital allocation and streamlined operations, while maintaining the scale needed to remain competitive and further improve performance. The split is expected to be completed in the second half of 2026. Wall Street analysts generally believe that Kraft Heinz Company is engaged in a carefully calculated game, betting that Berkshire will ultimately accept the business split plan. It is worth mentioning that Berkshire confirmed a pre-tax impairment loss of approximately $5 billion in the second quarter of this year for its investment in Kraft Heinz Company, which further affected its book value in the third quarter. In addition, Buffett publicly criticized Kraft Heinz Company in September after the split plan was announced, expressing disappointment that the company's board did not seek shareholder approval before announcing the split plan. He also mentioned in private conversations that he was equally disappointed that the split did not require a shareholder vote. Buffett also mentioned that he does not rule out the possibility of selling his stake in Kraft Heinz Company in the future. Wall Street analysts believe that in the rapidly changing food industry, the two new entities created after the split will need to prove their ability to operate independently and maintain their iconic brands. Morgan Stanley analyst Megan Alexander Clapp pointed out that the decision to split Kraft Heinz Company will reposition the newly formed "Global Flavor Lift Company" as a higher-growth enterprise, enhancing the share of international markets and food service businesses. She stated, "While management has always emphasized investing in brands with stronger growth potential, these efforts have been offset by the low-profit margins in the North American retail sector and the drag of brands with more commodity-like attributes, affecting overall sales performance." The analyst added that after the split, the "Global Flavor Lift Company" is expected to achieve long-term organic sales growth of over 3%, with approximately 20% of sales coming from emerging markets, approximately 20% from food service, and the proportion of U.S. business decreasing to about 50%. In a market facing cyclical pressures and structural headwinds, with limited short-term growth and valuation multiples under pressure, moving away from business that is heavily influenced by commodities and centered around the U.S. is more important than ever. For Wall Street, the attention paid to Kraft Heinz Company is closely tied to Buffett's public admission of "mistakes." In 2019, Buffett admitted to making many mistakes in his investment in Kraft Heinz Company, including offering too high a price for the acquisition of the company. Buffett's relationship with Kraft Heinz Company began in 2013 when Berkshire Hathaway partnered with Brazilian private equity firm 3G Capital to privatize the Heinz company, with a total transaction value of $28 billion. In 2015, Buffett and 3G again facilitated the merger of Heinz and Kraft. After the merger, Kraft Heinz Company became the world's fifth-largest food and beverage company, behind Nestle, PepsiCo, Inc., Coca-Cola Company, and Unilever PLC Sponsored ADR. The post-merger success of Kraft Heinz Company only lasted for two years. Soon, Buffett and other investors realized that many of the company's brands were unable to keep up with changing consumer demands for healthier food choices. In 2023, Buffett's partner 3G quietly sold all of its Kraft Heinz Company holdings. Data shows that Kraft Heinz Company's stock price has fallen by nearly 16% so far this year, with the stock price down over 62% from its high of $65.87 in 2017.