Buffett-Backed Kraft Heinz Turns to a New CEO With `Fresh Eyes'
(Bloomberg) -- Kraft Heinz Co. is bringing in a new chief executive officer as it looks to break out of a prolonged slump that’s hampered the company since its bid to buy Unilever fell apart more than two years ago.
The company is tapping longtime Anheuser-Busch InBev executive Miguel Patricio to replace Bernardo Hees, who has led Kraft Heinz since the company was created in a 2015 merger orchestrated by Warren Buffett and 3G Capital. Patricio served for several years as chief marketing officer at Anheuser-Busch, which counts the private equity firm’s founders as some of its biggest shareholders.
Outgoing chief Hees has been on shaky footing since February 2017, when Kraft Heinz made a blockbuster bid to buy Unilever for $143 billion. The talks leaked and the deal fell apart -- since then, Kraft Heinz’s shares have been hammered, wiping out more than $70 billion in market value.
Patricio, 52, has been based in New York, but will relocate to Chicago as he joins Kraft Heinz, which makes a host of products including Oscar Mayer hot dogs and Heinz ketchup. He’ll officially take the reins on July 1, giving him more than two months to develop a strategy as he transitions from beer to the food industry.
“I bring fresh eyes to the business,” he said in an interview. “It’s a big opportunity.”
Kraft’s shares gained on the news, jumping as much as 2.5 percent to $33.78 for the biggest intraday gain in a month. The shares had slipped 23 percent this year through Friday’s close, compared with the 16 percent gain in the S&P 500 Index.
3G’s managers are known more for cost-cutting than nurturing brands, and after merging H.J. Heinz and Kraft Foods, Hees led the effort to slash nearly $2 billion in expenses at the combined company. That included shedding thousands of jobs and shutting factories as profit margins grew and the company’s shares surged north of $90. But without an acquisition that would have allowed the signature cost-cutting to continue, the spotlight turned to the company’s struggle to grow sales with a portfolio of brands that is considered out-of-step with modern tastes, particularly in the U.S.
The slump became even more pronounced earlier this year, when the company took a $15.4 billion writedown on the value of some of its brands, and Buffett acknowledged that they had overpaid for Kraft back in 2015. Buffett’s assistant didn’t immediately return a message seeking comment on the new CEO selection.
“We are not surprised by the management change given the disappointing earnings exiting 2018, weak 2019 outlook, dividend cut, SEC investigation and massive impairment charge,” Stifel Nicolaus & Co. analyst Christopher Growe wrote in a note. He maintained his hold rating on the stock, noting that “we do not foresee this CEO change as likely leading to any further changes to the company’s outlook for this year.”
Patricio declined to say if his talks with Kraft Heinz started before or after the company’s most recent earnings report in late February, when a troika of bad news including an SEC subpoena sent the shares spiraling and raised fresh questions about 3G’s strategy for the business.
He said that Hees, who ran H.J. Heinz before it was merged with Kraft, initially approached the board with the idea of stepping aside after about six years in the packaged-food industry. Hees will be returning to 3G “to focus on other projects,” a company spokesman said.
Patricio will take over a company that has been battered in recent years and said one of his first jobs will be laying out his beliefs and strategy for the company’s thousands of employees.
“I need to almost be an evangelist in the company,” he said. “The CEO’s first concern has to be people.”
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