Why Kraft-Heinz Fell, and Why It Will Rise Again

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  • Big companies get into trouble all the time. Most of them are big enough to recover. Kraft-Heinz (KHC) is no exception.

    Right now, expectations at the company are low. That’s due to the company’s $15 billion write off of goodwill on its balance sheet. Goodwill is an intangible item, indicating how much the company paid to put together the merger versus what shares were priced at when the offer was made. It’s a standard accounting item—everything has to balance. It’s one that doesn’t impact cash flow or earnings.

    However, the write-down was an acknowledgement that the company wasn’t performing as well. Its combined portfolio of brands wasn’t seeing the anticipated growth. That’s somewhat normal, and given how the company is still profitable, just not as profitable as expected, is creating an interesting value today.

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    Remember, when a company can seem to do no wrong, its shares will often get priced for perfection—and then head higher. When the news is bad and big, like the $15 billion write down, markets tend to overreact. Going forward, shares look reasonably priced. And in investing, it’s what things look like going forward, not what just recently happened, that matters.

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