Kraft Heinz, the owner of the nuts, Oscar Mayer, Velveeta and Planters, is now trying to raise cash, which can be used to repay a long-term debt of $ 31 billion.
"His balance has increased," analyst JPMorgan Chase Ken Goldman wrote in a report at the end of last week.
Goldman noted that the profits of Kraft Heinz are "flat", income "shrunk", and the balance "leveled".
"This is not an ideal progression of financial performance," Goldman wrote.
And this does not mention the investigation of the SEC in the books of Kraft Heinz, which the company disclosed.
Record levels of debt in corporate America
The debt problems of Kraft Heinz are another reminder of the large amounts of debt that America has taken over a decade of extremely low interest rates.
Kraft Heinz sits at $ 30.9bn in long-term debt compared to $ 28.3bn. This represents a significant leverage of 4.4 times the company's 2018 adjusted earnings.
The balance may come in even more tension this year. Kraft Heinz predicts that revenue in 2019 will fall sharply to about $ 6.4 billion. It would raise its level to an inconveniently high multiple of 4.8.
Deep Cost Reduction Returns to the Persecution of Kraft Heinz
Kraft Heinz Kraft demonstrates how accumulation of tons of debt can be problematic when a management strategy does not work. The years of reducing the cost to the bone have finally come back to haunt Kraft Heinz.
The company announced last week that it records the cost of the brands Kraft and Oscar Mayer for $ 15 billion.
"Overwhelming attention is being paid to spending and the margin improvement has come at the expense of the long-term health of the company," said Erin Lash, an analyst at Morningstar.
Lash said that "excess shoulder" has long been a problem with Kraft Heinz.
She noted that Heinz's credit facility increased to 4.8 times its profits at the end of 2014 after the acquisition of 3G Capital.
Kraft, On the other hand, in this place, the healthy leverage ratio was only 2.8 times. The companies will be united next year.
Accelerating Balance Cleanup
The good news is that Kraft Heinz makes significant steps to address its balance.
Reducing dividends will save Kraft Heinz more than $ 1 billion a year – cash, which can also be used to reinforce balance. little "to reduce the high impact of the company.
Kraft Heinz said his goal is to reduce the leverage ratio to three times the revenue.
JPMorgan Goldman has warned that Kraft Heinz will not generate enough money to hit this goal "for many years." Kraft Heinz will pay nearly 3 billion dollars of debt over the next two years, the company's leverage can be reduced to 4.1 times by the end of 2020, reports JPMorgan.
Reduced credit rating?
Last week, S & P Global Ratings informed Craft Heinz of a downgrade over the next two years. BBB's credit rating is only two points higher than undesirable.
"Kraft Heinz" will be lowered, "if the business continues to collapse" if its credit factors do not improve, or if further investigation of the PDC reveals further problems. 19659004] "It's clear that they should be de-lever. There is no doubt about that," said S & P analyst Jerry Felan.
Although Kraft Heinz executives promised to remove the balance, their comments also indicate that the debt problem could come back. In other words, Kraft Heinz wants to quickly use to pay for more purchases. Perhaps there was no painful lesson here about the traps of unnecessary debt.