Kraft Heinz Might Split Up, Report Says. What Investors Need to Know.

Kraft Heinz is looking at spinning off part of its grocery business, The Wall Street Journal reported. (Zed Jameson/Bloomberg)

Kraft Heinz shares jumped on Friday following a report that the packaged-food company is considering a split as it struggles to deliver top-line growth and shareholder value.

The company is considering spinning off part of its grocery operation into a business valued at as much as $20 billion, The Wall Street Journal reported, citing people familiar with the matter. The rest of the company would be more focused on products such as Heinz ketchup and other sauces and spreads.

Kraft Heinz is considering what products would be spun out, the report said. The board of directors hasn’t approved a move, the newspaper said.

“As announced in May, Kraft Heinz has been evaluating potential strategic transactions to unlock shareholder value,” a spokesperson said in a statement to Barron’s.

The stock was up 1.8% at $26.95 in afternoon trading, while the S&P 500 was down about 0.3%.

The packaged-food company has been struggling as consumers have increasingly favored fresher, healthier options over highly processed products. While competitors pivoted to meet the new demand, Kraft Heinz has lagged behind peers like General Mills or Nestlé.

Sales have been declining year over year for six quarters in a row. In the latest earnings report, net sales shrunk 6.4% from a year ago, and management lowered its financial forecasts for the year, citing a volatile operating environment.

Sauces and condiments have been a relative bright spot for Kraft Heinz thanks to strong brand loyalty, better innovation, and robust international demand. The pandemic gave the company a boost as more consumers cooked at home and tried new recipes.

As of Thursday’s close, Kraft Heinz had a market value of nearly $32 billion. Separating sauces and condiments from other grocery products could potentially unlock more value in the sauce business and lead to a higher combined valuation after the split.

Kraft Heinz was formed in 2015 through a merger between Kraft Foods Group and H.J. Heinz Company. The deal, put together by Berkshire Hathaway and 3G Capital Partners, left the investors with a majority stake in the combined firm.

In 2017, the company attempted to acquire Unilever in a $143 billion bid, but faced strong backlash and withdrew the offer just two days later. In 2019, Kraft Heinz took a $15.4 billion goodwill impairment, mostly tied to Kraft and Oscar Mayer, admitting the brands were worth less than they thought.

Kraft Heinz stock has plunged from nearly $100 in 2017 to under $40 since 2019, most recently trading around $27 on Friday. Shares have tumbled 13% so far this year.

Write to Evie Liu at evie.liu@barrons.com