Tuesday, May 11

Kraft Heinz’s double-digit dive was a long time coming

Coming off of a tumultuous week, Kraft Heinz could be due for another dividend cut, CNBC’s Jim Cramer warned viewers Monday, calling it “pure baloney.”

Investors once loved its cost-cutting strategies on top of Warren Buffett’s 27 percent stake in the company, but the “Mad Money” host said Wall Street’s “reverence” turned to “revulsion” after it announced a $15 billion write down and lost 27 percent of value last Friday.

After Kraft and Heinz merged in 2015, the stock was nearly $73—now its about $34, a 52 percent decline at a time that most food stock are down about 1 percent, Cramer said.

“Great bloodlines only get you so far. We’re picking stocks here, we’re not picking ponies,” he said. “Eight different firms downgraded the stock from buy to hold as they finally recognized that management’s strategy—making big acquisitions then cutting costs—just isn’t working.”

Cramer said there’s a chance for Kraft Heinz to find new life, but it would be expensive especially for a company that is cutting costs. Additionally, many of its products like Jell-O, Miracle Whip, and Kool-Aid are outdated, he said. Millennials, the host said, prefer buying fresh and organic food and that’s a big reason that Kraft Heinz and frozen food companies are losing pricing power.

“So the company’s up against an unholy trinity here: they need to spend to support their brands, their raw costs are going up—something mentioned repeatedly on the call—and the consumer is turning against them,” Cramer said.

Listen to Cramer’s full analysis here.

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