Buffett admits he overpaid for bad bet Kraft Heinz – The Wall Street Journal

Berkshire Hathaway reported a sizeable loss for the fourth quarter due to an unexpected write-down at Kraft Heinz, which Buffett says he overpaid for.

Published on:

26 Feb 2019, 2:00 am

DUBLIN – Investment company Berkshire Hathaway reported a sizeable loss for the fourth quarter last year due to an unexpected write-down at one of its holdings, Kraft Heinz. Speaking on CNBC, Berkshire boss Warren Buffett admitted that he was "wrong in a couple of ways about Kraft Heinz" and that "we overpaid for Kraft." Berkshire owns 27% of Kraft Heinz, which was created by the merger of food makers Kraft and Heinz in 2015. Buffett had, in partnership with Brazilian private equity group 3G, purchased Heinz in 2013 – he teamed up with 3G again to fund the 2015 merger. But after spending $100 billion on the combined business over the years, Buffett was forced to admit that the returns have not justified the price paid. It seems that the core problem has been Kraft Heinz's failure to adapt to changing consumer tastes. Its pre-packaged foods, including Jell-O jelly, Oscar Mayer hot dogs, and Kraft Mac & Cheese don't appeal much to today's consumers, who are increasingly turning to fresh and unprocessed foods. After acquiring Heinz and merging with Kraft, 3G had the companies focus heavily on cost-cutting. Thanks to mass job cuts and careful expense management, the company's margins grew. But the focus on costs meant that little was spent on marketing, or research and development. Without investment and new, on-trend products, the company's brands lost value. Ultimately, Kraft Heinz cut its goodwill (the value of its brands) by over $16 billion in an unexpected write-down. It just goes to show – even Warren Buffett can make mistakes and not all spending is a waste. In fact, investment spending may make the difference between life and death for a company. – Felicity Duncan