September 19, 2020

‘This divestment is part of the strategy’ to make room for growth

Miguel Patricio, Kraft Heinz CEO, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss Kraft Heinz’s decision to divest part of its cheese business to the French global dairy company Lactalis, Berkshire Hathway’s reaction to the sale, consumer demand during the coronavirus pandemic and much more.

Video Transcript

ALEXIS CHRISTOFOROUS: Kraft Heinz CEO has confirmed to Yahoo Finance the company is selling a big chunk of its cheese business to the French global dairy company Lactalis. This would include brands like Cracker Barrel and Breakstone cottage cheese. We had a chance to sit down with Kraft Heinz CEO Miguel Patricio to discuss that deal, which by the way, is worth $3.2 billion and a whole lot more.

MIGUEL PATRICIO: It’s a deal of $3.2 billion. And it’s 12 times multiple, which is very good multiple for the business of cheese. And this is part, in reality, of our overall strategy. Today, we unveiled what we are doing and how we see the future.

And part of it is exactly to focus on parts of the business that are either doing very well that we can accelerate the growth or parts that are not doing as well, but we believe that we can rejuvenate. So it’s either in the United States or across the globe. So this is divestment is part of exactly the strategy to make us a better fit for the growth that we’ll have ahead.

BRIAN SOZZI: One of the themes coming out of Investor Day, Miguel, is you’re hitting the reset button on the company. You’re reinvesting in some brands that you believe could continue to take market share in the future. What does that reinvention mean to Kraft’s longer term outlook?

MIGUEL PATRICIO: We did a deep, deep dive on the market, on the food market, on our strengths, and the opportunities, the growth, categories where we play.

And one thing that we did that was absolutely critical was that before looking at the categories, and even before looking at the brands, was really to look at the consumers and understand what, really, the consumer needs in food and how our products and our portfolio is lead to these consumer needs.

And that was critical, because we restructured the company. The company is already restructured. And there are these what we call six consumer platforms, instead of 55 different categories, that are much easier to manage and are already unveiling opportunities for growth.

ALEXIS CHRISTOFOROUS: Miguel, one of the things you talked about during Investor Day was how important and critical ESG is in your overall plans. You actually said one of your personal targets is linked to ESG. Can you talk to us about that?

MIGUEL PATRICIO: Yes I think that ESG is one of these things that the companies have to be more and more in tune. It’s not only about the shareholder or the consumer. It’s even our own people. We need to produce products that are more nutritious, that are better for the population, that do not pollute the environment.

And we made a big commitment, a big commitment today, related to our ingredients, to the environment. But that’s just the first step. The way that I look at the ESG is in the future, it will become a competitive advantage for Kraft Heinz. And we are evolving very fast in that direction.

BRIAN SOZZI: Miguel, last time we talked in April, it was really at the height of the COVID-19 pandemic. And people were consuming large quantities of your food. And it’s a trend we saw across the food industry. Have consumers continued to eat at home at that same pace?

MIGUEL PATRICIO: Well, they are not eating at the same pace. But they are still eating in a very different pace from before COVID. We had basically two moments related to COVID. The first one was really people desperate and going to supermarkets and buying as much as they could. This took more or less two months, March and April.

And after that, there was a reduction in consumption, but still a pretty big consumption. That consumption in America is stable. We don’t see– we’ve seen variations for months, but one goes down, goes up. And I don’t think that this is going to change unless there is a absolutely answer for COVID.

People are eating more at home. And because people are eating more at home, they’re cooking more at home, and buying the ingredients, either of e-commerce or on grocery.

ALEXIS CHRISTOFOROUS: Warren Buffett’s Berkshire Hathaway, of course, a controlling owner in Kraft Heinz, he’s admitted he’s taken a hit on the investment. The stock is down about 50% over the past few years. Your market cap is just a little bit bigger than your overall debt load. Have you talked to Warren Buffett at all? And did he say you have anything to say about this latest deal that you cut with the French dairy company?

MIGUEL PATRICIO: Look, Berkshire Hathaway has two board members, Greg Abel and Tim Kenesey. They are very active board members and very important. They provoke me. They inspire me. They give me their advice, which is what you would expect from great board members.

And so the relationship has been great during this close to 12 months that have been leading the company. They supported big time this transaction. And they’ve been supporting me from the beginning.

ALEXIS CHRISTOFOROUS: Also in that interview, Miguel Patricio told us that that cheese deal, actually that Kraft Heinz is going to hold on to brands you are very familiar with, Philadelphia Cream Cheese, Kraft Singles, Velveeta, and the Kraft Mac and Cheese. They’re holding on to those brands, right, Brian? Because they said they have potential to do well here, especially in the US market.

BRIAN SOZZI: Right, Alexis. And I’ll add this too, I’ve been covering– I’ve been watching all the sell side coverage out this morning, very positive, even longtime bears like Guggenheim Analyst Laurent Grandet upgrading its rating on Kraft Heinz. One thing I do want to note here, one brand that was not in the presentations yesterday for the most part, Maxwell House Coffee. That is long been rumored to be the next brand that Kraft Heinz could sell for big bucks.

ALEXIS CHRISTOFOROUS: Yeah, they couldn’t find a buyer recently. We’ll see if they have better luck in the future.

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