You only have to look at the Kraft Heinz share price and five straight years of volume losses to understand the size of the challenge faced by CEO Steve Cahillane in his endeavour to turnaround the company’s fortunes.
“My number one priority is returning the business to profitable growth,” Cahillane said on 11 February – just over a month into the job – as he backtracked on a proposal made under his predecessor to divide up Kraft Heinz and pointed to a pretty downbeat 2026 performance.
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That split into two separately listed businesses, announced in September, was due to happen in the second half of this year but has now been put on hold, a decision sanctioned by the board and chairman John Cahill.
Whether the separation plan will be put off indefinitely surely rests on Cahillane’s success in delivering demonstrable results – only history will tell. Similarly, the Kraft Heinz chief indicated the current external environment is not conducive to a split – is he just buying time? Or is that an admission two standalone companies would not be strong enough to hold their own?
“Many of our challenges are fixable and within our control,” Cahillane said as he announced the pause. On a follow-up chat with analysts, he suggested 2027 might be the year to realise his set goals.
“We would aim to be in a position where we return the company to growth. When this business is successful and growing organically, in 2027, we’ll have all sorts of optionality to think about our portfolio and the way we want to think about our portfolio going forward,” Cahillane explained.
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By GlobalDataBig ask
It’s surely a big ask in such a short space of time, and even over the longer term, one might argue.
“They’ve got a guy who sees the problem for what it really is and thinks he can fix it,” food industry consultant and former General Mills’ executive Peter McDonald wrote in a post on LinkedIn.
“Maybe a split will make sense at some point, but I’m glad they are finally on the real issue – splitting an unhealthy core into two unhealthy cores was never the solve. Making the core healthy again is the only path.”
Kraft Heinz’s shares have lost 19% in the past 12 months. More telling, they have shaved 37% off their value in the last five years. Annual sales volumes haven’t risen since a 3.4% increase in 2020 – the results last week showed a 4.1% decline, larger than the previous year’s 3.5% drop.
A bloated portfolio of brands is also a crux for Cahillane. Some would argue the stable of brands lacks appeal to Gen Z consumers and/or is left wanting in growth-driven, inspiring innovation.
Will Cahillane seek to divest some of those brands and will anyone be interested in buying them? And will a trimmed down Kraft Heinz – as a whole or two separate parts – still be attractive to buyers?
“Portfolio evolution, which we believe includes potential divestitures, remains a focus with improved momentum improving optionality for future portfolio optimisation,” Stifel analysts led by Matthew Smith wrote last week.
Dovish outlook
The Stifel team predicted Kraft Heinz’s shares would “underperform” amid the pause in the separation and as management painted an outlook that was “well below expectations”.
They did just that and have since extended the retreat as another year of negative organic ‘growth’ was forecast – minus 1.5% to 3.5% versus a 3.4% drop in 2025 and a 2.1% decline in the prior 12 months.
Similarly with adjusted operating income, which is predicted to decrease 14-18%, worse on the top side than the 15.9% shrinkage last year, as Cahillane plans to plough $600m into marketing, sales, and R&D investment.
Earnings per share are expected to disappoint, too. A range of $1.98 to $2.10 is anticipated in the adjusted metric, a 24% decline in the worst-case scenario from $2.60 in 2025.
Discussing objectives in his prepared remarks last week to complement the latest results, Cahillane said there was an urgency to “align our brands and products with consumer preferences”.
He added: “As the investments and our operating plan drive recovery and momentum in the business, we will then be in a better position to make a decision regarding next steps for the separation.
“We recognise that the portfolio does need to evolve and by investing in and turning around the business, we improve optionality for future portfolio optimisation. Historically, we have had a gap in innovation due to underinvestment. We haven’t been successful in launching scalable, profitable products on a consistent basis.”
Different ball game
Cahillane certainly has the acumen. He was the architect of the separation of Kellogg & Co. in 2023 into Kellanova and WK Kellogg Co., two individual businesses that were then snapped up by Mars and Ferrero.
However, Kraft Heinz, with sales last year of $24.9bn, is a different kettle of fish to Kellogg, which notched up revenue of $15.3bn in 2022.
Two other CEOs – in relative quick succession – have also arguably failed to turnaround Kraft Heinz. Miguel Patricio from mid-2019 and his successor Abrams-Rivera from early 2023.
In the words of Abrams-Rivera last September, a split “offers the optimal path to accelerate profitable growth and by doing so, driving higher levels of long-term value for shareholders”.
And further: “At the same time, we recognise that we have one of the most complex portfolios in CPG, competing in more categories than any other company in the space.”
McDonald suggests Cahillane has been brought in as the “fix-it guy” rather than to oversee what is likely to be a costly separation and the uncertainties beyond, including appointments of individuals to head up the independent businesses.
Abrams-Rivera had been positioned to lead the US grocery division but it is unclear whether an executive had been hired, or even found, to helm the other side of the operation.
Describing Cahillane as a “seasoned CPG operator” with the experience of separating Kellogg, McDonald said: “We thought that signalled commitment to the split. It now seems it signalled commitment to fix the business.
“They now have a very experienced, adult-in-the-room operator who has come back and said, ‘I need more time to fix this mess, but I can fix it.’”
Steep recovery path
A separation was to revolve around the Global Taste Elevation business unit, with sales in 2024 of $15.4bn. It would feature Kraft Heinz’s so-called legacy brands of sauces, spreads and seasonings such as Heinz, Philadelphia and Kraft Mac & Cheese.
North American Grocery with sales of $10.4bn would have included Oscar Mayer, Kraft Singles and Lunchables.
Last week, Cahillane described what he deemed as a “meaningful year-over-year decline in both top-line and bottom-line results”, market share losses in US retail and a slump in gross margins.
US weakness in Lunchables and Spoonables, along with the frozen meals and the snacks category, were seen as culprits.
“Our ultimate goal is to drive volume-led sustainable and profitable top-line growth, while continuing to generate attractive free cash flow,” Cahillane said in his prepared remarks.
“At the same time, market conditions have gotten noticeably more challenging since the decision was first made to separate the company last summer – consumer sentiment has worsened, industry trends have softened, and there is increasing volatility in the geopolitical landscape.
“These shifts make the path to recovery steeper and heighten the importance of restoring momentum in the business, most notably those brands in the North American Grocery Co. portfolio, while accelerating trends in our Taste Elevation platform.”
TD Cowen analyst Robert Moskow was equally downbeat on the abandoned split, siding with McDonald’s view in his initial reaction: “Investors will view this negatively because it indicates that the businesses are not in strong enough condition to operate on a standalone basis, and it is uncertain when they will.”
Having ‘deliberated, cogitated and digested’ Cahillane’s challenge – to coin a phrase from TV personality and food brand creator Loyd Grossman – Moscow outlined the size of the task.
He suggests – employing the challenged terminology used by Cahillane – that 47% of Kraft Heinz’s portfolio fits within that designation, if as Moskow says, “challenged means a five-year volume CAGR of -2% or worse”.
Examples from the TD Cowen analyst include Oscar Mayer, Lunchables and Heinz Mayo.
“As a result, we place a lower probability of success on Kraft Heinz’s price investments moving the needle than that of Big Food companies like General Mills and Pepsico, who are working with better-liked brands,” Moskow said.
“We appreciate Kraft Heinz doing the right thing from a reinvestment perspective but we fear that the portfolio lacks sufficient reinvestment opportunities to move the needle in a sustainable fashion.”
“Bending the trend”
Cahillane believes the incremental $600m investment programme “will accelerate our return to profitable growth” with “meaningful results” expected in the second half of the year.
He framed that potential outcome around a “change in trend and bending the trend in market share”, particularly with respect to the US.
While pausing the separation was not looked on favourably by markets already geared up for a split, putting the plan on hold has generally been accepted by industry watchers as the sensible option, at least under the current scenario.
As Cahillane admitted on his call with analysts last week: “I know what it takes to have a successful separation. You need stable businesses. You need a lot of things that we’re going be working on right now to preserve the optionality that we have going forward.”
John Baumgartner, a manging director at Japanese investment firm Mizuho Securities, qualified Kraft Heinz’s path forward and the task for Cahillane as a “show-me story”.
By pausing the separation, the newly appointed CEO might just have headed off an estimated $300m in additional costs, he said.
“We believe pause has merit. Under current conditions, neither succeeding business (Grocery/Taste Elevation) appears primed for competitive growth on a stand-alone basis and, for now, we prefer to see cash reinvested to strengthen fundamentals rather than spent on duplicative separation expenses and dis-synergy costs in a weakening consumer environment.”
David Clark, a CPG industry consultant and also a former General Mills’ executive, said Cahillane’s fixable comments might suggest that a “split doesn’t work”.
Indicative of the challenge, Clark said: “Compared to the Kelloggs -> WK Kellogg / Kellanova split, Kraft Heinz has a disadvantaged portfolio and less forgiving balance sheet. The details of how the split would be executed and create shareholder value had not yet been provided.
“Steve still has a tough job ahead. Deciding not to split is one thing. Making the current business win is another.”
