To The Moon

$The Kraft Heinz Company(KHC)$

A Bold Restructuring With Uninspiring Names

Kraft Heinz (KHC) shook markets earlier today when it announced a dramatic restructuring: the company plans to split into two standalone publicly traded entities. The first will be called Global Taste Elevation Company, and the second will carry the name North American Grocery Company. While Wall Street often greets corporate separations with optimism, viewing them as ways to “unlock value,” the initial market reaction was muted—and the naming convention drew more eye-rolls than enthusiasm.

The more important development came not from Kraft Heinz itself, but from its largest and most famous shareholder: Warren Buffett. The Berkshire Hathaway chairman, who owns roughly 27% of the company, wasted no time voicing his disappointment. In an interview with Becky Quick on CNBC, Buffett emphasized that he had not been consulted on the decision, and he expressed his disapproval in unusually direct terms. For a man known for measured language and patience with long-term holdings, this was striking.

Why Buffett’s Frustration Matters

Buffett’s public displeasure cannot be taken lightly. The billionaire investor was a driving force behind the 2015 merger of Kraft and Heinz, a deal orchestrated alongside 3G Capital. At the time, it was heralded as a landmark combination of two iconic food companies, promising synergies through cost-cutting and operational discipline.

Yet in practice, the playbook failed. The stock has shed roughly 70% of its value since the merger. For Buffett, who is famous for avoiding high-risk bets, this has become one of his most visible missteps. It also underscores a broader truth: even the world’s most disciplined investor can stumble when management execution falters.

Buffett’s influence also carries governance implications. By sidelining him in such a significant decision, Kraft Heinz’s board risks alienating its most important backer. Historically, companies that lose Buffett’s confidence rarely fare well in the long term.

The Economics Behind the Split

On paper, Kraft Heinz is not a failing business. The company generates substantial earnings power:

• Global Taste Elevation Company is expected to deliver around $4 billion in adjusted EBITDA, largely driven by Heinz sauces, Philadelphia cream cheese, and Kraft Mac & Cheese.

• North American Grocery Company contributes about $2 billion in EBITDA, with a portfolio including Oscar Mayer, Capri Sun, Jell-O, Kool-Aid, Maxwell House, and Kraft Singles.

Together, these businesses produce about $3 billion in annual free cash flow, putting Kraft Heinz at less than 10x free cash flow on current market valuations. In theory, such a multiple is attractive. If the company simply holds earnings flat, investors could realize an implied 10% free cash flow yield, significantly above long-term equity market averages.

This valuation naturally attracts the attention of deep-value investors and activist funds. To them, Kraft Heinz looks like a classic turnaround story: unloved, cheap, and still possessing cash-generative brands.

Why the Split May Not Unlock Value

Despite the apparent upside, there are serious structural concerns. The spin-off will add hundreds of millions of dollars in duplicated management and administrative expenses. Instead of creating efficiencies, Kraft Heinz risks reducing them. Buffett, who has spent decades running Berkshire Hathaway as a lean, decentralized conglomerate, sees little merit in this structure. He understands that multiple subsidiaries can operate independently under one corporate roof without the added costs of two separate public listings.

The argument that splitting Kraft Heinz will suddenly generate shareholder value does not align with the company’s fundamentals. Instead, it looks like an attempt to distract from poor execution and declining relevance.

The Stronger Side of the Business

Global Taste Elevation Company is positioned as the growth-oriented unit. Its flagship Heinz sauces enjoy 90% household penetration in the U.S. and meaningful international scale. Management points to 7–10% growth in emerging markets and 5% growth in away-from-home channels as key opportunities.

But the numbers don’t tell a story of dynamic growth. Even in emerging markets, where category expansion is stronger, Kraft Heinz is only growing at 10%—a pace that likely trails the underlying market. This suggests the company is losing share even in its stronger regions. In developed markets, growth has been sluggish at best.

The Weaker Side: A Dated North American Portfolio

The North American Grocery Company holds many legacy brands that once defined American pantries but are now struggling. Capri Sun, Oscar Mayer, Jell-O, Maxwell House, and Kraft Singles are still household names, yet their relevance is fading as consumer tastes shift toward fresher, healthier, and private-label alternatives.

Chains like Trader Joe’s and Costco have built enormous brand loyalty around their private-label products, often at higher margins and lower costs. Kirkland, Costco’s in-house brand, has become one of the largest and most successful brands globally—outpacing many traditional consumer packaged goods companies. This trend directly erodes the value proposition of Kraft Heinz’s older products.

Revenue trends confirm this reality. North American sales are declining, and consolidated company revenues fell in the most recent quarter. Even management’s guidance of a 2–3% organic sales decline in the year ahead suggests that the turnaround is not on the horizon.

Debt and Leverage: A Persistent Headwind

Kraft Heinz carries approximately $20 billion in debt. With only $3 billion in annual free cash flow, deleveraging will take years if management prioritizes balance sheet repair. This significantly reduces flexibility for shareholder returns, whether through dividends or buybacks. For value investors, the debt load tempers the appeal of the otherwise low valuation multiple.

Buffett’s Dilemma and Next Steps

Buffett remains a critical figure in this story. His 27% stake gives him enormous influence, but his principles constrain how he can act. Unlike other large investors, Buffett refuses to accept preferential treatment in selling his shares. If he exits, it will only be through a tender offer open to all shareholders, ensuring fairness.

That said, Buffett made it clear: his patience has limits. If management continues down a path he finds misguided, he may choose to work with activists or even exit entirely. Either move could dramatically shift the trajectory of Kraft Heinz stock.

Could Activists Step In?

The situation has all the hallmarks of an activist investor’s dream:

• A once-iconic company trading at depressed valuations.

• A frustrated but influential shareholder in Buffett.

• A management team losing credibility with investors.

• Cash-generating assets that could support restructuring.

If an activist fund steps in with Buffett’s tacit support, it could accelerate management turnover and potentially reverse or rethink the split. In that scenario, Kraft Heinz’s stock could see rapid revaluation.

Valuation Versus Fundamentals

At roughly 10x free cash flow, Kraft Heinz is undeniably cheap. On paper, it offers potential upside of 80–100% if operations stabilize and the market applies even a modest re-rating. But the downside risk is also significant: if sales continue to erode and debt pressure mounts, the stock could fall another 20–30%.

This asymmetric setup makes it a speculative value play rather than a long-term compounder. Investors seeking consistent, compounding growth will find little here, while deep-value hunters may see enough margin of safety to take a swing.

Verdict: A Speculative Value Play, Not a Buffett-Worthy Compounder

Kraft Heinz’s split is unlikely to deliver the value management promises. The company remains weighed down by legacy brands, debt, and questionable strategic direction. Buffett’s public disappointment only underscores how far the business has drifted from the disciplined, long-term stewardship he admires.

For investors, the stock is best viewed as a deep-value turnaround speculation. Trading at just 10x free cash flow, Kraft Heinz offers meaningful upside if activists get involved or if new management rights the ship. But the risks are real: declining relevance, weak growth, and heavy debt suggest this is not a reliable long-term wealth builder.

Entry Zone: Value-focused investors may find Kraft Heinz attractive in the $28–$32 range, where the risk-reward profile offers a potential 2:1 upside-to-downside tradeoff. Growth-oriented investors, however, are better off looking elsewhere.

Key Takeaways

1. Buffett’s disappointment matters: His 27% stake and public criticism signal serious governance concerns.

2. The split adds costs, not value: Management’s rationale doesn’t hold up against Buffett’s decentralized conglomerate model.

3. Valuation is compelling: At 10x free cash flow, Kraft Heinz looks cheap compared to market averages.

4. Growth remains elusive: Both Global Taste Elevation and North American Grocery lack dynamic expansion prospects.

5. Activists could emerge: The setup is ripe for intervention, especially with Buffett’s dissatisfaction in play.

6. Speculative upside, meaningful risks: Value investors may take interest, but long-term compounding is unlikely.

In short, Kraft Heinz represents a cheap stock in search of a credible strategy. Without bold new leadership, the company’s best hope may come not from its split, but from the pressure of activists—and the quiet influence of Warren Buffett himself.