The Kraft Heinz Company

Kraft Heinz makes the familiar branded food in an American kitchen cupboard and fridge: Heinz ketchup, mayonnaise and beans; Philadelphia cream cheese; Kraft Mac & Cheese and Kraft Singles; Velveeta; Oscar Mayer hot dogs, bacon and cold cuts; Lunchables; Capri Sun and Kool-Aid; Jell-O; Maxwell House coffee; Ore-Ida potatoes. It sold $24.9bn in 2025, three-quarters of it in North America, and about a fifth of all its sales go through a single customer, Walmart. A ten-year-old's version: Kraft Heinz makes the ketchup on your fries and the cheese in your sandwich — and gets paid whenever your family picks its brand off the shelf instead of the shop's own.

That last clause is the whole story. A packaged-food company earns its money from the premium shoppers pay for a brand they trust over a cheaper store brand that is often made to a similar recipe. When the premium holds, the business is wonderful — little capital, steady volumes, prices that rise with inflation. When it erodes, volumes fall, the company must spend more to defend each brand, and the profit shrinks. Kraft Heinz is living through the second case: its volumes have fallen for three years in a row while US store brands reached record market shares.

It is also Berkshire Hathaway's most public investing mistake. Berkshire and the Brazilian firm 3G Capital bought Heinz in 2013 and merged it with Kraft in 2015; Berkshire still owns 27%, which cost $9.8bn and is worth about $7.7bn today. At $23.68 on 16 October 2026 the shares are 75% below their 2017 peak, yield 6.8% and trade at about 11.5 times this year's guided earnings. This report asks whether that is finally a price worth paying.

Two lessons for an owner. The first is Buffett's own, and he has told it publicly: Berkshire paid a price for Kraft that assumed its brands would keep their pricing power, and they did not. In February 2019 he told CNBC "I was wrong in a couple of ways about Kraft Heinz" and "We overpaid for Kraft." The second is subtler. Buffett wrote in 1991 that a true franchise "can tolerate mis-management. Inept managers may diminish a franchise's profitability, but they cannot inflict mortal damage." 3G's managers were not inept — they were superb cost-cutters — but they cut advertising and innovation in brands whose franchise was weaker than it looked, at the moment private label and changing tastes were attacking them. Kraft Heinz is the test of how much damage starving a brand can do. Eleven years later, the answer is: more than a franchise can shrug off.

Still a high-margin food company. Kraft Heinz kept about 34 cents of every sales dollar as gross margin in 2025 and 19 cents as adjusted operating profit — among the highest margins in US packaged food, a legacy of 3G's cost discipline. It needs little capital (about $0.8bn of capex a year) and converts more than all of its adjusted net income into free cash flow: $3.66bn in 2025 and ~$3.8bn over the last twelve months.

But the margin is falling and the earnings with it. Adjusted earnings per share were $3.06 in 2024, $2.60 in 2025 and are guided at $2.03–2.09 for 2026 — a third lower in two years. Part of the 2026 fall is deliberate: Cahillane's $600m reinvestment, raised to ~$700m in August, in advertising, sales, research and "product superiority and price". Part is not: volumes are still falling in North America, meats fell 12% in the second quarter after a packaging defect at Oscar Mayer, and SNAP cuts take about a point off sales.

Where the money comes from, really. Condiments, sauces and spreads — Heinz and Philadelphia above all — are 46% of sales and the only large category roughly holding its ground. Most of the rest is shrinking slowly. A buyer of Kraft Heinz today is buying a strong sauces business attached to a portfolio of declining American grocery brands, with the cash of the second funding the dividend of the whole.

Buffett's 1991 letter defines an economic franchise as a product that is needed or desired, "thought by its customers to have no close substitute", and not subject to price regulation — and says its existence shows in a company's ability to raise prices and earn high returns on capital. Heinz ketchup still passes: shoppers and restaurants want the bottle with the label (Heinz ran a 2025 advertising campaign against restaurants refilling its bottles with generic ketchup). Much of the rest fails the second test: to a growing share of American shoppers, a store-brand slice of cheese, pack of hot dogs or tin of coffee is a close enough substitute. The write-downs are the accounting confirmation that the brands were bought at prices their future could not support. We score the moat 4: wide in sauces, gone in a large part of the grocery portfolio.

What the new CEO is doing. Steve Cahillane ran Kellanova (Pringles, Cheez-It) until its sale to Mars and led Kellogg's own split in 2023. Six weeks into the job he paused Kraft Heinz's separation — announced only five months earlier — saying "My number one priority is returning the business to profitable growth", and that the company had "historically underinvested in our brands". He committed $600m, later ~$700m, to marketing, sales, research and price, accepting a 2026 profit fall of 16–18% at constant currency to fund it. In May he bought about $5m of shares in the open market at ~$23.46.

The evidence so far. Volume/mix improved from −4.1 points in 2025 to −1.2 in the first quarter and −2.6 in the second (which included an Easter timing shift); Kraft Heinz said it lost about 30 basis points of market share in the first half, against 90 a year earlier; organic sales guidance for 2026 was raised to −0.5% to −2.0%. But adjusted profit fell 18% in the second quarter, meats fell 12%, and only about a third of the reinvestment had been spent by June, so most of its effect is still to come. Management calls 2026 the "base year" and expects 4–5% cost inflation in 2027.

Our reading: money can slow the decline; it cannot by itself restore the premium. Reinvestment is the right decision — the starved brands needed it, and Cahillane is spending his own money alongside the shareholders'. But the forces against the grocery portfolio are structural: retailers with excellent store brands, shoppers who learned during the inflation of 2021–23 that the store brand is fine, and a slow shift away from processed meats and cheese slices. The likely result is a company that shrinks more slowly, earns around $2 a share and generates $2.7–3.5bn of free cash a year — enough to pay the dividend and slowly reduce debt, not enough to grow. Buffett said of the split in September 2025: "It certainly didn't turn out to be a brilliant idea to put them together, but I don't think taking them apart will fix it." Pausing it has not fixed it either. What would change our mind is two consecutive quarters of positive North American volume.

The pattern. US packaged food is shrinking in volume across the board in 2025–26 — General Mills, Conagra and Campbell's all report negative organic growth — so Kraft Heinz's problem is partly the industry's. Its particular weakness is portfolio mix: more of its sales are in categories where a store brand is a good substitute (cheese slices, cold cuts, coffee, macaroni), and its largest customer is the largest seller of store brands in America. The categories that are growing — snacks, international sauces — are where Kraft Heinz is either small or, in Heinz's case, strong. The comparison on our board is PepsiCo, whose snacks still carry the premium Kraft's groceries have lost.

Integrity: a scar, now mostly healed. The 2019 restatement of $208m of improperly booked cost savings and the $62m SEC settlement happened under the previous regime; the current filings are candid, to the point of citing the company's own share price as a reason its brands are worth less. A revived Delaware derivative suit over the 3G era is still pending. Capital allocation: poor at the start, sensible since. The overpayment of 2015 cannot be undone; the decisions of 2019–26 — cut, sell, deleverage, reinvest — are what an owner would choose. Owner mentality: better than for years. A new CEO who bought $5m of stock with his own money is the most encouraging signal in this report. We score management and capital 5.

Why GAAP and adjusted differ so much. Kraft Heinz's GAAP results swing from profit to large losses because it tests the value of its brands and goodwill against its own share price every quarter, and writes them down when the market says they are worth less. Those charges are non-cash and do not affect the dividend or debt covenants, but they are the most honest number in the accounts: they measure, in arrears, how much of the 2015 price has been lost. The adjusted figures exclude them and are the better guide to this year's cash earnings, though Buffett's 2016 warning applies — telling owners year after year "don't count this" is misleading when the costs keep recurring.

The cash is the strength. Even with earnings falling, Kraft Heinz generates far more cash than it spends: $3.66bn of free cash flow in 2025, with capex at 3% of sales. Its own 2026 guide of ~110% conversion on adjusted earnings implies roughly $2.7bn this year, less than the trailing $3.8bn, which was flattered by working capital.

The verdict on the dividend: probably safe for the next two years, not safe in the way a 6.8% yield implies, and not going to grow. The payout takes about half of trailing free cash flow and about three-quarters of this year's guided adjusted earnings. As long as free cash flow stays above ~$2.5bn and the ratings stay investment grade, management has every reason — not least a 27% shareholder that receives ~$521m a year — to keep paying $1.60. The danger is a slow one: if the reinvestment fails and earnings keep falling into 2027–28, the dividend and the debt will compete for a shrinking cash flow, and in 2019 the dividend lost. The comparison on our board is Altria, another shrinking-volume business with a high yield — whose pricing power, unlike Kraft's, is intact.

What is it worth? We discounted owner earnings of about $2.20 a share at 10% for ten years. If the reinvestment holds earnings flat for five years and they grow 1% a year thereafter, ending at 10 times, Kraft Heinz is worth about $23 — roughly today's price. If volumes keep falling and earnings shrink ~3% a year, ending at 8 times, about $16, which is roughly where a second dividend cut would put the shares. If Cahillane revives growth and earnings rise 3% a year, ending at 12 times, about $30.

At $23.68 the price sits at our central value. That is the point Buffett learned the hard way: a low multiple is not a margin of safety when the earnings are shrinking. For a business we score 4 on its moat and 2 on growth, we would want a wide discount, and there is none. Our advice: pass for new money; for investors who want the income, buy below about $19, where the yield would be 8.4% and the price ~16% under our central value, enough to pay for the risk of a second cut. Existing holders who own it for the dividend can keep it while free cash flow stays above ~$2.5bn. The two dates that matter are the results on 4 November and the investor day on 12 November, which may decide the fate of the split.