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Why Kraft Heinz Stock Just Dropped 27%

By Rich Smith – Updated Apr 22, 2019 at 4:21PM

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Kraft Heinz stock is looking somewhat less than shelf-stable today.

What happened

The Kraft Heinz Company (KHC 1.86%) reported a small sales gain and a big GAAP loss in its earnings report for the fiscal fourth quarter of 2018 last night. Sales grew less than one single percentage point to $6.9 billion for the quarter. Losses were a staggering $10.34 per share.

Kraft Heinz stock is down 27.4% as of 12:50 p.m. EST in response.

Shopper putting ketchup in a basket

Kraft Heinz stock is looking somewhat less than shelf-stable today. Image source: Getty Images.

So what

That's not the worst of it.

Kraft blamed its big GAAP loss on a $15.4 billion impairment charge to earnings that wiped out what otherwise would have been a quarterly profit ("adjusted" earnings, said Kraft, were positive $0.84 per share -- which is still down 7% year over year). On top of that, Kraft revealed that the SEC is investigating its "accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors" -- and apparently has been doing so since at least October 2018. Although management says that it "does not expect the matters subject to the investigation to be material to its current period or any prior period financial statements," this raises the potential that Kraft will be forced to restate its past earnings as well.

To top it all off, Kraft slashed its quarterly dividend by 36%, to $0.40 per share.

Check out the latest Kraft Heinzearnings call transcript.

Now what

Of course, with Kraft Heinz stock declining in price in response to all of this bad news, that dividend -- which works out to $1.60 per year -- still represents a tidy dividend yield of 4.6%. Nonetheless, the cut was deep enough to convince at least one analyst to downgrade the stock.

Given the size of Q4's loss, and the potential for profits -- that investors thought Kraft had earned in the past -- to be restated and vanish, I wouldn't be surprised to see additional downgrades follow.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool is short shares of Kraft Heinz. The Motley Fool has a disclosure policy.

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