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How Warren Buffett Addressed Kraft Heinz in Berkshire Hathaway's Annual Shareholder Letter

By Asit Sharma - Updated Feb 22, 2020 at 6:44PM

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The famed investor released his eagerly awaited annual communication to Berkshire investors on Saturday.

Warren Buffett is lionized as the "Oracle of Omaha" for his prophetic ability to pick outperforming stocks and hold them for periods stretching into decades. But to the Greeks, oracles were mysterious entities; they issued coded, enigmatic pronouncements that needed interpretation by temple priests. 

In Buffett's annual letter to shareholders of Berkshire Hathaway (BRK.B 1.71%) (BRK.A 1.66%), released on Saturday, he comes across as this latter type of oracle, at least in regard to Berkshire's troubled investment in consumer staples conglomerate Kraft Heinz (KHC -0.15%). Since the merger of the venerable Kraft and Heinz brands in July 2015, the combined company has lagged its peers in revenue and margin growth, and it's failed to keep up with rapidly changing consumer tastes and purchasing habits.

The Kraft Heinz logo: "Kraft" written in blue lettering, "Heinz" written in red lettering.

Image source: Kraft Heinz. 

Kraft Heinz shares have plunged 62% cumulatively since the merger, and two major credit ratings agencies downgraded its corporate debt to "junk" status on Feb. 14. Yet for now, Berkshire is holding firm. The company's recent 13-F SEC filing had already revealed that it still owned its entire 325 million share stake in Kraft Heinz on Dec. 31, 2019.

In Saturday's letter, Buffett didn't discuss Kraft Heinz at all, except to note that Berkshire's $13.8 billion investment was now valued at just $10.5 billion at year's end, a figure that's closer to $8.8 billion as of Kraft Heinz's most recent price.

This sparse mention of an uncharacteristically poor investment may be easier to parse out than it seems at first blush. Buffett is famously patient, and as a controlling owner of Kraft Heinz, Berkshire Hathaway exercises significant influence over its direction. If anything, Buffett's reticence is likely a sign of confidence in new CEO Miguel Patricio, and also indicative of Berkshire's ability to simply wait out protracted turbulence in an otherwise strong brand portfolio.

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$452,697.25 (1.66%) $7,395.26
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$301.55 (1.71%) $5.08
Kraft Heinz Intermediate Corporation II Stock Quote
Kraft Heinz Intermediate Corporation II
KHC
$38.67 (-0.15%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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