SEC Probes Heinz Over Procurement Accounting

Kraft Heinz saw its market value plummet by about $17 billion on Friday (Feb. 22), after posting a $15 billion write-down on its most recognizable brands Kraft and Oscar Mayer, with investors raising concerns over majority shareholders 3G Capital and Berkshire Hathaway and their crackdown on the company’s expenses.

But reports in Reuters also noted that Kraft Heinz revealed an investigation by the Securities and Exchange Commission (SEC) that piles on the bad news for shareholders.

Separate reports in Accountancy Daily offered additional details on the SEC’s probe of Kraft Heinz, the fifth largest food and drink company in the world. According to the publication, the SEC investigation is focusing on the firm’s accounting policies and internal procedures related to Kraft Heinz procurement and supplier management.

Kraft Heinz said in its announcement of fourth-quarter performance that it recorded a $25 million increase in the cost of sold products after determining “the amounts were immaterial to the fourth quarter of 2018 and its previously reported 2018 and 2017 interim and year-to-date periods.”

“Additionally, the company is in the process of implementing certain improvements to its internal controls to mitigate the likelihood of this occurring in the future and has taken other remedial measures,” the company noted, adding that it is fully cooperating with the SEC.

The SEC’s investigation will examine procurement processes including vendor agreements, side agreements and changes to those agreements, reports noted.

According to Reuters, shares fell by up to 28 percent for the firm, while rival companies, including General Mills and Nestle, also saw share declines.

“Investors for years have asked if 3G’s extreme belt-tightening model ultimately would result in brand equity erosion,” said JPMorgan Analyst Ken Goldman, the publication noted. “We think the answer arguably came yesterday in the form of a $15 billion intangible asset write-down for the Kraft and Oscar Mayer brands.”