Kraft Heinz Halts Company Split as New CEO Sees Fixable Challenges

Kraft Heinz's Strategic Shift

By Juveria Tabassum

CEO's Vision for Growth

Feb 11 (Reuters) - Kraft Heinz has halted efforts to split the company, with new CEO Steve Cahillane saying that most challenges are "fixable and within our control," a surprise move that sent its shares down 5% on Wednesday.

Investment in Research and Development

The packaged-foods maker announced plans to split into two in September - one focused on groceries and the other on sauces and spreads - after failing to achieve the kind of growth expected when the company was formed a decade ago under a merger orchestrated by Warren Buffett's Berkshire Hathaway and 3G Capital.

Market Challenges and Consumer Trends

Kraft Heinz has lagged its peers in the U.S. food sector, where sales have slowed as consumers pull back on spending following years of price hikes. The decision to split followed years of cost-cutting and underinvestment for the company.

"My number one priority is returning the business to profitable growth, which will require ensuring all resources are fully focused on the execution of our operating plan," said Cahillane, who took charge in January.

While Cahillane did not rule out the possibility of a split in the future, he said there was no end date for the pause, which is expected to save the company $300 million in costs in 2026.

Kraft Heinz had expected to close the spinoff at the end of 2026 and brought on industry veteran and former Kellogg boss Cahillane to guide it through the split.

"We definitively view the plan to reinvest more significantly and pause the planned separation as the right set of first steps, but realize bending the trend on longer-term market share declines will likely take some time," said Andrew Lazard, analyst at Barclays, in a note.

NEXT STEPS TO PROFITABLE GROWTH

Cahillane outlined his strategy to restore the company to profitable growth.

He said Kraft Heinz would focus on marketing and research with a $600 million investment to drive recovery in its U.S. business, where market conditions have worsened since the decision to split last summer.

Kraft Heinz, like other packaged foods companies, has been struggling with weak demand for its pricier condiments and pantry staples as consumers look for cheaper options, but has also lost out to rivals due to a lack of innovation.

"To turn this around, we are increasing investments in R&D by approximately 20% in 2026 compared to 2025," Cahillane said, adding that the product innovation would also circle nutrition and value.

He also acknowledged that in the past few quarters the company raised prices to combat inflation but did not provide consumers additional benefits for the higher price tag and will now look to offer more affordable products.

Snacks giant PepsiCo last week said it had cut prices on key snacks such as Lay's and Doritos in the U.S. after consumer backlash against higher prices.

RARE REVERSAL FOR CORPORATE SPLITS

Kraft Heinz is among the few companies to reverse a major breakup, as only about one in 10 corporate spinoffs are canceled on average, according to a 2022 report by KPMG.

In January, Kraft Heinz's shares tumbled after it disclosed that Berkshire Hathaway may sell its 27.5% stake in the company and exit a more than decade-old investment that did not work out for Buffett.

Berkshire and the office of Greg Abel - Buffett's successor at the company - did not immediately respond to a Reuters request for comment on Kraft Heinz's decision to pause its split.

"The original rationale was to unlock shareholder value, but with multiple parts of the business now facing operational and demand challenges, a separation may not have delivered the value management initially envisioned," Arun Sundaram, analyst with CFRA Research, said.

CHALLENGING ENVIRONMENT

The company reported fourth-quarter results on Wednesday that fell short of estimates and forecast 2026 earnings below expectations as it lost out to cheaper rivals.

It expects 2026 organic net sales to fall between 1.5% and 3.5% and expects annual profit between $1.98 and $2.10 per share, below analysts' estimate of $2.49 per share, according to data compiled by LSEG. 

"We were of the belief that Kraft Heinz should position 2026 as an investment year. And, indeed, it has now done so, for which we give the company credit. That said, the magnitude of the investment implies meaningful (earnings) downside," BNP Paribas Equity analysts said. 

(Reporting by Juveria Tabassum, Anuja Bharat Mistry and Angela Christy in Bengaluru; Writing by Aishwarya Venugopal; Editing by Pooja Desai and Saumyadeb Chakrabarty)