UPDATE 3-Kraft Heinz pulls full-year forecast, books $1 bln writedown, shares plunge

Richa Naidu and Aishwarya Venugopal

plunge@ (Adds analyst, CFO comment, details, background; updates shares.)

Aug 8 (Reuters) - Kraft Heinz Co shares fell to a record-low on Thursday after the packaged food maker said it was pulling its existing full-year forecast and wrote down the value of several business units by over $1 billion.

Kraft Heinz had previously expected 2019 adjusted earnings before interest, tax, depreciation and amortization between $6.3 billion and $6.5 billion and positive organic sales growth. In results delayed by an internal investigation into procurement practices, the Chicago-based company also said net income halved in the first six months of the year.

The company took a charge of about $744 million on its U.S. refrigerated, Latin American exports and Brazil units among others, blaming lower five-year operating forecasts. It also booked an impairment charge of about $474 million in the second quarter to write down the value of six brands, including Velveeta and Cool Whip. The impairment charges are preliminary and subject to finalization of control procedures, Kraft Heinz said.

This marks Kraft Heinz's second major writedown since Feb. 21, when the company knocked $15.4 billion off the value of its Kraft and Oscar Mayer brands, posted a surprise quarterly loss, and disclosed a U.S. Security and Exchange Commission investigation into its accounting practices.

After an internal review of the accounting missteps, Kraft Heinz said it had increased the initial brand writedown by about $13 million due to misstatements in reports for 2016, 2017 and the first nine months of 2018. The U.S. Attorney's Office for the Northern District of Illinois is working with the Securities and Exchange Commission to investigate this matter.

"Some may say that it's not a disaster and thus better than feared were not yet in that camp," J.P.Morgan analyst Ken Goldman said, adding that first-half earnings and sales were disappointing.

Kraft Heinz shares, which have lost a third of their value since February, were down 15% in early trading.

"The level of decline we experienced in the first half of this year is nothing we should find acceptable moving forward," said Kraft Heinz's new Chief Executive Officer Miguel Patricio. Patricio, a 30-year marketing veteran from Anheuser-Busch InBev , was named to the role in April.


Kraft Heinz's struggles have rocked other major consumer goods companies this year, highlighting the industry's struggle to cut costs without gutting marketing budgets. Companies from Kellogg Co to Procter & Gamble Co have raised prices and invested to keep products relevant amid intense private-label competition from grocers including Walmart , Kroger and Amazon.com.

Net income attributable to the company's shareholders fell more than 51% to $854 million, or 70 cents per share. Excluding items, the Chicago-based company earned $1.44 per share. Kraft Heinz said net sales fell about 5% to $12.37 billion.

"On the whole, we are dissatisfied with our financial performance year-to-date," said Chief Financial Officer David Knopf, a 3G Capital partner who was named to the role in 2017 when he was 29 years old. Knopf called Kraft Heinz's earnings decline "simply unacceptable" and said sales were held back as U.S. and Canadian retailers cut inventory.

Brazilian private equity fund 3G Capital, Kraft Heinz's second-biggest shareholder, has urged the company to boost margins through sweeping cost cuts. This approach resulted in smaller marketing budgets for key brands like Oscar Mayer bacon and the loss of brand managers and market share, according to two former Kraft Heinz marketing employees.

Warren Buffett - who teamed up in 2015 with 3G Capital to orchestrate the merger of Kraft Foods and Heinz Co - said in February that pressure from retailers' store brand products had changed Kraft Heinz's ability to price, adding that Costco's Kirkland brand outsells all Kraft Heinz.

Buffett said at the time that his Berkshire Hathaway Inc , Kraft Heinz's No. 2 shareholder, had overpaid in the deal. (Reporting by Richa Naidu in Chicago and Aishwarya Venugopal in Bengaluru Editing by Saumyadeb Chakrabarty, David Gregorio and Susan Thomas)