Kraft Heinz Co

Kraft Heinz fails most Buffett tests on earnings, returns and debt, so it sits outside the circle.

Kraft Heinz sells packaged food and drink under brands such as Kraft, Heinz, Oscar Mayer and Philadelphia. Revenue was $24.9B in the latest year, and sales have drifted lower, with growth averaging -0.6% a year. The latest year ended with a net loss of -$5.8B, mainly because of non-cash impairment losses on goodwill and brands, and the company has 2 loss years across the filings. Return on equity averaged 1.6%, total debt stands at $21.2B, and operating income covers interest at -4.9×, which is a loss-making position. The engine could not produce a valuation because normalised owner earnings are -$1.5B, so there is no cash to discount; at a share price of $23.68 and a market value of $28.1B, the price to book is 0.7×, but book value per share has also fallen by -3.1% a year, so a low ratio to book does not show a bargain.

Kraft Heinz sells packaged food and drink under brands such as Kraft, Heinz, Oscar Mayer and Philadelphia. It sells through supermarkets, mass merchants, clubs, drug stores, e-commerce and foodservice buyers across North America, International Developed Markets and Emerging Markets. Revenue reached $24.9B in the latest year, with growth averaging -0.6% a year over 12 years of filings.

• Pricing, which the company says has been restricted by private label competition
• Sales volume and product mix across its brand portfolio
• Control of commodity and manufacturing costs against efficiency programmes
• Advertising and trade promotion spending needed to hold shelf space
• Impairment charges on goodwill and brands, which affect reported profit

Inside the circle? Rated low. The company has 2 loss years in 12 years of filings, and operating margin moved by 20% around its average. Free cash flow of $3.7B shows the brands still generate cash, but the excerpts give no clear basis for a steady ten-year path, given the paused separation and private label pressure on prices.

The filings point to brands as the main thing that could protect profits. The company says its trademarks are among its most valuable assets, and gross margin has averaged 34% with a volatility of 1.3%. A strong brand should show up in returns on capital, but return on invested capital averaged 1.2% and return on equity averaged 1.6%. The 2025 operating loss was mainly driven by non-cash impairments, and operating margin has moved by 20% around its average. On this evidence the moat looks narrow at best, and its durability is doubtful because prices and volumes are both under pressure.

Management has paid out more than it earns. The dividend payout averaged 149% of reported profit (payout is the share of profit handed to shareholders as dividends), so the dividend has been larger than the earnings behind it. Shares outstanding have shrunk slightly (-0.4% a year), but book value per share (the net assets behind each share on the balance sheet) has fallen (-3.1% a year). Retained earnings over the period total -$13.5B, so profit kept inside the business has not built owner value, and borrowing stands at $21.2B. On candour, the filing says plainly that pricing actions have hurt market share and that the separation work is paused, but the excerpts do not set out a plan to bring the balance sheet back to health, so that part of the picture is missing.

• The board declared a cash dividend in the first quarter of 2026, according to the filing, while the business reported a loss for the year.
• The filing says buybacks may be modified, suspended or discontinued at any time, so the cash return to owners is open to change.
• Work on separating the company is paused, and the filing lists one-time costs that may not yield a discernible benefit if the separation is not completed.
• Goodwill and intangible impairments drove the operating loss, which the filing reports as -19% for the latest year.

• FailsDemonstrated, consistent earning powerFails

  2 loss years across 12 years of filings, with operating margin varying by 20% around its average.

  Why this test
• FailsHigh returns on equity without leverageFails

  Return on equity averaged 1.6%, reaching 15% in 1 of the years measured; the weakest year was -17%.

Discount rate: 10-year Treasury (5.1%) plus a 3% hurdle. End-of-day prices from free public sources, may be delayed or missing.

Buffett's first test is the circle of competence, which asks whether you can understand the economics and estimate the future. The brands are easy to describe, but the filings show profits swinging from a large gain to a large loss, so the future is hard to estimate with confidence. The consistent earning power test fails on the loss years, and the high return on equity test fails because the average is 1.6%. The owner earnings test fails because normalised owner earnings are -$1.5B. On pricing power, the company warns: “We may need to reduce our prices, or be restricted or delayed in our ability to increase prices”. Buffett treats pricing power as the single most important question, and this excerpt points to a weak answer. The filing calls trademarks “among our most valuable assets”, but the impairments show that the carrying values of some brands have needed writing down. The company does pass the low capital intensity test, with capital spending at 0.9× depreciation. Buffett's rates test also fails: the owner earnings yield of -5.2% sits below a Treasury yield of 5.1%, so the cash return on the price is lower than a government bond pays.

• Normalised owner earnings in the next annual report

  A return to positive owner earnings would allow the value test to run for the first time.

• The company's wording on price rises and market share in the management discussion

  The filing says pricing actions have negatively impacted market share, so a change in this wording would bear on pricing power.

• Further goodwill and brand impairment losses, including on the Kraft brand

  The Kraft brand has very little headroom over its carrying amount, so further write-downs are possible.

• The refinancing of senior notes maturing in June 2026, and the rates paid on new debt

  Debt is large relative to cash flow, and the refinancing terms will show how lenders view the risk.

• Whether the Board resumes the Separation work

  The filing says the Board decided to pause work related to the Separation, and a restart or cancellation would change the shape of the company.

Questions the filings couldn't answer

• How much of the latest loss is impairment, and how much is recurring operating loss? The excerpts give the total charge but not a clean recurring earnings figure.
• Does pricing power hold in categories where private label is growing? The filings do not quantify share losses by category.
• Can the dividend be covered from owner earnings once separation costs and capital spending are known? The excerpts do not give a full cash plan.