Kraft Heinz, in announcing its financial results for the 2018 fiscal year and the year’s final quarter, revealed a net loss of $12.6 billion. At the same time, the company revealed that it was under investigation by the U.S. Securities and Exchange Commission (SEC).
The fiscal year for Kraft Heinz, parent company of Oscar Mayer and the fifth largest turkey company in the United States, concluded on December 29, 2018, and the results were announced on February 21.
The $12.6 billion net loss for the quarter was a 258 percent drop when compared to the company’s net income of just a little more than $8 billion for the final quarter of fiscal year 2017. For the full year, Kraft Heinz faced a $10.3 billion loss, compared to a net income of nearly $11 billion for fiscal year 2017.
“Profitability fell short of our expectations due to a combination of unanticipated cost inflation and lower-than-planned savings,” Kraft Heinz CEO Bernardo Hees said in a press release. “Going forward, our global focus will remain on leveraging our in-house capabilities, developing our talented people, and delivering top-tier growth at industry-leading margins."
During the fourth quarter, as part of the company's normal quarterly reporting procedures and planning processes, the company concluded that, based on several factors that developed during the fourth quarter, the fair values of certain goodwill and intangible assets were below their carrying amounts. As a result, Kraft Heinz recorded non-cash impairment charges of $15.4 billion to lower the carrying amount of goodwill in certain reporting units, primarily U.S. Refrigerated and Canada Retail, and certain intangible assets, primarily the Kraft and Oscar Mayer trademarks. These charges resulted in the net loss, the company stated.
Upon reporting its financial results, Kraft Heinz revealed that it received a subpoena in October 2018 from the SEC associated with an investigation into the company's accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors.
Following this initial SEC document request, Kraft Heinz, along with external counsel, launched an investigation into the procurement area.
In the fourth quarter of 2018, as a result of findings from the investigation, the company recorded a $25 million increase to costs of products sold as an out of period correction as Kraft Heinz determined the amounts were immaterial to the fourth quarter of 2018 and its previously reported 2018 and 2017 interim and year to date periods.
Kraft Heinz said it is in the process of implementing certain improvements to its internal controls, and has taken other remedial measures.
Kraft Heinz added that it is fully cooperating with the SEC.