Kraft Heinz: Splitting Kraft Heinz in Two Ends a Union That Was Rife With Challenges

Key Morningstar Metrics for Kraft Heinz

• Fair Value Estimate: $51
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

Kraft Heinz KHC intends to split its sauces, spreads, and seasonings arm ($15.4 billion in annual sales) from its North American grocery brands ($10.4 billion). The transaction to create two separate public companies is slated to close in 2026’s second half. Shares fell 5% on the news.

Why it matters: Kraft Heinz has failed to ignite sales growth. This predicament has become more challenging against a backdrop of weak consumer spending, increased regulatory oversight, and heightened demand for healthier products.

• Management contends that a separation affords enhanced focus to steady its brand standing. However, we believe the primary motivation is to unlock a higher multiple for the higher-margin, faster-growing sauces business.
• This move largely unwinds the marriage of Kraft and Heinz from a decade ago and mirrors similar simplification actions from WK Kellogg/Kellanova, Kraft/Mondelez, Conagra/Lamb Weston, Sara Lee, Fortune Brands, and others over the past 10-15 years.

The bottom line: When considering the pending split and the dis-synergies we expect from added logistics and back-office functions, we maintain our fair value estimate for narrow-moat Kraft Heinz at $51, which incorporates a sum-of-the-parts analysis. Our Standard Capital Allocation Rating holds.

• Our sum-of-the-parts analysis assumes that the global sauces segment garners an EBITDA multiple of 14 times (based on strong sales growth and profit potential) and a lower 9 times for the less attractive North American grocery business.
• Kraft Heinz still trades far below our fair value estimate on concerns for the potential for lasting volume contraction on persistent inflation pressures and intensifying competition.

Long view: We expect efforts to unearth cost savings (with $1.5 billion achieved of the $2.5 billion targeted by 2027) will remain a priority for each of the businesses. These funds should fuel continued brand spending, which we view as crucial to maintaining share with consumers and retailers.