(Reuters) – Kraft Heinz Co’s (KHC.O) debt rating was cut to “junk” by global credit ratings agency Fitch on Friday, a day after the ketchup and sausage maker reported lower-than-expected quarterly sales and wrote down the value of some businesses.
Shares of Kraft Heinz, in which billionaire Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) and Brazilian private equity firm 3G own major stakes, fell about 4%.
Chicago-based Kraft Heinz, which last year took a $15.4 billion writedown of key brands including Oscar Mayer hot dogs, has been struggling to grow sales as consumers shift to healthier options and private-label brands.
“Following Kraft’s commentary around 2020 operating headwinds and its commitment to maintain its dividend, Fitch estimates the company may need to divest up to 20% of its projected 2020 EBITDA to support debt reduction,” the agency said.
Kraft Heinz said on a post-earnings call on Thursday that currency fluctuations, divestitures, supply chain costs and bonuses related to the turnaround would likely lead to a decline of about $460 million in full-year earnings before interest, taxes, depreciation and amortization (EBITDA).
“We believe it’s important to Kraft Heinz shareholders to maintain our dividend during this time of transformation,” Kraft Heinz said in response to the cut in credit rating.
Fitch lowered its long-term rating on the company to ‘BB+’ from ‘BBB-‘, but kept its outlook at stable.
BB level, or “junk”, rating for companies is seen as having higher risk to lenders. (bit.ly/2OV2Kin)
Separately, Moody’s also revised its rating outlook to “negative” from “stable”, saying it expects falling operating performance and high debt levels to continue through 2020. (bit.ly/2SsK1x1)
As of August, Kraft Heinz is rated “BBB-“ by S&P, the lowest investment-grade rating. At least eight Wall Street analysts lowered their price targets on the stock after the company reported disappointing results.
Reporting by Nivedita Balu in Bengaluru; Editing by Anil D’Silva