Kraft Heinz Could Sell Oscar Mayer: What It Means for Investors

Kraft Heinz Could Sell Oscar Mayer: What It Means for Investors

My Bologna has a first name, it’s OSCAR…

We all recognize Oscar Mayer’s famous jingle. But the brand has much more than Bologna. It also offers hot dogs, bacon, deli meats and its Scrambler Breakfast Bowls to go. The brand has changed hands several times over the past 40 years, eventually falling under the name Kraft Heinz (NASDAQ:KHC) umbrella during the merger of Kraft and Heinz in 2015.

Oscar Mayer may be about to change hands again. According to The Wall Street Journal, Kraft Heinz hired financial professionals to see if there was interest in buying the brand. If things go well, the company hopes to make between $3 billion and $5 billion by getting rid of Oscar Mayer.

Should shareholders be satisfied with this result? Here are some things investors need to know.

What Kraft Heinz might look like without Oscar Mayer

Unfortunately, Kraft Heinz does not publish financial results for its Oscar Mayer brand. But investors should consider that many food stocks such as Hormel, Conagraand even Kraft Heinz itself typically trades on the stock market between one and two times sales late.

Maybe Oscar Mayer would get a slight bonus in a buyout. Reversing this equation, if the company were acquired for between $3 billion and $5 billion, that would put its annual revenue somewhere around $2.0 billion to $2.5 billion.

Examination of Kraft Heinz’s annual report suggests this is the right range. The company had total net sales of $27 billion in 2023. Of that total, 9% ($2.4 billion) was in the meat and seafood category. And Oscar Mayer is a major contributor to its meat business.

Food companies also generally have relatively low profit margins. Assuming that Oscar Mayer has a profit margin of around 5%, his annual profits would be between $100 million and $125 million.

For one thing, Kraft Heinz would be a smaller company without Oscar Mayer, so its $44 billion market cap could shrink. But on the other hand, she could get a big one-time salary from a part of the company with poor growth prospects.

Would this be a good move for Kraft Heinz?

It’s impossible to say whether it would be a good thing for Kraft Heinz to sell Oscar Mayer, because it depends entirely on how management used his bumper salary. And since this is still only at the rumor stage, management has not yet revealed a plan.

However, it could definitely be a good decision. As of the first quarter of 2024, Kraft Heinz had nearly $20 billion in long-term debt – an exorbitant amount that cost the company more than $900 million in interest costs in 2023. Reduce debt by selling Oscar Mayer could help deliver higher profits for shareholders because less money would be required to service the debt.

This is just one example of how Kraft Heinz could use a single salary to improve its business for shareholders. But thinking about things from a more skeptical perspective, it’s hard to see how selling Oscar Mayer could hurt the company if the numbers are close to my estimates here.

Even if Kraft Heinz paid a special dividend or used the proceeds to repurchase shares, it could be a favorable outcome for shareholders. It might not boost the company in the long run, but it wouldn’t necessarily hurt shareholders.

One of the only reasons this might be a bad move would be if Kraft Heinz uses the money to buy an inferior company. It happens: Companies can and do make bad acquisitions. It would just be something investors should think about if it ever comes to that.

Selling Oscar Mayer wouldn’t necessarily be a game-changer for Kraft Heinz. But it could be a good first step towards improving the business. And if management uses the money to take other positive steps, then perhaps this stock will start to perform better after years of lackluster returns.

Should you invest $1,000 in Kraft Heinz right now?

Before buying Kraft Heinz stock, consider this:

THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Kraft Heinz was not one of them. The 10 stocks selected could produce monster returns in the years to come.

Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $566,624!*

Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 values ​​»

*Stock Advisor returns May 13, 2024

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Kraft Heinz. The Mad Motley has a disclosure policy.

Kraft Heinz could sell Oscar Mayer: what it means for investors was originally published by The Motley Fool

Source Reference

Latest stories