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Buffett's Berkshire stung as Kraft Heinz bet drops to record low

Berkshire’s stake would entitle it to recognize almost $230 million in profit from Kraft Heinz’s first-half results.

Bloomberg|
Last Updated: Aug 08, 2019, 09.55 PM IST
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By Katherine Chiglinsky

The good news: Berkshire Hathaway Inc. finally has a handle on how Kraft Heinz Co.’s business is performing after months of silence. The bad news: a big writedown for Warren Buffett’s company may be coming.

Kraft Heinz shares plunged to a record low after reporting that profit slipped 15% in the company’s home market. That leaves Berkshire’s 27% stake worth $8.5 billion, well below the $13.5 billion it has Kraft Heinz marked on its books.

Buffett’s company has been burned by its Kraft Heinz bet as the packaged food giant reeled from a $15.4 billion writedown and a Securities and Exchange Commission subpoena announced in February. The billionaire investor, who teamed up with 3G Capital to form Kraft Heinz, said that month that he had no intention of selling any of Berkshire’s stake in the company but also didn’t expect to buy more because it wasn’t “worth as much.”

Berkshire said in its earnings report Saturday that it decided not to take a writedown on its Kraft Heinz stake as of June 30, despite a more than $3 billion gap between the market price and its carrying value at the time. That was due in part to the gap being only a few months old, and to Berkshire’s “ability and intent to hold the investment until recovery.” But Buffett’s firm noted an impairment was possible in future periods.

Berkshire’s stake would entitle it to recognize almost $230 million in profit from Kraft Heinz’s first-half results. That’s less than half of the $467 million it recorded in 2018’s first six months.

Kraft Heinz hadn’t issued any 2019 results until Thursday as it worked to resolve issues. Berkshire’s first-quarter earnings, and the second-quarter results it announced on Aug. 3, excluded Kraft Heinz.

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