Here’s How Berkshire Hathaway Handles its Kraft Heinz (KHC) Position

Jose Karlo Mari Tottoc
·5 min read

Warren Buffett's Berkshire Hathaway, a premier conglomerate company and investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. Despite earning $42.5 billion in 2020, Berkshire made no sizable acquisitions resulting to a 9% operating earnings drop. Berkshire's annual percentage change in per-share market value was 2.4% in the past year compared to 18.4% of S&P 500 with dividends. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Berkshire Hathaway, in their Q4 2020 investor letter, said that their position in The Kraft Heinz Company (NASDAQ: KHC) is the most significant investment accounted for pursuant to the equity method. The Kraft Heinz Company is a Chicago, Illinois-based food company. It currently has a $46.3 billion market capitalization. Since the beginning of the year, KHC delivered a 9.20% return, extending its 12-month gains to 45.41%. As of March 5, the stock closed at $37.85 per share.

Here is what Berkshire Hathaway has to say about The Kraft Heinz Company in their Q4 2020 investor letter:

"We exclude our Kraft Heinz holding — 325,442,152 shares — (In the list of 15 common stock investments that at yearend were our largest in market value) because Berkshire is part of a control group and therefore must account for that investment using the “equity” method. On its balance sheet, Berkshire carries the Kraft Heinz holding at a GAAP figure of $13.3 billion, an amount that represents Berkshire’s share of the audited net worth of Kraft Heinz on December 31, 2020.

Berkshire and its subsidiaries hold investments in certain businesses that are accounted for pursuant to the equity method. Currently, the most significant of these is our investment in the common stock of The Kraft Heinz Company (“Kraft Heinz”). Kraft Heinz is one of the world’s largest manufacturers and marketers of food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Berkshire currently owns 325,442,152 shares of Kraft Heinz common stock representing 26.6% of the outstanding shares.

We recorded equity method earnings from our investment in Kraft Heinz of $95 million in 2020, $493 million in 2019 and losses of approximately $2.7 billion in 2018. Equity method earnings (losses) included the effects of goodwill and identifiable intangible asset impairment charges recorded by Kraft Heinz. Our share of such charges was approximately $850 million in 2020, $450 million in 2019 and $3.7 billion in 2018. We received dividends from Kraft Heinz of $521 million in each of 2020 and 2019 and $814 million in 2018, which we recorded as reductions in our carrying value.

Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment was approximately $11.3 billion at December 31, 2020 and $10.5 billion at December 31, 2019. The carrying value of our investment was approximately $13.3 billion at December 31, 2020 and $13.8 billion at December 31, 2019. As of December 31, 2020, the carrying value of our investment exceeded the fair value based on the quoted market price by $2.0 billion (15% of carrying value). In light of this fact, we evaluated our investment in Kraft Heinz for impairment. We utilize no bright-line tests in such evaluations. Based on the available facts and information regarding the operating results of Kraft Heinz, our ability and intent to hold the investment until recovery, the relative amount of the decline and the length of time that fair value was less than carrying value, we concluded that recognition of an impairment loss in earnings was not required. However, we will continue to monitor this investment and it is possible that an impairment loss will be recorded in earnings in a future period based on changes in facts and circumstances or intentions."

Photo Credit: Roland Balik/USAF/Creative Commons

In January 2021, we published an article about the 10 best food stocks to buy now and The Kraft Heinz Company (NASDAQ: KHC) is part of it. KHC delivered a 10.93% return in the past 3 months.

Our calculations show that The Kraft Heinz Company (NASDAQ: KHC) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, The Kraft Heinz Company was in 36 hedge fund portfolios, compared to 39 funds in the third quarter.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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