Kraft Heinz has been forced to restate nearly three years of results, after an internal investigation uncovered serious accounting problems at the Warren Buffett-backed food company.
An internal probe, launched after the company received a subpoena from the Securities and Exchange Commission earlier this year, found evidence of “misconduct” in its procurement operations, Kraft Heinz said on Monday.
The company behind Philadelphia Cream Cheese and HP Sauce also disclosed that the SEC had widened a probe into its accounting. In addition to procurement, the regulator was now examining a $15bn writedown that Kraft Heinz took in February.
While the company said discrepancies uncovered during an internal investigation were not “quantitatively material”, more than $180m in adjustments would be required to fix errors in previously issued accounts for 2016, 2017 and the first three quarters of 2018.
Only a minority of the sum related to employee misconduct, said a person with knowledge of the situation, who added that several individuals had left the company as a result of the investigation.
Kraft Heinz had improperly accounted for arrangements with suppliers, which the company described as “complex”. In particular, there were problems in how it had recognised costs and rebates.
“The review identified additional misstatements, which may or may not have resulted from the misconduct,” Kraft Heinz said. Rebates and upfront payments from suppliers, some of which had been contingent upon future events, had been booked too soon instead of over the length of the contracts, it said.
The effect was to flatter short-term profits. Kraft Heinz, whose accounts are audited by PwC, said the required changes equated to between 0.7 and 1.5 per cent of adjusted profits in each of the three years in question.
Its internal inquiry, which the company said was substantially complete, did not identify any wrongdoing by any member of the senior management team. The company was taking “remedial actions” and was making “improvements to its internal controls”, it said.
Kraft Heinz has already missed a submission deadline for its 2018 annual report and its earnings filing for the first quarter of 2019 would also be delayed, it said. Mr Buffett’s Berkshire Hathaway, a big shareholder, said on Saturday that its own first-quarter earnings were incomplete because it could not yet properly account for its Kraft Heinz stake.
Kraft Heinz’s chief executive Bernardo Hees said last month he was leaving the company. He is being replaced by Miguel Patricio, a marketing executive from the brewer AB InBev.
The second SEC subpoena, received in March, covered the company’s “assessment of goodwill and intangible asset impairments”, as well as demands for more detail about its procurement arrangements.
On top of the $180m misstatements related to procurement and supplier contracts, the company also said on Monday that it had identified some errors in how it had calculated the $15bn writedown. The impairment losses were $13m higher.
Shares in Kraft Heinz, which have lost about 44 per cent over the past year, were modestly higher in early New York trading.
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