Kraft Heinz taps former Kellogg chief as its CEO as it prepares to split into two companies
Steve Cahillane steps in to steer Kraft Heinz through its high-stakes breakup.
FILE PHOTO: Bottles of Heinz Ketchup are displayed on a shelf in a supermarket in Sarajevo, Bosnia and Herzegovina October 29, 2024. REUTERS/Dado Ruvic//File Photo
LOS ANGELES: Kraft Heinz KHC.O on Tuesday (Dec 16) named former Kellogg chief Steve Cahillane as its CEO, tasking the industry veteran with leading the packaged food giant through a planned split into two standalone companies.
The company had in September decided to break up, with one focused on condiments like Heinz ketchup and the other on grocery food brands like Oscar Mayer.
Cahillane, 60, will begin the new role from Jan 1 and joins a growing list of global consumer goods companies to make top-level changes this year. He will succeed Carlos Abrams-Rivera, who will serve as an advisor until Mar 6.
Abrams-Rivera, who became CEO in 2024, was pegged to head the grocery unit after the split, which is expected to be completed by the second half of 2026. But on Tuesday Kraft Heinz said the board would initiate a CEO search for the business.
VALUATION TRAILS PEERS
Shares of the company have lost about 75 per cent of their value from the peak of US$97.77 in 2017 and are down nearly 30 per cent since Abrams-Rivera took the helm in Jan 2024.
The forward price-to-earnings multiple of its stock, a key valuation metric, is 9.73, compared to 17.67 for PepsiCo, 22.04 for Coca-Cola and Mondelez's 17.21, according to LSEG data.
Incoming CEO Cahillane told Reuters in an interview that he plans to fix the lack of organic growth, which has led the company's stock to trade at a discount.
Kraft Heinz had in October cut its annual sales and profit targets as budget-conscious consumers continued to prefer cheaper private label brands.
Cahillane would also serve as CEO of the sauces and spreads unit after the split, which aims to reduce operational complexity and improve focus on each business as high inflation and economic uncertainty hobble demand.
"(Cahillane's resume) suggests the board wants to reduce execution risk and make the new 'Taste Elevation' (the sauces unit) look coherent, investor-ready entity rather than a kitchen disaster," said Michael Ashley Schulman, chief investment officer of Running Point Capital Advisors.
The sauces and spreads business had sales of about US$15.4 billion in 2024, while the other company, which would consist of processed foods and ready-meal brands, had about US$10.4 billion in annual sales.
Packaged food companies like Kraft Heinz are also facing pressure from the rising adoption of weight-loss drugs and the "Make America Healthy Again" movement led by Health Secretary Robert F. Kennedy Jr., who blames artificial ingredients for chronic childhood diseases.
"I think it (GLP-1 drugs) has an impact on the portfolio, there's no doubt about it," Cahillane told CNBC.
"THE RIGHT THING TO DO"
Cahillane had led Kellogg through its separation in 2023 and was CEO at Kellanova, the global snacking business, until it was acquired by Mars for about US$36 billion this year. He has also worked with Coca-Cola and AB InBev.
"This move further fans investor speculation about Taste Elevation being a potential deal target," Jefferies analyst Scott Marks said in a note.
Cahillane on Tuesday endorsed the company's split and said he had the right to improve upon the plans. "I'm looking forward to executing it, I think it's absolutely the right thing to do."
