At Kraft Heinz, a fed investigation and a $15.4B write-down
Friday, February 22
PITTSBURGH (AP) — Kraft Heinz disclosed an investigation by federal regulators and said it will slash the value of its Oscar Mayer and Kraft brands by $15.4 billion, major setbacks for a company trying to revitalize its stable of household-name brands.
A wave of bad news, which also included a dividend cut and a weak outlook for the year, sent shares plunging 26 percent at the opening bell Friday, their largest decline in a single day. Before noon, the company had lost $16 billion of its market value.
Kraft Heinz cited the impairment charge for a stunning $12.6 billion fourth-quarter loss.
Kraft Heinz said the investigation by the U.S. Securities and Exchange Commission is related to its accounting practices in the division that handles interactions with suppliers. The SEC declined to comment.
The steep write-down and loss in the quarter is a devastating recognition that efforts to change the trajectory of the company have not been as successful as once thought.
Kraft Heinz and other food makers that dominated grocery shelves for much of the post-World War II era have been whipsawed by a seismic shift in what consumers want.
Families, particularly in the U.S., have pivoted away from familiar packaged foods amid a proliferation of products marketed as being more wholesome, or that promise new tastes. The trend hasn’t been good for some of Kraft Heinz’ standbys like Jell-O and Kool-Aid and Oscar Mayer hot dogs.
In the fourth quarter, Kraft Heinz said lower prices in the U.S. helped boost sales volume. Its overall global sales also edged up, but its profit when excluding one-time charges still fell short of Wall Street expectations.
The tie-up of Kraft and Heinz was engineered in 2015 by Warren Buffett’s Berkshire Hathaway and 3G Capital. The Brazilian investment firm is known for taking over companies and improving results by slashing costs.
But the strategy apparently didn’t work as planned at Kraft Heinz.
“We were overly optimistic on delivering savings that did not materialize by year end,” said Kraft Heinz CEO Bernardo Vieira Hees. “For that, we take full responsibility.”
JPMorgan analyst Ken Goldman said the results cast doubt on 3G Capital’s strategy of chasing growth by cutting costs.
“Investors for years have asked if 3G’s extreme belt-tightening model ultimately would result in brand equity erosion,” Goldman wrote.
Goldman said the answer may be in the $15 billion intangible asset write-down for the Kraft and Oscar Mayer brands.
Kraft Heinz brands, of course, have not been the only constant on American grocery shelves for decades.
General Mills Inc., Campbell Soup Co., Kellogg Co., and J.M. Smucker Co. hold the same familiar place in the mind of the American consumer.
On Friday, those household names littered the list of worst-performing stocks on the S&P 500, possibly signaling fears of worse to come this year for the makers of some iconic American brands.
As for the SEC investigation, Kraft Heinz said the subpoena prompted it to launch its own review, which resulted in a $25 million charge for expenses that should have been accounted for previously. The company said it is working to prevent similar mistakes going forward.
The company slashed its dividend by 36 percent Thursday.
That was most worrisome to Stifel analyst Christopher Growe, who stripped his buy rating from the company’s stock. Growe said he doesn’t believe Kraft Heinz is in a strong position as the industry undergoes consolidation because Kraft Heinz is looking to sell off more brands.
“The weak underlying performance of the business and the continued need to reinvest back into the business likely keeps the company from pursuing consolidation any time soon,” Growe said.
He said Kraft Heinz will face rising costs as well as a strong dollar that can cut into profit.
Mexico to help “El Chapo” family seek US humanitarian visas
Friday, February 22
MEXICO CITY (AP) — Mexican President Andres Manuel Lopez Obrador said Friday that he has instructed his government to assist the family of Joaquin “El Chapo” Guzman in seeking humanitarian visas to visit the convicted drug trafficker in the United States.
During a visit last week to Guzman’s hometown of Badiraguato in Sinaloa state, a lawyer passed Lopez Obrador a letter from Guzman’s mother.
“Like any mother asking me for support for her son,” Lopez Obrador said.
Guzman’s mother asked for legal help and assistance obtaining humanitarian visas for two of Guzman’s sisters to visit him.
Lopez Obrador was in Sinaloa to announce a highway construction project in the area.
He said legal questions would have to be dealt with by Mexico’s Interior Ministry, Attorney General’s Office and judiciary.
A reporter had asked Lopez Obrador about reports that Guzman’s mother asked him to arrange to have the drug lord serve out his sentence in Mexico, but the president did not respond directly.
In an interview with Univision just before Lopez Obrador’s visit, Consuelo Loera, Guzman’s mother said, “My request is that they let me go see him and that they transfer him here to Mexico.”
U.S. support for such a request would be extremely unlikely considering Guzman has escaped from two prisons.
But on the humanitarian front, Lopez Obrador said: “I gave instructions that they facilitate (soliciting the visas) and that the sisters be able to go to the United States and to help them according to the laws, regulations that country has, so that they can visit him or have communication.”
Guzman was convicted Feb. 12 in federal court in New York on multiple drug trafficking and conspiracy charges and likely faces a life sentence.
Claims in El Chapo case highlight perils of ‘Googling juror’
By JIM MUSTIAN and TOM HAYS
NEW YORK (AP) — Claims of jury misconduct in the trial of drug lord Joaquin “El Chapo” Guzman have drawn new attention to the digital-age challenge courts face in preventing jurors from scouring media accounts or conducting their own research before rendering a verdict. It’s a phenomenon that has been called the “Googling juror.”
“Everyone has the world at their fingertips,” said Guzman defense attorney Jeffrey Lichtman. “Twenty years ago, you didn’t have to worry about that.”
Lichtman told The Associated Press on Thursday that there are now serious questions surrounding Guzman’s conviction this month on drug-smuggling and conspiracy charges, and that he plans to ask U.S. District Judge Brian Cogan to bring in all 12 jurors and six alternates to question them about reports several flouted admonitions to avoid media accounts of the case.
One juror anonymously told VICE News this week that at least five members of the panel followed media reports and Twitter feeds during the three-month-long trial and were aware of explosive — and potentially prejudicial — material that had been excluded from the proceedings.
“It’s clear we have to get them back into court and get some answers about some massive misconduct,” Lichtman said.
The U.S. attorney’s office in Brooklyn declined to comment Thursday.
In some cases, similar jury shenanigans have been deemed prejudicial enough to warrant a new trial, a possibility experts say can’t be ruled out in Guzman’s case.
“This is a question about fundamental fairness,” said former federal prosecutor Duncan Levin. “It’s presumptively prejudicial for a juror to have this information, and it’s a step more outrageous for them to have accessed it when the judge specifically told them not to.”
Shy of sequestering jurors, stripping them of their electronics and repeatedly warning them, judges are limited in the steps they can take to prevent outside sources of information from infecting deliberations.
“The jury system depends on people being honest in what they say and what they do,” said Rock Harmon, a former prosecutor in Alameda County, California. “There’s just no way to prevent this except to stress what they need to do.”
In El Chapo’s case, the anonymous jurors were not sequestered but were escorted by U.S. marshals to court, where they were required to give up their phones. They were allowed access to their devices at any other time, though the judge gave them a standard instruction each day not to view news or social media about the case.
Still, the juror who spoke with VICE News said five jurors involved in the deliberations and two alternates had heard about child rape allegations that had been made against Guzman and covered by the news media but not admitted into the trial. The juror also described an instance in which a juror used a smartwatch to look up a news story just moments after Cogan met with them privately to ask them whether they had been exposed to any recent media coverage.
“This is a growing phenomenon, and courts are struggling with how to address it,” said Thaddeus Hoffmeister, a University of Dayton law professor whose research has focused on juries. “You’re dealing with people today who have more faith in Google than the witnesses being called to testify.”
The best remedy, Levin said, is for jurors to uphold their oath or face repercussions. In El Chapo’s case, he said, if they acknowledge having disregarded Cogan’s instructions, they should be held in contempt of court.
But convincing Cogan that the misconduct was real and that it is enough to order a new trial is a long shot, said former federal prosecutor Michael J. Stern.
“The judge will have to decide whether there was a reasonable possibility that the information could have affected the jury’s verdict,” Stern said.
Either way, Lichtman said, the revelations surrounding the panel that convicted his client are “sad and distressing.”
Guzman, who is facing a mandatory life sentence, “is going to die in jail,” he said. “That’s why I repeatedly asked the jury to just give him a fair trial. It turns out that was too much to ask.”
EU top official Tusk calls on May to delay Brexit
By RAF CASERT and LORNE COOK
Monday, February 25
SHARM EL-SHEIKH, Egypt (AP) — After nearly two years of bitter and divisive talks on the departure of Britain from the European Union, it has come to this — the sides cannot even agree on a divorce date anymore.
European Union leader Donald Tusk said that with any agreement far from being clinched and businesses fearing a chaotic and costly cliff-edge departure, keeping the Brexit day at March 29 would be too risky.
“I believe that in the situation we are in, an extension would be a rational solution,” Tusk told reporters.
He said “all the 27 (member states) will show maximum understanding and goodwill” to make possible such a postponement, which needs unanimity.
British Prime Minister Theresa May, however, immediately dug in her heels and said she could deliver on the set date, however massive the challenge.
“It is within our grasp to leave with a deal on 29th of March and I think that that is where all of our energies should be focused,” May said.
She said that “any delay is a delay. It doesn’t address the issue. It doesn’t resolve the issue.”
May met EU leaders over two days at the EU-Arab League summit in the Egyptian Red Sea resort of Sharm El-Sheikh.
May met with German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker early Monday as she sought elusive changes to the U.K.-EU divorce agreement.
Britain’s Parliament has rejected the deal once, and May has just over a month to get it approved by lawmakers before the U.K.’s scheduled departure day.
May says a new vote won’t be held this week and could come as late as March 12.
Tusk, the European Council president, said that such a timeframe might get too tight to avoid a chaotic departure.
Tusk refused to say how long such an extension should be as rumors swirled it should go to anything from two months to almost two years.
U.K. lawmakers’ objections to the Brexit deal center on a provision for the border between the U.K.’s Northern Ireland and EU member Ireland. The mechanism, known as the backstop, is a safeguard that would keep the U.K. in a customs union with the EU to remove the need for checks along the Irish border until a permanent new trading relationship is in place.
May wants to change the deal to reassure British lawmakers that the backstop would only apply temporarily.
But EU leaders insist that the legally binding Brexit withdrawal agreement, which took a year and a half to negotiate, can’t be reopened.
A group of British lawmakers will try this week to force the government to delay Brexit rather than see the country crash out of the bloc without a deal. They want Parliament to vote Wednesday to extend the negotiating process.
Labour lawmaker Yvette Cooper, one of those behind the move, said it was irresponsible of the government that just a few weeks before Brexit “we still don’t know what kind of Brexit we are going to have and we’re not even going to have a vote on it until two weeks before that final deadline.”
“I don’t see how businesses can plan, I don’t see how public services can plan and I think it’s just deeply damaging,” Cooper told the BBC.
Raf Casert reported from Brussels. Jill Lawless contributed from London.
Follow AP’s full coverage of Brexit at: https://www.apnews.com/Brexit
UK makes move to ban membership in Hezbollah
By DANICA KIRKA and ZEINA KARAM
LONDON (AP) — The British government will make inciting support for Hezbollah a criminal offense as senior officials accused the Iran-backed organization of destabilizing the Middle East.
A draft order laid in the U.K. Parliament on Monday will ban membership of Hezbollah, alongside two other groups. Subject to Parliament’s approval, the order will go into effect on Friday and being a member, or inviting support for Hezbollah will be a criminal offense, carrying a sentence of up to 10 years in prison.
Hezbollah made electoral gains in Lebanon last year and now has three ministers in the government. The U.S. and others accuse the group of destabilizing the region through its military intervention in Syria on the side of President Bashar Assad’s government.
Home Secretary Sajid Javid said he would take action against organizations that threaten safety and security and in Hezbollah’s case destabilize the Middle East.
“We are no longer able to distinguish between their already banned military wing and the political party,” Javid said. “Because of this, I have taken the decision to proscribe the group in its entirety.”
There was no immediate comment from Hezbollah officials in Beirut.
The European Union put the armed wing of Hezbollah on its terrorism blacklist in 2013, due to Hezbollah’s alleged role in blowing up an Israeli tour bus in Bulgaria. But unlike the United States, they had up till now differentiated between the group’s military and political wings.
The group does not specifically divide itself into armed and political wings and its leader, Sayyed Hassan Nasrallah, has said the group does not operate as two wings.
The British ban comes as the United States is increasing its pressure on Hezbollah, placing several sets of sanctions on the group and its regional backer, Iran.
Last week, the U.S. ambassador to Lebanon described what she labeled as Hezbollah’s “growing” role in the new Lebanese cabinet as a threat to the country’s stability. U.S. officials have also expressed concern that Hezbollah would exploit the ministries it runs to funnel money to fund the group’s operations.
Ansaroul Islam, which seeks to impose its strict view of Salafist Sharia law in Burkina Faso, and Jamaat Nusrat al-Islam Wal-Muslimin, which has similar aspirations in Africa’s Sahel region, were also banned Monday.
Buffett praises potential successors, but no plans to retire
OMAHA, Neb. (AP) — Warren Buffett says two potential successors earned roughly $18 million each last year managing Berkshire Hathaway’s dozens of operating companies.
Buffett appeared on CNBC Monday after releasing his annual letter to shareholders over the weekend.
Buffett says Greg Abel and Ajit Jain have both done a great job since they joined Berkshire’s board in early 2018. Jain oversees the conglomerate’s insurance businesses while Abel oversees non-insurance business operations.
He says one of the two longtime Berkshire executives will likely become CEO eventually, but the 88-year-old Buffett has no plans to retire.
Buffett also says the two investment managers that Berkshire hired several years ago have done well, though their investments have trailed the S&P 500 a bit since they joined Berkshire. He did say both have outperformed his own investments.
Former US security officials to oppose emergency declaration
Monday, February 25
WASHINGTON (AP) — A group of former U.S. national security officials is set to release a statement arguing there is no justification for President Donald Trump to use a national emergency declaration to fund a wall along the U.S.-Mexico border.
The statement, which was reviewed by The Associated Press, has 58 signatures from prominent former officials, including former Secretaries of State Madeline Albright and John Kerry, former Defense Secretaries Chuck Hagel and Leon Panetta and former Homeland Security Secretary Janet Napolitano.
The statement is set to be released Monday, a day before the Democratic-controlled House is expected to vote to block Trump from using the declaration. The measure is sure to pass, and the GOP-run Senate may adopt it as well, though Trump has already promised a veto.
“There is no factual basis for the declaration of a national emergency,” says the statement, which argues that border crossings are near a 40-year low and that there is no terrorist emergency at the border.
Trump declared an emergency to obtain wall funding beyond the $1.4 billion Congress approved for border security. The move allows the president to bypass Congress to use money from the Pentagon and other budgets.
Trump’s edict is also being challenged in the federal courts, where a host of Democratic-led states such as California are among those that have sued to overturn Trump’s order.
UN nuclear watchdog: Iran stays within limits of 2015 deal
By KIYOKO METZLER
Friday, February 22
VIENNA (AP) — Iran is continuing to comply with the landmark 2015 deal with major powers aimed at preventing Tehran from building atomic weapons in exchange for economic incentives despite the United States withdrawing from the pact and re-imposing sanctions, the U.N. nuclear watchdog said Friday.
In a confidential quarterly report distributed to its member states and reviewed by The Associated Press, the International Atomic Energy Agency said Iran has been abiding with key limitations set in the so-called Joint Comprehensive Plan of Action, or JCPOA.
The U.S. pulled out of the deal in May and has been pressuring remaining signatories to abandon it as well.
Every IAEA quarterly report issued since Washington withdrew from the pact reported Iran remained in compliance. A senior diplomat said no noticeable changes in Tehran’s level of cooperation have been seen since the reinstatement of U.S. sanctions.
“It is continuing at the same level as before,” said the diplomat, who spoke on condition of anonymity because he wasn’t officially authorized to discuss the report.
In its latest report, the Vienna-based agency said its inspectors still have access to all sites and locations in Iran they need to visit.
“Timely and proactive cooperation by Iran in providing such access facilitates implementation of the Additional Protocol and enhances confidence,” the report stated, referring to the procedure detailing safeguards and tools for verification.
The same language appeared in past quarterly reports,
The U.N. agency noted that Iran’s stocks of heavy water and low-enriched uranium still were under the limits set in the 2015 pact.
The other nations involved in the JCPOA — Germany, Britain, France, Russia and China — along with the European Union have so far shown no inclination to abandon the agreement. They instead have tried to provide Iran with enough economic incentives to keep it alive.
Last month, Britain, France and Germany established a barter-type system known as INSTEX that is designed to allow their businesses to skirt direct financial transactions with Iran and thereby evade possible U.S. sanctions. Plans call for the payment system to be run from Germany as a financial institution.
The plan has angered Washington, despite reassurances from the Europeans that their initiative would concentrate on products not currently subject to U.S. sanctions, such as medicine, medical supplies and agricultural goods, rather than on broader trade.
Still, at the Munich Security Conference last weekend, U.S. Vice President Mike Pence slammed INSTEX as “undermining” the U.S. sanctions and called on the Europeans to abandon the Iran nuclear deal altogether.
Illustrating the difficulties facing the nations trying to sustain the nuclear deal as they balance American concerns and demands from Tehran, Iranian Foreign Minister Mohammad Javad Zarif told the Munich conference INSTEX does not go far enough.
“Europe needs to be willing to get wet if it wants to swim against a dangerous tide of U.S. unilateralism,” Zarif said.
David Rising in Berlin contributed to this story.