New Kraft Heinz CEO Pauses Split to Focus on Boosting Profit

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. It is earnings season right now. And one of the most anticipated results, set of results that came out today came from Kraft Heinz, mainly because the food company had been on this mission to split itself up into two in order to really free up its faster growing business from its slower growing business. Christina Peterson is our food industry reporter and has been reporting on Kraft Heinz.

1:46And Christina, the new CEO over at Kraft Heinz surprised everyone by saying, you know what, I'm not going to split up the company. What's the thinking here? That's right. He's only been on the job since January 1st. So I think this came as a surprise to folks that the split was called off about five months after it was announced or paused. There is no end date to the pause. So we don't know if it will at some point resume. But the CEO, Steve Kaelin, said that he came on the job knowing that there had been levels of underinvestment in Kraft Heinz's brands and decided that after reviewing all of them, that there were brands that would respond to more investment.

2:24So they announced that they would be putting$600 million into things like R &D, marketing, and lowering some prices in hopes that that would bolster the entire company and that that would be in a better position, put them in a better position to evaluate whether they should move forward with the split. So what do most investors want? Do you think they want the split up? Sometimes split ups work. A lot of times they don't. What have investors been saying over the past months? There's clearly been some anxiety among investors since the news of the split was announced. I think that the new CEO was seen as there were hopes that he would do what he had done with the Kellogg company, which split into two publicly traded entities.

3:09And then we're both both of those companies were bought by privately held entities. So there was some speculation that the same thing would occur at Kraft Heinz. And Kay Lane said, basically, not yet. There's another twist to all of this, which is that Kraft Heinz's biggest shareholder is Berkshire Hathaway. And Warren Buffett, who runs Berkshire Hathaway until he handed the reins to Greg Abel, said he was never a fan of that idea to split up the company. I mean, he was kind of the mastermind behind Kraft Heinz becoming the behemoth it was, and that didn't work out so well. But he made clear that the split was not a good thing in his mind.

3:44Do we think that has anything to do with this about face? I don't know. It is clear that he had publicly expressed disappointment in the split and his successor had said in a filing that Berkshire Hathaway was taking steps to sell its 28 % stake in Kraft Heinz. So clearly they were nervous about this and not fans of the news. So do we have any idea how long this pause will last? I mean, is he trying to turn stuff around, make it maybe better so if when they do split it up it would be worth more what do we know they clearly are not going to make the decision this year they talked about returning to growth in 2027 so it seems like this is a months away decision oh the investment bankers who had that on their deal sheet for 2026 but they get paid in the meantime for the work that they've done right now you don't get paid until it closes oh really you can't build them along the way no we're not not lawyers okay we get paid we take a cut of the i like how you still say we yeah yeah exactly Because you feel for these guys.

4:44What's next for Kellogg? What's the company want to do now as a standalone company? For Kraft Heinz? Yeah. Well, they've talked about releasing some healthier products. They are launching a Kraft Heinz mac and cheese power mac with protein and fiber. I knew it. I knew it. And they will be lowering prices. They talked about the opening price points being important for low-income families. So those are some of the areas that they're going to be focusing on, some healthier options, more affordable price points. So Kellogg was the example of a company that split into two and then both got taken private.

5:21I mean, is that a trend overall in the food industry to split yourself up after being kind of a big overall food company? You know, I think we're seeing examples of both, of companies getting smaller and bigger. There's obviously a lot more criticism and focus on ultra-processed foods. packaged food companies are dealing with this. We saw the Super Bowl ad this weekend saying processed food kills. So I think big food, generally speaking, is trying to figure out what to do with these headwinds. So what is the story there? Is this a short-term blip, this whole processed food thing? Or has this been brewing?

6:01Because I hear more and more and more about that being a cause for so many of the ills in healthcare and in people's health. I think this is the first time we've seen an administration come down so harshly on ultra processed food. That's clearly been a huge focus of Health Secretary Kennedy and the White House has backed him up on this. Of course, Americans don't always eat the way they say they want to eat. So, you know, there's plenty of Doritos still being eaten, even as people say they're trying to move away from processed foods. Stay with us. More from Bloomberg Intelligence coming up after this.

6:41You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Hilton Hotel reporting some numbers here today. Beat expectations. You know, people can't get a room anywhere. If you do, you've got to pay through the nose. And the consumer seems to be doing fine when you look at some of that stuff. Brian Egger, senior gaming and lodging analyst, joins us here in our Bloomberg Interactive Broker Studio. Hilton worldwide stocks up about 1 % today, 52-week high today.

7:16So pretty good for them. It's got a market cap of$75 billion. What did Hilton report from an earnings perspective? Yes. I mean, what we saw in the quarter was kind of mixed in terms of U.S. being down a little bit or maybe a little below REF PAR in the fourth quarter, mostly because of the government shutdown. So a bit weaker inbound travel to the U.S., a little bit weaker government travel. But the outlook for next year, I should say for this year, 126 is pretty good, 1 % to 2 % red part growth. That's revenue per available room. Per available room, yep. And so leisure, group, luxury, all kind of strong, international, a little stronger than the U.S.

7:51But although this is an aging upcycle in the lodging industry, it's still got some likes to it. Now, Hilton, along with many of the other hotel companies like Marriott, has an asset-like business model, which means that it's brand licensing, right? They don't actually own and manage any of their own properties. And that allows it to move more nimbly. The profit margins are much higher. What's the downside of that, Brian? So, I mean, there's some benefit to actually owning the real estate when you're really in an upcycle. But this kind of fee-based model is a very capital-efficient way to expand and grow.

8:22You get your franchise fees and management fees. they've got a little bit of owned hotel exposure as well but most of the lodging companies separate from the reeds are actually asset white manager franchisers with some owned assets yeah i'm looking at you know you got a company with you know 13 billion of revenue call it you know 4 billion of ebitda 100 million of capex are you kidding me that is awesome so who builds who who builds a if hilton wants to build a new hotel in south beach they don't build it somebody else builds it yeah so you're you have like ownership entities obviously you've got the rates like park hotels resorts and others that own the real estate so this is as you said like an asset white franchised management tree driven business with some own hotels there is some hotel exposure so what do they do with all the free cash flow review they get you know most of that ebitda goes down to the free cash line they have been returning capital right so they've got capital returns and there is real opportunity for growth within their business model.

9:22A lot of that is international. A lot of conversions, a lot of conversions from other assets that fit very well under their brand flags. And they have also been launching some new brands as well in kind of that lifestyle category. How many brands do they have right now? So where are they now? I know Marriott's 31. I'm trying to remember what the hell is. So that's all those 31. Is that just slicing and dicing the market? Yeah, it is. I mean, yeah, I think overall, All of you slice the market segment-wise. Hyatt and Marriott are more prominent in the luxury highest end. Hilton has some luxury, but it's also got a very solid kind of mid-scale limited service portfolio.

9:58And so what you tend to see is that in this environment, luxury upscale tends to outperforming. And the limited service is somewhat weaker, partly because that's where you've got the government travel. You've got the transient independent business travel. But stuff like leisure, group, luxury, particularly international markets, UAE, Europe, non-China, Asia, all have been really quite strong. I wonder, Brian, I know you don't cover Airbnb as a company, but do you ever see any correlation between the performance of Airbnb and a Hilton or Marriott? Because I'm sure in markets where Airbnb is not allowed, like New York City, for instance, Hilton benefits.

10:40I tend to think of the OTAs, the Airbnbs of the world, as being a factor with respect to both Las Vegas lodging, particularly in kind of the value-conscious consumer limited service. You've got some extra inventory there where it's good for that kind of last-minute inventory management. But the big focus of Hilton Marriott Hyatt has been the loyalty programs and the strong correlation between loyalty members and kind of booking directly. So there's that aspect as well. The Walt Disney Company called out in their theme park business some weakness on inbound international travel. Are the hotels seeing that as well?

11:16There is some of that. I mean, some of that's from Canada, tariff-related. I think kind of that globally, the weaker areas maybe are inbound U.S. travel, U.S. government travel. China's kind of flat. The strong areas are all the other categories we talked about, you know, luxuries, group travel. I always say to my Canadian friends, you know, the first time it drops like below 20 degrees or 10 degrees in like November, you guys are booking your flights down to Florida. You'll sing a different tune, right? You'll sing a different tune. Brian, how exposed are the Hiltons and the Marriott's of the world to, you know, the whole credit card debate?

11:52You know, the president wanting to cap interest rates to 10 percent on credit card companies and that putting at risk all these reward credit cards. Right. Right. Well, I mean, it's a consideration partly because a big part of that franchise fee line you see for Hilton Merit is actually fees from co-branded credit cards. That's actually a big kind of fee source. So all else being the same, the royalty rates and the level of credit card activity are somewhat of a driver for these franchise fees, these, I should say, co-branded credit card license fees, which kind of find their way into the franchise fee line.

12:27So it is important. Stay with us. More from Bloomberg Intelligence coming up after this.

12:36You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's get back to earnings right now because plenty of companies reporting. We are past the point where big tech is reporting. Now it's consumer related companies. We have a telecom name reporting one of the biggest, T-Mobile, adding fewer subscribers than anticipated. Yet the stock is moving higher. John Butler is our senior telecom analyst. And John, in terms of the actual growth in its subscribers, this was a disappointing quarter for T-Mobile.

13:17It was a bit of a disappointment for T-Mobile, Scarlett. But I think one of the things that really impacted them is we've seen Verizon, which now has a new CEO who's come in. He's very volume focused. So he's out there. They're promoting heavily. They're trying to win new subscribers. And I think it took a bit of a dent out of T-Mobile's growth in the fourth quarter. I think one thing T-Mobile did, which was smart, is they combined the 4Q report with a Capital Markets Day update. They updated their 2027 guidance and they increased their free cash flow outlook for 27 by 1.5 billion. And so when you saw them do that, you saw an inflection in investor sentiment almost instantly.

14:07Because, again, this has gone from a story of revenue growth now. They're pivoting more to free cash flow growth. They're really pointing investors to that bottom line to, you know, get the focus off of revenue growth as things get more promotional and as industry growth slows. So is this a new wave of just, I guess, across the board? If Verizon's getting a little bit more promotional, this T-Mobile to AT &T, do they have to respond or are there other things they can do? So great question, Paul, right? We're in a mature industry backdrop now. Growth overall is slowing for everyone. T-Mobile is not alone in pointing to free cash flow growth.

14:55You've got AT &T and Verizon doing the same thing. And so I think, again, with that new CEO in place now, you've got T-Mobile sort of driving a growth story that centers on not only smart promotion, but also driving into adjacent markets like advertising and even credit cards. Yeah, I'm a T-Mobile subscriber, and there's always a ton of emails from the company offering all kinds of different services and deals. It really feels like they're just trying to envelop you into their ecosystem. John, I kind of call the effort to sell internet access to ad broadband customers, a side hustle for these telecoms companies.

15:37But this is how they can make sure that they continue to build out their customer base, even as they try to fight for market share when it comes to mobile phone subscribers. How is that side hustle going for T-Mobile? So the side hustle, as you call it, and I think that's a good word for it, is still small right now. I think the real opportunity for them in the near term, Scarlett, lies in the broadband business. They're pushing into fiber, another side hustle. It's small, but I think over the next couple of years, it could increasingly contribute to growth. And then at the core of the broadband business is their fixed wireless access business.

16:20So delivering broadband to the home over cellular spectrum, that's been very popular and T-Mobile remains a real leader there. It continues to be a growth engine for them. And so I think when you pair that with the ad business, the credit card business, and more importantly, the fiber business, it all adds up to help sustain that free cash flow growth and call it the 5 % to 6 % range, maybe even more as we go forward over the next three years. John, just about 30 seconds. Dividend policy, T-Mobile's got a 1.8 % yield, Verizon 5.6%, and AT &T 3.9%. So there's something for everybody in terms of investors.

17:06Does T-Mobile, do they worry about their dividend yield? Little less so than share buybacks. In fact, one of the things they did with Capital Markets Day was announced that they're buying back$5 billion in shares over the course of the first quarter here, which is double the normal rate. So, you know, I think they're leaning more into that than dividend growth, although it's part of that share buyback program. And it's going to continue to be as we go forward here. Stay with us. More from Bloomberg Intelligence coming up after this. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m.

17:46Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's check in with somebody who's in the TV business, in the TV advertising business, trying to make it easier for small and mid-sized businesses to really get their message out there versus via all these digital opportunities here, including television. Mark Douglas, president and CEO of Mountain. That is a publicly traded company, a newly publicly traded company, tickers MNTN. And they reported numbers just today, I think. Stock's up 30%. So I guess just today.

18:21So I guess the market likes what they heard here. Mark, appreciate you coming in our studio here. Thank you. Talk to us about Mountain. I know you guys are trying to work with small and mid-sized businesses and help them get their advertising message out in a world that's got tons of digital and analog opportunities. So talk to us about what's going on in your business. Yeah, absolutely. So what we do is television and streaming television in particular has been underserved, but for small businesses. It's just been very hard, very expensive for small midsize businesses to use that medium. And what we did is we turned it into a performance marketing channel, like something that they can add to their marketing mix along search, along social and use streaming TV to get the next customers.

19:03And we've been consistently growing. And, you know, we did earnings last night and and I had a very strong quarter in Q4, very strong ended a very strong year. And and we're, you know, our focus is on continuing to just execute the business and do the same. And I am assuming for even the small businesses, the opportunities lie in things like live sporting events, because those are must view appointment washing that you don't get from other shows. Yeah, absolutely. Well, the nice thing about streaming is you can everyone can find whatever is their thing that they love to watch. For me, actually, one of the things I love talking about in this business is just like the shows I like.

19:43So I'm a big fan of Traitors right now. Love that show on Peacock. Cannot wait. They only release one episode a week. I'm like, kind of, damn, you can't just get all 10 episodes at once. But, you know, live sports. I watch the Super Bowl. You have March Madness coming up. You have a lot of dating shows for Valentine's Day. So all of that, we give our customers access to all of that kind of content, get their message and really target it. And most importantly, measure the impact, how much revenue that drive to their business. And so we pioneered this space. We call it Performance TV. We literally created the term Performance TV.

20:21It's now ubiquitous in the advertising industry. And we just kind of keep growing into the scaly opportunity, which we think is enormous. Talk to us about AI. How's AI impacting the advertising business? Meta calls it out. Google calls it out as it relates to their YouTube business and their search business. How do you see it impacting it? It's having an impact across the board. The obvious is on the creative. The time to get creative, like meaning what does it take to get a TV commercial? used to be a lot of costs, very time consuming, lots of people involved. That still occurs for some of the creative, but increasingly there's AI creative.

20:59We ourselves are now putting out two to three mountain branded TV commercials a week that are being created like in under a day. We have what we now refer to as AI creators using our own tools to do that. And it's just substantially lowered the cost. We did a video last week for around the show Heated Rivalry, which is kind of a hot show right now. So video has hockey players in it and so forth. Got created in under a day, cost$500. If we tried to do that in the physical world, that would have been like six weeks, 50 grand, 100 grand to film that. And so I think there's a mixture of still filmed video, AI video, and you use what's appropriate for exactly what you're trying to do.

21:49Does that mean that the images that the viewer sees is AI generated? Yes, fully AI generated, 30 second. Do you have to put a disclaimer or disclosure on that or that doesn't come up? We don't have to. I actually would like to. My personal view is all AI video should be labeled AI, period. I actually, you know, there's a canned spam act for email. I think there should be a similar act for AI content that if I'm on Instagram or I'm watching a commercial on TV, I should know that this is, you know, AI created. And that's that's kind of a personal opinion. I don't see a downside to that. And I think people would appreciate the transparency.

22:25They don't want to guess what they're looking at. You know, is it kind of real? We ironically, we ran another ad campaign the other day with Jamil White, who's a famous child actor and now is involved in a lot of projects as an adult. And the campaign was, is it AI? So just putting it out there. Yeah. And so. So, Mark, I know you guys with your company, you guys are so involved in the media space in general from the advertising side. What do you make of what's going on with Warner Brothers Discovery? It just seems to be kind of out there. I don't know if Netflix is going to buy them. Paramount's going to buy them.

23:03If Paramount doesn't buy them, what happens to Paramount? What are you guys in what's the scout about out there? Well, for full disclosure, I worked for Larry Ellison early in my career and I didn't see him lose very often. And so, I mean, when he's determined, he's ferocious. But obviously, Netflix is very capable. They have an incredible management team. I think ultimately it comes down to dollars. I don't know how it doesn't. I mean, and at the moment, I believe that, you know, Paramount has a bigger offer on the table. But unless there's elements of the offer that haven't been published. So, you know, and I think Paramount strategy is let's take let's literally take it to the streets and do a tender offer.

23:48So we'll see how that plays out. I'm pretty bullish on Paramount, but I know a lot of people on Netflix and they determined also. So unless they're gonna come in over the top, I think Paramount has a real shot here. Can I just jump in here? Is this okay if I? Absolutely. Matt Miller. I just wanted to swing by Matt Miller from Bloomberg Television. I anchor open interest every weekday from nine to 11. Former Bloomberg Intelligence host. And a friend of the program. Yes. I've been friends with Mark Douglas for a number of years and I feel like you're being really diplomatic. This does not look good for Paramount at all.

24:22Even if they get it across the line at this level, they're so levered up that they're going to have trouble meeting their payments. I mean, free cash flow isn't going to be that strong. So it seems like a dead deal like Netflix has won. Well, I mean, Netflix certainly has access to a tremendous amount of capital and they have the capital. But I mean, Larry Ellison, if he's guarantee, you know, if he's providing guarantees, I think that carries a lot of weight. But he hasn't raised his price yet. That's what everyone's waiting for. Nobody can. I think he can. Why isn't he? Well, because he's doing everything but that.

24:57And he has the ability to do that. But as Matt was pointing out, you still got to do something to improve the pro forma capital structure. That's just a banker speaking. I don't know. I also, my thoughts on the deal is the deal is a nice half for Netflix. It's a must have for Paramount. Like it just literally is a must have for Paramount. Matter of survival. Yeah. And so, you know, I think when something's a must have, you kind of get to the finish line. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m.

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