PITTSBURGH – The share price of Kraft Heinz Co. plummeted more than 27 percent to a record low in early trading on Feb. 22 after the Pittsburgh-based company said it was forced to write down the value of its Kraft and Oscar Mayer brands by $15.4 billion.

The charges contributed to a difficult fourth quarter and full fiscal year at Kraft Heinz. In the full year ended Dec. 29, 2018, Kraft Heinz sustained a loss of $10,229 million which compared with income of $10,999 million, equal to $9.03 per share on the common stock, in fiscal 2017. In the fourth quarter, Kraft Heinz sustained a loss of $12,608 million, which compared with income of $8,003 million, or $6.57 per share, in the same period a year ago.

Net sales, meanwhile, improved marginally in both the full year and fourth quarter. Fiscal 2018 sales totaled $26,259 million, up from $26,085 million, while fourth-quarter sales totaled $6,891 million, up from $6,844 million.

Commenting on the impairment charges in a Feb. 21 conference call with investment analysts, David H. Knopf, executive vice president and chief financial officer, said the write-down primarily reflected revised margin expectations in three businesses: Kraft natural cheese, Oscar Mayer cold cuts and Canadian retail.

“The fundamental driver behind the reduction in expectations was driven by our second-half performance, which was primarily driven by supply chain issues that we had in the cost side,” Knopf said. “And then, just to provide a little more context, since the merger, we’ve also seen significant pressure on valuations from a higher discount rate come into play.”

Despite the setback, Bernardo V. Hees, chief executive officer, told analysts that Kraft Heinz believes its model is working and has potential.

“The miss we had, and we’re acknowledging here properly, has been focused on operations, supply chain, United States,” Hees said. “The commercial momentum — consumption growth continues to accelerate rightly so. With the investments that we’re doing since 2018, now 2019. We can say we have the right base to be growing, through consumption, volumes and share, at the same time, maintaining high leading margins to the industry.”

Hees said Kraft Heinz expects to be in a solid position to grow its top and bottom lines into 2020. He said the company has set three objectives for 2019: leverage margins to sustain commercial momentum, more actively manage its portfolio and strengthen its balance sheet as it positions for industry consolidation.

Knopf, though, cautioned that fiscal 2019 is likely to get off to a difficult start, with an expected high-teens decline in adjusted EBITDA in percentage terms. And while Kraft Heinz may take a step backwards in 2019, he said the company is confident it will be able to deliver consistent profit growth from 2020 onwards, driven by fully leveraging advantage brands, cost structures and capabilities.

“The rest of our plan is focused on how we can take additional steps to improve our portfolio’s growth trajectory, strengthen our balance sheet and position ourselves against inorganic opportunities,” he said. “It starts with the potential for more active portfolio management, specifically through divestitures as a way to further improve our growth and returns as well as accelerate our deleveraging.

“The recent transactions we have announced, Indian beverages and Canada Natural Cheese, provide a good template of precedent for additional actions to exit areas with no clear path to competitive advantage and sell assets with strong valuations with some earnings dilution. We have now dedicated more resources, adding experience with Carlos Piani fully focused on our portfolio management efforts. And as we’re able to execute such actions, we will look to deleverage with the proceeds, which leads to our next objective, further strengthening our balance sheet.

“I think it’s important to first recognize that we have the capacity to drive industry-leading cash generation along with industry-leading margins and expect to hold existing working capital and CapEx levels even as we drive the growth agenda we’ve outlined. In addition, given the industry backdrop and opportunities in front of us, we now see even greater strategic advantage in accelerating our deleveraging toward our ongoing 3x leverage target and strengthening the term structure of our debt. To do this, we’re undertaking two specific actions: first, we intend to dedicate the divestiture proceeds from the sale of our India beverage and Canada Natural Cheese businesses to debt reduction. We also intend to do the same with proceeds from additional divestitures we are currently considering.

“Second, we’re announcing a reduction in our quarterly dividend to 40c per share, or $1.60 per year, down from a rate of $2.50 per year. This will not only provide us greater balance sheet flexibility, it will also establish a base dividend that we can grow consistent with EBITDA growth over time.”

Along with the release of its financial results, Kraft Heinz said it received a subpoena in October 2018 from the US Securities and Exchange Commission associated with an investigation into the company’s procurement area, more specifically the company’s accounting policies, procedures, and internal controls related to its procurement function, including, but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors. As a result of findings from the investigation, Kraft Heinz recorded a $25 million increase to costs of products sold as an out-of-period correction. Knopf said the misstatement was not material to current or prior-year financial statements.