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Warren we're just sitting down with you for the first time since the news last week that Kraft Heinz put out there was so much news it's hard to even summarize it well but they came out with earnings that missed expectations they said by the way it's not gonna get better in 2019 they revealed that there's an SEC investigation taking place in to accounting they wrote down the value of the brands by just over 15 billion dollars were you surprised by any of this news what did you think of what happened because the street was surprised the stock was down over 30% yeah well I may have learned a week or ten days before about something like the SEC investigation and I'm not on the board the grains on the board and I talked to Greg and and Greg had been talking a lot to the head of the Audit Committee and he's a terrific guy Jack Pope but the write down I do my own write downs in my mind so I I was not surprised by that although the accounting firms look at write downs a little differently than I do but I would not argue with him on it and I can give you some math that was substantiated I've been watching I was wrong in a couple ways on Kraft Heinz but the I think we talked the glide luncheon time about the packaged goods brands losing some ground against the retailers six months ago the the glide but the the packaged goods companies are always in a struggle with with retailers might our family had a grocery store for a hundred years and know that we didn't have much bargaining power but the really strong brands and they can go toe-to-toe with Walmart or Costco or whomever it may be but the weaker brands are tend to lose out now the interesting thing about about Kraft Heinz is it's still a wonderful business in that it uses about 7 billion of tangible assets and earns six billion pre-tax ah nuts so on the assets required to run the business seven billion they earn six billion roughly after depreciation pre-tax but we and certain predecessors but primarily we so for us it has to earn on one hundred and seven billion not just on the seven billion that the the business employees and and we don't have a way be wonderful we had a way to deploy another seven billion and six billion but but it isn't there so I think that I think that when you're going toe-to-toe with a Walmart or a Costco or and maybe an Amazon pretty soon and you have a modestly good Brad maybe one word of the trends a little against or something like that you know you've got the weaker bargaining hand than you had ten years ago the really classic situation is this everything about it Becky Hines was started in 1869 about all that time to develop various products particularly catch them things like that the crafts part of its a little more murky but it goes back to CW Post in 1895 those companies have brought all kinds of brands now all kinds you know them you had them when you were kid you you have an awesome something they've been distributed worldwide through tens and hundreds of thousands of outlets they've had hundreds of millions of try they spent a fortune on advertising and their sales now are twenty six billion Costco introduced to Kirkland brand in nineteen ninety two twenty seven years ago and that brand did thirty nine million last year whereas all the craft and Ice brands did twenty seven twenty six or seven billion so here they are hundred years plus tons of advertising build into people's habits and everything else and now Kirkland a private label band comes along and with only seven hundred and fifty or so outlets does 50 percent more business than all the craft hides brands and so brands private label is getting stronger it's it varies by country around the world but but it's it's it's bigger and it's gonna keep getting bigger okay a couple of questions on it first of all does that mean you overpaid well we did overpay we didn't overpay for craft I mean a fur prize that we bought that originally it was a 50/50 deals private to deal with free j-mart me with 3G yeah but 3G we had to stockholders and then we overpaid for we overpaid for crimes and and we wrote down 15 billion of that and that you know then that that's a CPAs working way of looking at it actually the markets marked it down more than that and and and probably quite properly I mean the the thing to remember say you know how the stock doesn't know you own it you pay $10 for stock it goes date you think it very gets back to 10 I'll sell it you don't it goes up to 20 you say I can take out sell half of them take all my money out all those things are nuts but in in business if if we paid 7 billion for Crafton which is all it takes to run the business it would still earn the same amount as if we paid the hundred billion three million the stock the business does not earn more just because you pay more for it and we not only after buying craft everybody starts speculating about things we buy so the prices of everything but up and then on top of it we pay large premiums for it and and we misjudged it I hear what you're saying about the house brands and the competition from places like a private label brand that Costco puts out but what what about just Millennials changing habits how much of it is that younger consumers don't want the brands that their parents and grandparents there's some change in habits but if you think about it people don't really change their habits that much if you try to think of the billion dollar brands that have been created in food and their private label there's very few billion dollar brands being created until the settled image and yogurt probably you know but you don't really see that that that has not been a huge change physical volume hasn't changed much the ability to price though has been changed and that's huge we had an analyst on last week on Friday talking about what she perceived as the problems with Kraft Heinz and she said she thinks they're under investing in the business I mean that's kind of been three G's way to cut to the bone and that's how you make make this profitable but she thinks the brands have been under invested in would you agree with that I don't think so but that's hard for me to tell but the I see well I was on the board I mean I saw lots of innovation on indifferent products and you saw them advertised to some extent I I do not think but I don't know this for sure but I think if you take the ten largest food companies I think in an innovation they've tried a lot of things but how many things work if you look at Kellogg and General Mills and go up and down like coca-cola I mean how many new products really become big you read the bottom at all but but that kinds ketchup you know hey it's got 60% of the catch your mark it's got higher percentages in other parts of the world and it's a very very very strong brand some of the cream cheese is a strong brand but other brands are weaker and they you are right certainly that in certain categories may be in a kool-aid or you know jello or something like that you know they go back 75 years or something and and there's some secular trending as that but that isn't the key I mean they cut costs not in an innovation or in product quality or anything like that they just took it out of sgna basically now they may have they may have made a mistake in terms of working I shouldn't say they we may have made a mistake in terms of trying to push hard against certain of the retailers and finding out that we weren't as strong as we thought they were we were you
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