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Struggling Kraft Heinz sells dairy brands to Lactalis

Kraft Heinz said Tuesday that it is selling its natural cheese business — including its Cracker Barrel and Breakstone’s brands — to French dairy company Lactalis Group as part of a larger restructuring.

The $3.2 billion sale includes Kraft Heinz production facilities in Tulare, California; Walton, New York; and Wausau, Wisconsin. About 750 employees at those plants will transfer to Lactalis Group. Kraft Heinz, however, will keep its Philadelphia cream cheese brand, Kraft singles and the Velveeta and Cheez Whiz brands. It’s also retaining its macaroni and cheese business.

Included in the sale are Kraft Heinz’s natural, grated, cultured and specialty cheese businesses in the U.S., its grated cheese business in Canada and its entire international cheese business. Kraft Heinz already sold its natural cheese business in Canada last year for $1.2 billion.

The sale is expected to close in the first half of next year, the companies said. Bernstein analyst Alexia Howard praised the sale. In a note to investors, Howard said Kraft Heinz's natural cheese business was the company's Achilles' heel because the brands had trouble differentiating themselves from store brands.

Kraft Heinz — formed in a 2015 merger — has been struggling as consumers increasingly seek fresh, minimally processed foods. Last year, the company slashed the value of its Oscar Meyer and Kraft brands and took a $474 million impairment charge because of the falling value of brands like Maxwell House, Lunchables, Velveeta and Cool Whip.

On Tuesday, Pittsburgh-based Kraft Heinz said it plans $2 billion in cost reductions through 2024. The company said it plans to increase marketing spending and nimbly manage its portfolio of brands. Kraft Heinz CEO Miguel Patricio said the sale of the natural cheese brands is an example of that portfolio management.

“The transaction will enable us to build sustainable competitive advantage in businesses where we have stronger brand equity, greater growth prospects and can use our manufacturing scale and consumer-based platforms approach,” Patricio said in a statement.

Kraft Heinz shares closed up 10 cents at $31.97 Tuesday. Lactalis Group — whose brands include President specialty cheese and Stonyfield Organic yogurt — said the Kraft Heinz brands are a good strategic fit. The Laval, France-based company, which has U.S. headquarters in Buffalo, New York, has eight U.S. plants with 2,600 employees.

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