Kraft Heinz Faces Legal Onslaught Amidst Operational Struggles

The packaged food giant Kraft Heinz is confronting a formidable new challenge. Already battling declining sales and shrinking profit margins, the company now faces a high-profile lawsuit from the city of San Francisco alleging its products constitute a public health hazard. This legal action introduces significant uncertainty for investors, raising questions about potential financial penalties and the viability of the firm’s planned corporate split.

Mounting Regulatory and Legal Pressure

San Francisco’s city attorney filed suit this Tuesday against Kraft Heinz and nine other major food and beverage corporations, including Coca-Cola and Nestlé. The core allegation is that heavily processed foods have directly contributed to a public health crisis, citing links to conditions like type 2 diabetes and cancer. A key brand singled out in the litigation is Lunchables, a significant revenue driver for Kraft Heinz.

The city’s demands are substantial. They seek a court order to halt what it deems “misleading marketing,” the funding of public health campaigns to educate on product risks, and financial restitution to cover local healthcare costs. This lawsuit represents a tangible escalation of regulatory risk, moving beyond political rhetoric to a direct threat against corporate balance sheets.

This legal maneuver coincides with a shifting political climate in the United States. U.S. Health Secretary Robert F. Kennedy Jr. has made combating processed foods a central policy goal, advocating for their removal from federal assistance programs. Separately, California Governor Gavin Newsom has enacted legislation to ban such products from public schools, creating a tightening regulatory vise.

Should investors sell immediately? Or is it worth buying Kraft Heinz?

A Company Already on the Back Foot

The litigation arrives at an inopportune moment for Kraft Heinz, which is already grappling with serious operational headwinds. Its third-quarter 2025 financial results painted a bleak picture, particularly in its crucial North American market:
* Net sales declined by 2.3 percent.
* Adjusted operating income plummeted by nearly 17 percent.
* Both sales volume and shipment figures showed marked deterioration.

In response to these persistent challenges, management has charted a course for a major corporate restructuring. The plan is to separate the conglomerate into two independent publicly traded entities by the end of 2026: one focused on global taste enhancers (housing brands like Heinz and Philadelphia) and another on North American grocery products (including Oscar Mayer and the now-controversial Lunchables).

Wall Street’s Skeptical Stance

The market’s reception to both the current performance and the proposed split has been decidedly negative. Equity researchers from firms including Deutsche Bank and Barclays have broadly downgraded their ratings on the stock and slashed price targets. Investor sentiment is clearly reflected in the share price, which has shed almost 29 percent of its value since the start of the year.

For shareholders, the situation presents a complex dilemma. On one hand, the company continues to offer a dividend yield of approximately 6.4 percent. On the other, this income is being weighed against a potent combination of falling consumer demand and suddenly surging litigation risk. The central question now is whether the planned corporate breakup can deliver a much-needed turnaround in what has become an increasingly hostile business and regulatory environment.