Read This Before Buying Kraft Heinz Stock

The greatest investors of all time don't always bat a thousand. Like the rest of us, they make mistakes. Even Warren Buffett made a few errors over the course of a multidecade career.

What sets Buffett apart isn't just a long-term track record, but his willingness to admit mistakes. In what may give investors pause about getting involved with this consumer-packaged goods stock, Buffett admits Berkshire Hathaway's (NYSE: BRK.B) (NYSE: BRK.A) involvement with Kraft Heinz (NASDAQ: KHC) has been an error.

Here's a quick history lesson in how the mistake unfolded. In 2013, Berkshire teamed up with 3G Capital, a Brazilian private equity firm, to buy Heinz for $23 billion. That deal was applauded, but the two companies got together two years later to merge Heinz with Kraft in a $40 billion transaction that Buffett admits was too costly. Over the past decade, shares of Kraft Heinz have lost roughly two-thirds of their value.

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Buffett doesn't like Kraft's value creation plan

Pivotal in Kraft's efforts to create value for shareholders and restoring their confidence is the previously announced spinoff of an entity that will be known as Global Taste Elevation Co. That will be the home of the company's faster-growing sauces and spreads and will include brands such as Kraft Mac & Cheese, Heinz, and Philadelphia.

That move could work out for investors, but they're also right to be skeptical. After all, Buffett, who's rarely critical of companies in which Berkshire holds stakes, publicly expressed disappointment in the spinoff plan. He expressed dismay that the plan to split into two companies wasn't put to a shareholder vote and noted Greg Abel, his successor, reached out to Kraft Heinz to convey Berkshire's feelings on the matter.

The hope is with the sauces/spreads division separated from the slower-growth entity to be known as North American Grocery Co., revenue growth, including contributions from international markets, will reach levels deemed satisfactory by investors.

Still, with Buffett questioning the plan, retail investors may be right to apply their own levels of skepticism and wait for Kraft Heinz to shift to show-me instead of tell-me mode.

Consumer tastes need to be addressed

Against the backdrop of shifting consumer tastes, Kraft's profitability needs to be examined. A Purdue University survey out earlier this year indicates 30% of those polled view processed foods, which figure prominently in the North American Grocery Co. equation, as unhealthy.

There's also evidence suggesting that some shoppers view healthy eating as an aspirational, values-driven choice. Some of those consumers are even leveraging technology, including artificial intelligence (AI), to inform their shopping habits.

Call it aspirational or the technification of eating, but either way, those trends could lead shoppers to private labels and brands with more perceived cache than Lunchables and Oscar Mayer, which will be part of the North American Grocery Co. stable.

A lot needs to go right

Regarding the outlook for Kraft Heinz, one of my Foolish colleagues said it best last week, noting the company doesn't have the luxury of fixing just one problem. It has to address three: branding, execution, and profitability.

All those issues must be dealt with because investors have already extended Kraft Heinz latitude, particularly when considering organic sales and earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to decline this year.

A redemption story is possible, but at a time when Kraft Heinz is grappling with structural issues and the broader consumer staples sector is weak, investors looking for defensive value names with above-average dividend yields may want to take their dollars elsewhere rather than embracing a turnaround story that comes with $19.28 billion in long-term debt.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.