H. J. Heinz Company
) third quarter 2013 adjusted earnings from continuing operations
of 99 cents per share beat the Zacks Consensus Estimate of 89
cents by 11.2%. The ketchup and sauce maker, which recently
agreed to be sold to Warren Buffet's company,
Berkshire Hathaway, Inc.
) and a private Brazilian investment firm, has now outpaced
earnings estimates for 7 straight quarters.
Earnings also exceeded the prior-year results by 3.1% driven
by meaningful growth in emerging markets, especially Latin
America; increased margins; and negligible headwinds from
currency. Adjusted earnings from continuing operations in the
quarter excluded certain charges for earn-out settlements related
to the fiscal 2011 acquisition from Foodstar Holding.
During the quarter, total sales for this maker of the popular
Heinz ketchup increased 2.0% to $2.93 billion. Revenues
marginally missed the Zacks Consensus Estimate of $2.99 billion.
Organic top-line growth was 2.3%, less than management's
expectation of around 4% growth in the second half. In the
quarter, volumes grew only 0.3% while net pricing added 2.0% to
top-line growth. Divestitures reduced net sales by 0.3%. Currency
fluctuations hurt revenues by 0.1%, much lower than last
Core Top-Line Drivers
The emerging markets recorded organic sales growth of 17.6%,
while the reported growth was 18.8%. Emerging market growth was
led by Latin America, Indonesia and China. Emerging markets
comprised 23% of total sales. The economic outlook of these fast
growing nations is positive, given the improving standard of
living of the middle class.
Global Ketchup sales grew 4.2% organically driven by strong
performance in Russia, Latin America and Canada. However, global
ketchup sales improved 4.7% on a reported basis.
The company's top 15 brands recorded 2.6% organic sales
growth, driven by strong sales of brands like Heinz, Quero, ABC,
Classico, and Master. However, on a reported basis, the top 15
brands' revenues improved 2.2%.
Excluding productivity charges in the prior-year quarter,
Heinz's gross profit grew 4.8% to $1.11 billion. Gross margin
went up 100 basis points to 37.7% driven by productivity
improvements and pricing gains, which offset the impact from
commodity cost inflation. As expected by management, gross
margins are showing better growth in the second half.
Adjusted operating income increased 4.3% to $480 million
driven by gross margin expansion and productivity
The company's third quarter effective tax rate was 19.3% in
the quarter, down from 20.0% a year ago. The tax rate was less
than management's expectation of being in the low to mid 20%
range. This may also have benefited earnings in the quarter.
Agreement to Be Acquired
In one of the largest acquisitions ever in the food industry,
last week, Heinz agreed to be acquired by an investment group led
by Warren Buffet's company, Berkshire Hathaway and private
Brazilian investment firm, 3G Capital for $28 billion, including
debt. Berkshire Hathaway, led by Warren Buffett, owns leading
businesses across a variety of industries while 3G Capital is a
global investment firm holding stake in companies like fast food
Burger King Worldwide, Inc
Heinz's shareholders will receive $72.50 per share, a 19%
premium to Heinz's all-time high share price. The transaction has
been approved unanimously by the board but is subject to
shareholder and regulatory approvals. The deal is expected to be
closed in the third quarter of this calendar year. Heinz will
become a private company after the acquisition is complete.
Heinz carries a Zacks Rank #3 (Hold). Another food company
going strong since the past few months is
ConAgra Foods, Inc.
) which carries a Zacks Rank #1 (Strong Buy).
BURGER KING WWD (BKW): Free Stock Analysis
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
CONAGRA FOODS (CAG): Free Stock Analysis
HEINZ (HJ) CO (HNZ): Free Stock Analysis
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