We maintained a Neutral recommendation on
H. J. Heinz Company
(
HNZ
) following appraisal of the company's first quarter fiscal 2013
results.
Heinz's first quarter 2013 adjusted earnings of 87 cents per
share beat the Zacks Consensus by 4.8%. Earnings also exceeded the
prior-year earnings by 10.1% largely due to a lower-than-expected
tax rate, organic sales growth and productivity improvements.
Though reported revenues declined 1.5% to $2.79 billion due to
currency headwinds, organic revenues grew 4.8%. The organic revenue
growth was driven by volume growth and pricing gains.
The company maintained its organic sales growth guidance to be
at least 4%. It continues to expect earnings in the range of
$3.52-$3.62 per share, representing a constant currency growth of
5-8% from fiscal 2012 levels.
We are encouraged by the company's strong brand portfolio,
especially its top 15 brands, which account for over 70% of sales
and continue to drive growth. The top 15 brands recorded 5.0%
organic sales growth in fiscal 2012. The company is also increasing
its marketing spend to boost the performance of these brands.
Heinz's popular brands include Heinz Ketchup, Weight Watchers
Smart Ones frozen dinners, Classico sauces, Jack Daniels barbeque
sauces, Quero tomato-based sauces and ketchup, TGI Friday's single
serve meals and many more. The company's largest and fastest
growing product category is ketchup and sauces led by the iconic #1
ketchup brand, Heinz. Global ketchup sales grew 8% organically in
fiscal 2012. We believe the company is well positioned to capture
the growing demand for this $110 billion global category given its
strong brand, market position and global scale.
The company has a significant presence outside U.S., which now
generates more than two-thirds of the company's sales versus less
than 50% generated 10 years ago. The company has delivered positive
growth in Europe despite the challenging conditions. Most
importantly, Heinz is generating solid growth in the emerging
markets of India, China and Indonesia. All these markets are
showing good growth in all Heinz products, especially ketchup,
sauces and infant nutrition goods due to brisk demand. Management
estimates that almost a quarter of the ketchup and sauces business
is now in the emerging markets led by ABC, Master and Heinz
Ketchup. The company's heavy investments in the emerging markets
are thus paying rich dividends as the largest top-line growth
driver.
In fiscal 2012, Heinz invested in productivity initiatives by
increasing manufacturing efficiency, reducing overcapacity and
streamlining its operations. In addition, the company is also
investing in Project Keystone, a multi-year program aimed at
increasing Heinz's competitiveness by adding capabilities,
improving processes and systems through SAP. Cost-saving endeavors
like these would help counter the impact of rising commodity costs
and lay the foundation for long-term growth.
However, continued sluggishness in its largest segment, the
North American consumer business, is a significant concern. Heinz's
North American consumer products business, which generates about
70% of the sales in North America, has performed poorly in the past
few quarters. Though management's effort to turn around this
business is encouraging, we prefer to stay on the sidelines until
the company shows some real success. Heinz competes with
Kellogg Company
(
K
) and
ConAgra Foods, Inc.
(
CAG
).
CONAGRA FOODS (CAG): Free Stock Analysis Report
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research