We maintain a Neutral recommendation on
H. J. Heinz Company
) following our evaluation of the company's fourth quarter and
fiscal 2012 results.
Heinz's fourth quarter 2012 adjusted earnings came in at 81
cents per share, beating the Zacks Consensus Estimate by 2.5%.
Earnings also surpassed the prior-year earnings by 17.4% driven by
top-line growth. The top line was up 5.6% to $3.05 billion, once
again led by strong growth demonstrated by the emerging markets,
ketchup and sauces as well as the top 15 brands.
Fiscal 2012 earnings of $3.35 per share increased 9.5% over the
prior year, driven by top-line growth. Earnings also beat the Zacks
Consensus Estimate of $3.33. Net sales of $11.6 billion in the year
were up 8.8% from 2011 levels. Revenue, however, slightly missed
the Zacks Consensus Estimate of $11.67 billion.
We are encouraged by the company's strong portfolio of brands,
especially its top 15 brands, which make up more than 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 push up 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% 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. The segment has been witnessing consistent volume
declines mainly due to the dull economic environment and poor
performance of the Ore-Ida frozen brand. 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 (HJ) CO (HNZ): Free Stock Analysis Report
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