H.J. HEINZ CO. $53 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 321.0 million; Market cap: $17.0 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.6%; TSINetwork Rating: Above Average; www.heinz.com) makes a wide variety of processed foods, including condiments, sauces, soups, baked beans, pastas and baby food. Its flagship product, Heinz ketchup, accounts for about 60% of U.S. ketchup sales.
Heinz’s sales rose 18.9%, from $9.0 billion in 2007 to $10.7 billion in 2011 (fiscal years end April 30).
Earnings rose 16.6%, from $791.6 million in 2007 to $923.1 million in 2009. Earnings per share rose 21.8%, from $2.38 to $2.90, on fewer shares outstanding. Unfavourable foreign-exchange rates cut Heinz’s earnings to $914.5 million, or $2.87 a share, in 2010. In 2011, earnings rebounded to $991.9 million, or $3.08 a share.
The company’s sales continue to increase in fast-growing markets, like China and Brazil. It now gets two-thirds of its sales from outside the U.S.
Heinz continues to expand its international presence. Recently, it paid $165 million for privately held Foodstar, a leading soy sauce maker in China. In addition, Heinz recently bought 80% of Brazil’s leading maker of tomato pastes, sauces and condiments for $493.5 million.
Fast-growing markets such as China, India and Russia accounted for 16.2% of Heinz’s sales in fiscal 2011. The company aims to raise this to 25% by 2016, and eventually to 35% to 40%.
New packaging gives Heinz an edge
In addition to its international expansion, Heinz plans to spur its sales with innovative new products and packaging. For example, it recently replaced its fast-food ketchup packet with a new, easier-to-use plastic container called Dip & Squeeze. Major fast-food chains, like McDonald’s and Dairy Queen, have already switched to the new package. Consumers can also buy 10 packs of Dip & Squeeze ketchup in retail stores.
Heinz has also put together a new restructuring plan to further improve its profitability. Under this plan, the company will close five of its 81 factories and cut 3% of its workforce.
The restructuring will cost Heinz $0.35 a share. However, the plan should add $0.15 a share to its annual earnings, starting in fiscal 2013. These savings will help Heinz absorb rising costs for corn, wheat and other ingredients.
The company’s strong balance sheet will let it keep making acquisitions and investing in new products. Its long-term debt of $3.9 billion is a moderate 23% of its market cap. Heinz holds cash of $677.7 million, or $2.11 a share.
The company will probably earn $3.33 a share in fiscal 2011. The stock trades at 15.9 times that figure.
Heinz continues to raise its dividend annually. The current rate of $1.92 a share yields 3.6%.
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