H.J. HEINZ CO. $56 (New York symbol HNZ; Income Portfolio, Consumer sector; Shares outstanding: 320.2 million; Market cap: $17.9 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.7%; 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.
The company continues to target fast-growing markets like China, Russia and Brazil for new growth. For example, in April 2011 it bought 80% of Brazil’s leading maker of tomato pastes, sauces and condiments for $493.5 million.
Even with these new operations, Heinz’s sales fell 1.5% in its fiscal 2013 first quarter, which ended July 29, 2012, to $2.79 billion from $2.83 billion a year earlier. However, the company gets 60% of its revenue from outside North America, and the higher U.S. dollar is hurting the value of its overseas sales.
Sales in emerging markets rose 19.3% and now account for 26% of Heinz’s overall revenue. That partly reflects sales from companies Heinz recently bought. The company also increased its selling prices to offset rising ingredient costs.
As well, Heinz is starting to benefit from its recent restructuring, which included plant closures and job cuts. Without unusual items, its earnings would have risen 12.1% in the quarter, to $286.0 million from $255.2 million. Earnings per share rose 10.1%, to $0.87 from $0.79, on fewer shares outstanding.
The company’s sound balance sheet will let it continue to expand in emerging markets and increase its marketing spending in developed countries. Its longterm debt of $4.1 billion is a moderate 23% of its market cap. It also holds cash of $978.5 million, or $3.06 a share.
Heinz forecasts earnings of around $3.57 a share for fiscal 2013. The stock trades at a reasonable 15.7 times that estimate. The $2.06 dividend yields 3.7%.
Heinz is a buy.
