A Little Ketchup to Add Flavor to Your Portfolio

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H. J. Heinz Company (NYSE: HNZ), a manufacturer of food products, including ketchup, condiments and sauces, frozen food, soups, beans, and pasta meals, reported its second quarter earnings for the fiscal year 2013. Earnings beefed up by 11.1% compared to last year because of the company’s growth initiatives in emerging markets, better volume trends in North America, and a lower tax rate that was slightly offset by currency fluctuations.

Growth and Currency Impact

Heinz reported revenue of $2.83 billion, increasing by only 0.5% overall as the growth was restricted by currency fluctuations. Emerging markets, which comprise of 23% of the company’s sales, reported an organic sales growth of 13.2%, while reported growth was 10.3% due to the impact of currency. Ketchup sales have increased by 3.8% due to company’s strong performance in the U.S., Russia and Brazil. Organically, the company’s top 15 brands like Heinz, Quero, etc improved by 4.6%. Food categories other than ketchup, meals, and snacks declined by 1.7%, while Infant Nutrition declined by 5.4%.

As you can see from the numbers, Heinz has grown its sales and emerging market base, but the revenues have been impacted negatively as a strong dollar pulled them down. Heinz generates more than two-third of its revenues from its business outside the U.S. so the impact has been more severe. The biggest concern is the negative impact of the dollar,k but the bright side is that the company is growing globally and has further potential.

Prospects

Heinz will be introducing new PET ketchup bottles to leverage its strong brand equity and reduce packaging material costs. The redesigned bottles will soon be available in a range of sizes, and that should enhance Heinz’s merchandising and marketing capabilities. Heinz’s U.S. team is trying to reach value-oriented customers through alternate, channels like drug and dollar stores, with improved distribution and more targeted product offerings.

Frank Moison, Colgate's COO, Emergent Markets and South Pacific, has been appointed to the Heinz Board of Directors. His presence behind the desk should probably benefit Heinz with a strong international perspective and keen understanding of global consumer trends.

Let’s Soup It Up

Heinz’s rival Campbell Soup (NYSE: CPB) also reported its first quarter earnings recently ,which bested analyst’s estimates. Sales improved by 8% mainly due to acquisitions and because of the boost in sales in Sandy-affected areas. Campbell has recently reduced its advertisement costs and is passing those savings to its customers as discounts on purchases. The company has launched many new products, and many are in the pipeline.

Campbell is trying to use acquisitions to diversify its portfolio of offerings and attract health-conscious customers through its line of low-sodium products. I strongly feel the company should concentrate more on its core business of soups rather than looking to diversify, as it is in a dominating position there.

The safest stock

Nestlé (NASDAQOTH: NSRGY), a global nutritional and health company, also competes with Heinz with its diversified portfolio of products. The company has tremendous growth prospects, with its brands Nestlé Pure Life leading the market and its Gerber baby food brand offering tremendous sales across the globe. Demand for other products from the company is increasing along with its global presence. Nestle stands to benefit from healthy lifestyles trend, which seems to be on a rise among consumers. Nestle, with its great brand image and a tremendous growth prospect in the coming decade, is a good choice.

Final Words

Heinz’s investment in opportunities, such as condiments and sauces in Brazil and China and baby food in Mexico, represent strong growth potentials in emerging markets. The company should look to add more health products to match the changing trends of consumers. Heinz’s dividend yield is 3.5%, with an additional share repurchase of 2.2% every year, summing up to 5.7% return to investors a year; this means that the company has a good and sustainable cash flow supporting its strong balance sheet. Heinz seems to be a good buy with a long term vision.


BabulalBachhawat has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend H.J. Heinz Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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