Is This the World’s Favorite Ketchup?

Sidhi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

This company sells staple products that enhance the foods that people enjoy every day and has been ranked #1 in overall customer satisfaction among food manufacturers in the 2012 American Customer Satisfaction Index (ACSI). Heinz, the most well-known ketchup in the U.S, led all food manufacturers for the 13th consecutive year.

H.J. Heinz (NYSE: HNZ), delivered solid results for the second quarter ended October 28 by  reporting net income of $289.44 million, or $0.90 per diluted share on revenue of $2.83 billion.  Earnings exceeded the prior-year earnings by 11.1%, in spite of a persistent rise in commodity costs, primarily due to a lower-than-expected tax rate, growth initiatives in emerging markets, and improving volume trends. Notably, Heinz delivered its 30th consecutive quarter of organic sales growth. However, for fiscal 2013, the company expects at least 4% organic sales growth and 5%-8% earnings growth.

Social marketing..?

The company is now focusing on ketchups and sauces, meals and snacks, and infant/nutrition. It has just introduced limited edition jalapeno ketchup in time for the holidays. The new ketchup won't be on retail shelves until the New Year, so the company has offered Facebook fans a coupon so they could try the product. It has also partnered with Starlight Children’s Foundation to launch its latest ‘Get Well’ Soup initiative, where it aims to provide festive cheer and distraction to poor children in hospitals and hospices across the UK by supporting Starlight’s Christmas pantomime tour.

Competitors

Packaged meat producer Hormel Foods (NYSE: HRL) reported a 14% rise in Q4 EPS missing estimates by a penny. However, it still raised its quarterly dividend 13% to 68 cents per share. As a result of rising cost of livestock feed, the prices of meat may rise in the upcoming year. The $16.9 million distribution to eligible hourly and salaried employees during this Thanksgiving week shows the company respects its employees. On the other hand, the soup and sauce maker, Campbell Soup (NYSE: CPB) reported earnings above views beating estimates by 3 cents. Revenue jumped 5.4% to $2.34 billion. It has focused its new line of soup toward 20- and 30-year-olds. The Campbell's Go line comes in easy-to-open plastic pouches that can be easily microwaved.  Campbell is providing a return on equity of more than 77%, while Heinz is providing 34%. Over the past six months, Campbell has outperformed Heinz.

In order to counteract the competitor’s action, Heinz’s executives are taking action to drive the ketchup growth in the U.S. through multilingual advertising and more affordable packaging like the $0.99 pouch.
Heinz has its revenue evenly spread among Europe, North America, and Asia, but of late the company reported revenue declines in Europe and North America of 5.3% and 1.3% respectively.

The Bottom-Line

Operating free cash flow has increased by $24 million as a result of higher net income and slightly lower capital spending. HJ Heinz Company with market cap of $18.4 billion has P-E of 18.5 times, which is a bit higher than the industry average. It has declared a decent, although not so spectacular, quarterly dividend of 51.5 cents per share, for an annual dividend yield of 3.5%.

 Over the past 10 years, the company had shown 3.2% annual growth in earnings, thereby projecting itself as a good investment option for investors with long term investment horizon.


sidhikharkia 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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