Can Heinz Sustain Its Growth In 2012?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Heinz (NYSE: HNZ) is well known for its famous brand of ketchup but is often overlooked for its portfolio of other brands that sell in over 200 countries worldwide. The Pittsburgh-based company is a leading provider of frozen entrees, potatoes, sauces, appetizers and infant nutrition and its strong marketing platform has allowed it to grow substantially in the global market and compete with larger competitors as a result. In my opinion, 2012 will be no different for Heinz than any of the other years in its recent history where it has capitalized on and expanded sales in emerging markets.
In April of 2011, Heinz announced that it completed the acquisition of an 80% stake in a Brazilian company called Coniexpress S.A. Industrias Alimenticias, which owns one of the most popular lines of tomato sauces, ketchup, tomato paste and vegetables in Brazil. The Quero brand will allow Heinz to continue an ongoing strategy of tapping into new and emerging markets in order to bolster its sales worldwide and continue a long streak of improving returns. Heinz anticipated last year that emerging markets would comprise up to 20% of its total sales in the 2012 fiscal year.
Emerging markets played a very important role in Heinz’s 2011 fiscal year and contributed to 14.4% of its organic sales, according to its full year sales report for 2011. Its total sales grew 2% to total $10.7 billion, which it declared was a company record, and it experienced growth of 12% in expanding markets. As a result of its success in emerging markets as well as the success of its key brands in established markets, Heinz reported a net income of $990 million, which represented growth of 14.4%.
In 2011, Heinz also reported that it was improving efficiency by raising its gross margin to just shy of 37% and the fourth quarter of 2011 was Heinz’s 24th consecutive quarter in which it reported organic sales growth. 2012 has been no different and three quarters in, Heinz is reporting continued growth while meeting the predictions made in 2011 during the acquisition of the Quero brand. In its third quarter report for the fiscal year of 2012, it showed that 19.8% of its organic sales came from emerging markets and that those markets represented more than 20% of its total sales for the quarter.
The third quarter report also highlighted the fact that Heinz has continued to show organic growth since its 2011 report and that it has kept that growth up now for 27 consecutive quarters. Its net income grew by 12.3% and it experienced sales growth of 7.2%, indicating that Heinz still has plenty of momentum in 2012 and will continue to thrive in emerging markets while competing at home. In my opinion, Heinz’s ability to show consistent sales growth for almost seven straight years makes it an extremely solid stock to take a position in and if you had taken a position here only three years ago, you would have been rewarded greatly.
Heinz stock rose over three years from $32 per share to $52 and it continues to look bullish in 2012. It performs extremely well against direct competitors such as Campbell’s (NYSE: CPB) and ConAgra Foods (NYSE: CAG). ConAgra slightly outgrew Heinz over the last twelve months with sales growth of 8.1% compared to Heinz’s growth of 7.2%, but Heinz has operated at a gross margin of 36% for the last year compared with ConAgra’s margin of 22.5%. Campbell’s is slightly more efficient than Heinz, but experienced a slight drop in sales of .7% over the last twelve months, which in my opinion, makes Heinz the most attractive company in the group for investors.
In June of 2011, Heinz increased its quarterly dividend from $0.45 per share to $0.48 and I believe that at the rate the company is growing in emerging markets that we could see future raises to the dividend either this year or in years to come. Over the last twelve months, it has shown its willingness to give back a significant portion of its cash flow to shareholders by paying out at a ratio of 0.64. Its total payout over the last twelve months has equaled $1.92 per share for a yield of 3.6%.
In my opinion, Heinz is a stock with few weaknesses and an established record of success on the market. Over its entire stock history, it traded highest at $54 per share in March of 1998 and after a fall to $30 per share in 2000, it has risen ever since. I believe it will break $54 a share again in 2012 and that the sky is the limit for Heinz as long as it continues to move forward with the momentum it has built over the last seven years.
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