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Published: July 22, 2009
Heinz (NYSE: HNZ)
is one of the world's leading packaged foods companies. The firm
is best known for its ketchup, which sits in roughly three out
of every five kitchen pantries and restaurant tables nationwide.
But there is far more to the company than you might realize.
The company also sells mustard, gravy, pickle relish, barbecue
sauce, and a full line of other marinades and condiments. It
stocks grocery store shelves with appetizers such as taquitos
and bagel bites, as well as full entrees sold under the Smart
Ones, TGI Fridays, and Boston Market labels.
From Ore-Ida potatoes to Classico pasta sauce, the Heinz family
includes over a dozen popular brands that each pull in more than
$100 million in annual sales. Its products occupy the No. 1 or
No. 2 market share in over 50 countries around the world.
Heinz may not be the flashiest car on the lot, but it will get
you where you need to go. While other firms wrestle with
subprime write-downs, patent expirations, volatile commodity
prices and other such concerns, Heinz quietly does the same
thing it has been doing for well over a century.
That's not to say the company has exhausted its growth
opportunities. Management has made a concerted effort to divest
non-core business lines and focus on what it does best, and
those decisions have paid off. Over the past four years, Heinz
has posted 16 consecutive quarters of organic sales growth.
Meanwhile, returns
on invested capital (ROIC) have expanded by 360 basis points and
earnings have been rising at a double-digit pace. Better still,
operating cash flows have been increasingly robust -- averaging
109% of net income. That means there has been plenty of cash on
hand to divvy up among shareholders.
And the company has
done just that -- hiking its annual dividend payments from $1.08
per share to $1.68. At current prices, that equates to a beefy
yield of 4.5%.
Heinz is looking forward, hoping to capitalize on this recession
by bolstering its marketing commitments while weaker players cut
back. Changes in spending habits could also work in the
company's favor, as internal research shows that 57% of
Americans are eating out less -- resulting in far more home
cooked meals. One extra backyard cookout could lead to sales of
everything from pickle relish to Heinz 57 Sauce.
The bigger opportunities will be found overseas, particularly in
emerging markets. Right now, developing countries throughout
Asia, Eastern Europe and Latin America account for just 14% of
the firm's sales. That percentage is expected to march swiftly
to 20% within the next four years as the company focuses on
building out its distribution capabilities and introducing
innovative new products.
In the meantime, the company is already coming off
record-breaking sales of $10 billion and earnings of $2.90 per
share last year.
Action to
Take --> Heinz is a lower-risk/lower-reward
company. You may not hit a grand slam with the stock, but you
won't strike out either.
Regardless of the turmoil in the global economy, the company
will still sell about 650 million bottles of ketchup this year
-- and management expects to dish out a helping of about 60% of
net proceeds to investors.
As any ketchup connoisseur knows, sometimes good things are
worth waiting for. My staff and I feel HNZ should be appetizing
to income-oriented investors at prices below $42 per share.
Good Investing!
-- Nathan Slaughter
Editor
StreetAuthority Market Advisor |
