Heinz Price Hikes Accepted by Consumers
Net income increase of 12%
Frozen potatoes and soy sauce have never looked so good. The global producer and marketer of packaged foods, led by strong gains of those two popular products, turned in a 12% increase in net income in its fiscal first quarter, ended July 30.
Sales rose at least 20% in every foreign region, producing double-digit earnings that compensated for a slump in sales to U.S. restaurants. The company generates about 60% of its sales outside the U.S.
Heinz intends to offer more than 400 new products within two years and increase its marketing budget by up to $100 million to support those items. Despite increases in the price of corn, wheat, dairy products and oils, consumers have not revolted against the resulting price increases in the firm's products.
Shares of Heinz (HNZ) are up 13% this year following a gain of 4% last year and 33% in 2006. Activist billionaire investor Nelson Peltz, whose Trian Fund Management LP owns about 4.9% of outstanding shares and led a proxy fight two years ago, is commending the company for doing a ''phenomenal job.''
This firm best-known for ketchup is anticipating major acquisitions.
''Campbell would represent a nice fit with the company,'' Heinz Chief Executive William Johnson said of Campbell Soup Co. in response to a shareholder question at the annual meeting. ''We are always looking for opportunities to expand and grow.''
Heinz recently completed its acquisition of Paris-based saucemaker Benedicta to increase its sauce business in France. It is hiring 350 workers at a new plant in South Carolina to make its Weight Watchers Smart Ones and Boston Market frozen meals.
The consensus analyst rating on Heinz stock is ''buy,'' according to Thomson Financial, consisting of four ''strong buys,'' four ''buys'' and three ''holds.''
After five years of restructuring and cutting costs, Heinz must compete with greatly improved private-label products of supermarket chains. There also might be a tipping point at which customers rebel against rising prices. Furthermore, the bulk of Heinz sales come from its top 15 brands, with many of its other items considerably less productive.
Sourced from themorningcall.com
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