QUOTE AND NEWS
Reuters  Apr 2  Comment 
A federal judge has approved the U.S. Securities and Exchange Commission's $4.8 million settlement with two Brazilian brothers it accused of insider trading in H.J. Heinz Co, after earlier having questioned why the accord did not include an...
Wall Street Journal  Jan 13  Comment 
H.J. Heinz Co. said three more longtime executives are leaving, in the second major shake-up of top management in seven months.
Mondo Visione  Oct 10  Comment 
The Securities and Exchange Commission today obtained an emergency court order to freeze assets in a Zurich, Switzerland-based trading account that was used to reap more than $1.7 million from trading in advance of yesterday’s public...
Reuters  Sep 17  Comment 
A Cayman Islands entity at the center of a U.S. investigation into possible insider trading in ketchup maker H.J. Heinz Co said trades placed in its Swiss bank account...
Reuters  Sep 12  Comment 
A defense attorney in the U.S. government's H.J. Heinz Co insider trading case denied on Thursday his client's involvement in such activity before the ketchup maker was sold for $23 billion in February.
CANOE.ca  Aug 13  Comment 
H.J. Heinz Co, the world's largest ketchup maker, said on Tuesday it plans to eliminate 600 jobs across North America.
Reuters  Jun 20  Comment 
H.J. Heinz Co announced the departure of 11 executives on Thursday in a management shakeup less than two weeks after its new owners, 3G Capital and Berkshire Hathaway Inc , closed their $28 billion acquisition.
Benzinga  Jun 11  Comment 
In a report published Tuesday, Stifel Nicolaus analyst Christopher Growe terminated coverage on H.J. Heinz (NYSE: HNZ). In the report, Stifel Nicolaus noted, “We are discontinuing coverage of H.J. Heinz Company (HNZ) due to the company's...
CNNMoney.com  Jun 6  Comment 
Taxpayers will take in $1.03 billion in proceeds from Thursday's planned Treasury Department sale of General Motors stock.
CNNMoney.com  Jun 6  Comment 
Something was rotten in last week's big pork deal, according to the Securities and Exchange Commission.




 


H.J. Heinz Company (NYSE: HNZ) makes processed food products like condiments, sauces, and frozen foods. The company is best known for its namesake brand, Heinz ketchup, which has 60% market share in the US, 70% in Canada, and 78% in the U.K[1] Heinz' other product lines include condiments and sauces such as salad dressing and soy sauce, frozen food, soups, beans and pasta meals, and infant food. The company's 15 top brands, including the flagship Heinz brand, make up over 70% of total sales.[2] In FY 2010, Heinz had sales of nearly $10.5 billion with a net income of $864.9 million.[3]

Heinz has spent a good part of the last decade restructuring its business, shedding less profitable brands and instead focusing more cash on marketing and product development.[4] The firm's renewed efficiency has recently been tested by rising commodities prices, which are driving up the costs of making and packaging food - high fructose corn syrup is a key ingredient in almost all Heinz products, and oil is refined to make plastic bottles for sauces and condiments.

Company Overview

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Many of Heinz’s products are prepared from recipes developed in their own research laboratories and experimental kitchens. After the ingredients are selected, they are shipped off to one of the company’s 68 owned factories or 9 leased factories to be processed. Methods of processing include sterilization, homogenization, chilling, freezing, pickling, drying, freeze drying, baking, and extruding.

In order to obtain a portion of certain raw products such as tomatoes, cucumbers, potatoes, and some other fruits and vegetables, the company makes pre-season futures contracts with farmers, which provides some protection against volatile commodity prices; for example, if the price of tomatoes suddenly skyrockets, Heinz is able to still buy them at the low price agreed upon in the contract. Other products such as dairy, meat, sugar, sweeteners, spices, flour, and other fruits and vegetables are purchased on the open market [6].

The company's core 15 brands accounted for 70% of total sales. Emerging markets currently generate 15% of the company's total sales, however Heinz's goal is to have them generate 25% of earnings by 2016 and up to 40% in the long term.[7] Company shows 11.6% market share in frozen dinner food

FY2011 Q1 Earnings Summary

  • Generated revenues of $2.48 billion, an increase of 1.6% from Q1 2010
  • Net income increased 13% to $240 million.

FY011 Q2 Earnings Summary

  • Revenues were $2.6 billion, a decrease of 1.2% from the previous year
  • Net income for the quarter increased 8.6% to $251.4 million.

FY2011 Q3 Earnings Summary

  • Posted third quarter earnings of $273.9 million or $0.85 EPS, up from $228.5 million or $0.72 EPS same quarter last year.[8]
  • Revenues rose 2% to $2.72 billion which matched analyst consensus estimates.


Segment Information

North American Consumer Products – includes operations in the United States in Canada, specifically the manufacturing, marketing, and sale of ketchup, condiments, sauces, pasta meals, entrees, and snacks to grocery stores. Other popular company owned brands include Classico, Jack Daniels, Bella Rosa, Weight Watchers, Bagel Bites, Boston Market, T.G.I. Friday’s, Lea & Perrins, and HP. Heinz owns the food and licensing rights for these various brands. Wal-Mart (WMT) is the company's largest customer, accounting for roughly a tenth of sales.[9]

U.S. Foodservice – similar to the North American Consumer Products segment, but deals with commercial (bars, restaurants, travel/leisure places, vending machines, take-out) and non-commercial (schools, hospitals, prisons, military) food outlets and distributors.

Europe – includes the operations in Europe of products in all categories. Other popular company owned brands include: Orlando, Karvan Cevitam, Weight Watchers*, Brinta, Nipiol, and Plasmon.

Asia/Pacific – includes the operations in New Zealand, Australia, Japan, China, South Korea, Indonesia, and Singapore of products in all categories. Other popular company owned brands include: Tim Piper, Wattie’s, ABC, Bruno, and Winna. The company plans to begin producing baby food at plants in China and Russia and to grow its child nutrition business in India. Baby food is the company's highest margin product, yet only accounts for 11% of revenue ($1.1 billion); the company is the world fifth largest company in total baby food. China's infant formula market is estimated to be worth $2-$3.7 billion and Heinz already has 3.1% market share (includes 48% share of prepared baby food market). A couple of competitors in China's baby food market may be potential takeover targets, especially as Heinz continues the worldwide trend of consolidation in the baby food market, following Nestle's acquisition of Gerber and Danone's purchase of Numico.[10]

Rest of World – includes operations in Africa, India, and Latin America of products in all categories. Other popular company brands include: Wellington’s Complan, Glucon D, John West, and Banquete.

Products as Percentage of Total Revenue[11]
Product 2010 2009 2008
Ketchup and Sauces 42% 42% 41%
Meals and Snacks 41% 42% 44%
Infant/Nutrition 11% 11% 11%
Other 6% 4% 4%

Trends and Forces

Rising Commodities Prices are Forcing Heinz to Make Difficult Choices

The ability to obtain raw materials, which include agricultural commodities such as tomatoes, cucumbers, potatoes, flour, at favorable prices is an essential part of the company’s success. Higher commodities prices translate into higher production costs for the company, which forces the company to either raise the prices of its products by placing the burden on the consumer or to take the burden itself by absorbing the higher costs and decreasing its profit margin. Many variables affect the availability of these commodities, such as government policy and regulation, crop shortages due to disease or pest infestation, adverse weather conditions, or other unforeseen circumstances.

Consumer Sentiment Shifting Towards Healthier Foods

As consumers have become more health conscious, they have shown a growing demand for healthier alternatives across all food categories. Riding this wave of consumer sentiment, Heinz introduced a certified organic ketchup "Heinz Organic Ketchup" and "Heinz Light", which are low sugar ketchups, as well as a number of other healthy alternatives. The biggest competitor in the organic ketchup market is a private company which makes "Annie's Organic Ketchup".

Competitor Analysis

Because Heinz makes a wide range of products selling in different markets, the company faces competition from both big companies with a diversified line of products and smaller companies with a narrower focus.

In the market for canned goods and soups, Campbell Soup Company (CPB) and ConAgra Foods (CAG) are Heinz’ direct competitors.

In the Major Diversified Food industry, Heinz competes with Archer-Daniels-Midland Company (ADM), Kraft Foods (KFT), and Tyson Foods (TSN).



Notes

  1. About Heinz
  2. H. J. Heinz Company F2Q08 (Qtr End 10/29/08) Earnings Call Transcript.
  3. HNZ Financials, Google Finance
  4. New York Times: "Heinz to Shed Units and Job in an Overhaul" 18 Feb 1999
  5. HNZ 2009 10-K, p. 19
  6. HNZ 2007 10K, Item 1 pg. 2
  7. Heinz Annual Report 2010, Letter To Shareholders
  8. Heinz 3Q net rises; buys stake in Brazilian co.
  9. HNZ 2010 10-K, Item 1: Business, p. 3
  10. Heinz Eyes Baby-food Sales Amid China Boom, Pittsburgh Tribune-Review, 4/30/10
  11. HNZ 2009 10-K, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations, p. 17
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