QUOTE AND NEWS
The Globe and Mail  Feb 4  Comment 
Ketchup giant H.J. Heinz Co. is unveiling the first major packaging change to the to-go condiment in more than 40 years
Business Wire  Feb 4  Comment 
Whether you’re a dipper, a squeezer, or a health-minded ketchup lover, Heinz is giving everyone more ways to enjoy America’s Favorite Ketchup. Today, Heinz announced three ketchup innovations in response to consumer demand: Heinz Dip &
Business Wire  Feb 3  Comment 
H.J. Heinz Company (NYSE:HNZ) announces its presentation at the annual Consumer Analyst Group of New York (CAGNY) Conference in Boca Raton, Florida (listen only). The Company will present an update on its business, including its growth strategy,
Business Wire  Feb 3  Comment 
H.J. Heinz Company (NYSE:HNZ) today appointed Bob Ostryniec to the position of Chief Supply Chain Officer. In this newly created role, Mr. Ostryniec will drive worldwide initiatives to leverage the Company’s global scale, reduce costs, improve
Market Intelligence Center  Feb 2  Comment 
H J Heinz (NYSE: HNZ) closed yesterday at $43.93. So far the stock has hit a 52-week low of $30.51 and 52-week high of $44.62. Heinz stock has been showing support around 43.22 and resistance in the 44.28 range. Technical indicators for the stock...
Wall Street Journal  Jan 30  Comment 
Traders made their way to the options market to buy and sell contracts that expire in 2011, making long-term bets on several stocks.
Market Intelligence Center  Jan 29  Comment 
H J Heinz (NYSE: HNZ) closed yesterday at $44.30. So far the stock has hit a 52-week low of $30.51 and 52-week high of $44.58. Heinz stock has been showing support around 43.11 and resistance in the 45.17 range. Technical indicators for the stock...
Market Intelligence Center  Jan 28  Comment 
Heinz (NYSE: HNZ) hit a new 52-Week high of $44.28 so far today. Currently the stock is up $0.68 (1.56%) to $44.21 on 2,182,891 shares traded. Today's high is up $13.70 from a 52-Week Low of $30.51. Heinz stock has been showing support around...
BusinessWeek  Jan 27  Comment 
Trading of bullish H.J. Heinz Co. options surged to 12 times the four-week average and the shares advanced on renewed speculation that the world’s biggest ketchup maker will be acquired by Nestle SA.
Market Intelligence Center  Jan 26  Comment 
H J Heinz (NYSE: HNZ) closed yesterday at $42.52. So far the stock has hit a 52-week low of $30.51 and 52-week high of $43.75. Heinz stock has been showing support around 41.75 and resistance in the 43.17 range. Technical indicators for the stock...



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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] the company sells about 650 million bottles of ketchup each year.[2] 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.[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 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. Due to these rising costs, Heinz introduced price increases across all its products in 2008.[5] However, the company also introduced in 2009 a new marketing campaign highlighting the natural and organic qualities of its foods, especially its ketchup brand.[6]


Company Overview

2008 Revenue by Product
2008 Revenue by Product[7]

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 [8].

Quarterly Earnings

Q4 2009

In the fourth quarter of 2009, Heinz posted revenues of $2.41 billion, a 7.5% decrease from Q3 2008 figures; however, net income rose 10.9% to $242 million.[9][10] Foreign currency exchange had a negative 11% impact on revenues during the quarter. This impact was partially mitigated through net pricing increases across the company's product line. Net income increased as a result of currency derivatives which Heinz used to hedge against currency movements.[10]

Q1 2010

In the first quarter of 2010, Heinz posted revenues of $2.47 billion, a 4% decrease from Q1 2009 figures; net income fell 7% to $212.6 million.[11] Foreign currency exchange had a negative 9% impact on revenues during the quarter. As in the quarter before, net pricing increases of 6.3% that had been implemented earlier in the fiscal year helped mitigate these effects. During the quarter, the company increased advertising for its core sauce product lines, including its ketchup and Classico pasta sauce lines.[12] The company expects conditions to improve, however, as it issued earnings growth guidance of 4-6% in 2010, on a currency constant basis.

Q2 2010

In the second quarter of 2010, Heinz generated revenues of $2.67 billion, an increase of 2.5% from the Q2 2009; net income for the quarter decreased by 16% to $231.4 million.[13] Overall volume decreased 4.1% as lower volumes for the US and UK offset increases in emerging markets; it was also counteracted by pricing increases of 4.6%.[14] In Asia/Pacific, sales increased 20.3% as a result of the company's acquisition of a fruit and juice business in Australia and a chilled dip business in New Zealand. Operating Income for the US Foodservice segment grew 15.1% as pricing and increased efficiency offset a volume decrease of 5.6%. A similar trend was seen for North American Consumer Products, the company's largest segment, with operating income increasing 4.9% in the face of a volume decrease of 8%.[15] The company is hoping to drive up volume with new marketing campaigns in nearly every region.[16] For the tenth consecutive year, Heinz ranked first for customer satisfaction among food manufacturers according to the University of Michigan’s American Customer Satisfaction Index.[17]

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 is focused on growing this segment through the introduction of value-oriented products to address the 2008 recession.[3]

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.

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. In FY2007, the company saw an increase of sales volume of 6.1% due to growth in nutritional drinks in India, ketchup and baby food in South America, and general sales in South Africa. However, due to economic instability in Zimbabwe, the company was forced to consolidate its operations in the country and wrote off its net investment [18]

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. For example, in 2007, the price of corn reached a 10 year high in summer 2007, [19] which led to a subsequent rise in the cost of ketchup; Heinz ketchup is about 10% corn syrup. Although the commodities superspike of 2007-2008 has abated, Heinz still must contend with elevated input costs.

The Rising Value of the Dollar Could Impact Heinz' Revenues

Changes in the strength of the dollar compared to foreign currency could impact the company by decreasing both costs and revenue in dollars. As the strength of the dollar increases, all sales made in foreign currency end up being worth less because the amount of US dollars the company gets per sale decreases. On the other hand the cost of foreign inputs (food and other commodities that go into Heinz products) sold in foreign currencies would decrease with the strengthening dollar. Since more than 60% of Heinz's sales are in international markets, the increasing value of the dollar could be a significant factor driving revenues down overseas.[12] Specifically the company primarily deals with the British Pound, Euro, Australian dollar, Canadian dollar, and the New Zealand dollar. Since 2007, when the dollar was at historically weak levels, the currency has rebounded to stronger levels against all major currencies. If the dollar remains at these levels, Heinz earnings will suffer. To reduce foreign exchange rate risk, the company entered forward contracts, option contracts, and cross currency swaps in August 2008, minimizing currency risk. [20][3]

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 narrowly-focused companies.

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).

Heinz vs. Competitors
Company Market Cap 2007 Total Revenue 2007 Gross Profit 2007 Operating Income 2007 Net Income
Heinz [21] $14.21B $9,001,630,000 $3,392,900,000 $1,446,710,000 $785,750,000
Kraft Foods (KFT) [22] $45.80B $10,396,000,000 $3,220,000,000 $1,040,000,000 $585,000,000
Archer-Daniels-Midland Company (ADM) [23] $27.08B $44,018,000,000 $3,237,000,000 $2,042,000,000 $2,162,000,000
Tyson Foods (TSN) [24] $5.55B $26,900,000,000 $1,433,000,000 $614,000,000 $268,000,000
Campbell Soup Company (CPB) [25] $11.9B $7,867,000,000 $3,296,000,000 $1,293,000,000 $854,000,000
ConAgra Foods (CAG) [26] $10.31B $12,028,200,000 $3,138,500,000 $1,005,100,000 $764,600,000




Notes

  1. Heinz 2004 Annual Report Year in Review
  2. About Heinz
  3. 3.0 3.1 3.2 H. J. Heinz Company F2Q08 (Qtr End 10/29/08) Earnings Call Transcript.
  4. New York Times: "Heinz to Shed Units and Job in an Overhaul" 18 Feb 1999
  5. Heinz profit beats estimates, aided by price increases.
  6. Heinz: focusing on the 'real food' offering.
  7. You must specify title = and url = when using {{cite web}}. (2008).
  8. HNZ 2007 10K, Item 1 pg. 2
  9. HNZ 2009 10-Q  
  10. 10.0 10.1 You must specify title = and url = when using {{cite web}}. (2009).
  11. einz Profit Falls, Hurt by Stronger Dollar.
  12. 12.0 12.1 Heinz profit slips 7%; outlook backed.
  13. HNZ Q2 2010 10-Q, p. 2
  14. HNZ Q2 2010 Earnings Call Transcript, Seeking Alpha
  15. HNZ Q2 2010 10-Q, p. 26-27
  16. HNZ Q2 2010 Earnings Call Transcript, Seeking Alpha
  17. HNZ Q2 2010 Earnings Call Transcript, Seeking Alpha
  18. HNZ 2007 10K, Item 6 pg. 17
  19. New York Times: "Record U.S. Corn Crop..." 11 Aug 2007
  20. HNZ 2007 10K, Item 7 pg. 25
  21. HNZ 2007 10K, Item 8 pg. 36
  22. KFT 2007 10K, Item 8 pg. 45
  23. ADM 2007 10K, Item 8
  24. TSN 2007 10K, Item 7a pg. 39
  25. CPB 2007 10K, Item 8 pg. 23
  26. CAG 2007 10K, Item 8 pg. 44
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