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Some Sauce for the Portfolio: Heinz (HNZ)

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August 26, 2008 – Comments (1) | RELATED TICKERS: HNZ.DL

Heinz (HNZ) reported solid quarterly earnings on 21 Aug and has now pulled back a bit.  The stock trades at about 17.5 times ’09 earnings estimates, has a modest estimated growth rate of 8.3% and the dividend yields 3.2% based on the 25 Aug closing price. 

In the conference call, management gave a range of $2.87 to $2.91 for 2009 earnings which is slightly below analysts’ consensus of $2.92.

The conference call painted a picture of very strong growth in emerging markets, particularly for ketchup sales in Russia.  In the Q&A portion of the call, Executive VP and CFO Art Winkleblack stated, “Its broad based [emerging market growth], it’s not just one market we’re seeing good results. Latin America, we’re seeing it in the Middle East, we’re seeing it in South Africa, China, India, etc.” 

The company has been able to pass much of the higher commodity costs along in pricing and has forward contracts that lock in about two-thirds of their commodity costs for the year. 

At the annual meeting earlier this year, the CEO made a comment about acquiring Campbell’s Soup (CPB).  During the conference call, Mr. Winkleblack dismissed it as an offhand comment. 

The company has no plans to buy back stock this year and is open to acquisitions.  Use of cash for the year was prioritized as paying dividends then looking to acquisitions. Share repurchases weren’t ruled out, but are considered a lower priority. 

HNZ is a solid dividend paying stock that should weather a tough market well.  The company has been growing earnings and has good prospects for continuing the earnings growth.  The company has averaged about a 9% dividend hike for the past 5-years. 

Conference call quotes are from the transcript at SeekingAlpha.

1 Comments – Post Your Own

#1) On August 26, 2008 at 2:54 AM, DemonDoug (32.63) wrote:

I want heinz below 40/share.  At least below 45/share.  Not enough margin of safety otherwise.

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