H.J. Heinz Company (HNZ)

Heinz, where are the gainz??? H J Heinz revenues are dependent on the manufacture and sale of ketchup, frozen foods, soups, and other processed food products under the brand name Ore-Ida, Heinz, and Smart Ones. The company operates in five global business segments with bulk of the revenue coming from Europe (34%) and North American consumer products (31%), and the remaining coming from U.S. Foodservices (18%), Asia Pacific (13%) and Other (4%).

The company’s top line has been on the rise for the past two quarters, but Europe, which generates one-third of total revenues, is being impacted by a slower economic growth. Heinz’s operating margins have been volatile for the past few years, struggling to stay above 16%, as the management desires. Moreover, margins are being consistently squeezed on account of higher commodity, packaging and distribution costs. The planned reduction in promotional spending would negatively impact the volumes.

Heinz has raised its EPS guidance, thanks to pressure created by Nelson Peltz who faulted management for the poor performance of the company’s stock for the past eight years. Further, to aggravate the scenario, the election of Nelson Peltz and Michael Weinstein as board directors, following a fairly nasty and public proxy fight, increases the uncertainty about the company's long-term strategy and direction.