Thanks to Emerging Markets, HNZ Salvages Decent Quarter
[HNZ a beneficiary of The Global Demographic Tailwind because increasing affluence makes consumers more apt to pay up for leading brands, especially for such items as ketchup and children’s nutritional drinks. #msg-44005523 is a good background read.
HNZ generates 60% of sales outside the US and 18% of sales in emerging markets. In FY1Q11 (ending 7/31/10), sales in emerging markets grew 22% year-over-year in constant currencies excluding acquisitions; this compares to 4% YoY overall sales growth on the same basis. With a forward P/E of 14 and a dividend yield of 4%, HNZ is one of the more compelling values in the consumer sector, IMO.]
CHICAGO, Sept 1 (Reuters) - H.J. Heinz Co (HNZ) Chief Executive William Johnson said the global economy was in the worst state he has seen during his 35 years in the consumer goods industry and that he would focus on deals in emerging markets to boost company sales[the recent acquisition of Foodstar was one such deal (#msg-51552987)].
Johnson also indicated that Heinz's second-quarter earnings could fall below analysts' estimates, though the company stood by its full-year forecast[guidance for FY2011 (ending 4/30/11) is sales growth of 3-4% and EPS growth of 7-10% in constant currencies].
The company has relied on growth in emerging markets, which accounted for almost 18 percent of its sales in the quarter ended July 28. That helped offset performance in the U.S. market where retailers and manufacturers have resorted to steep promotions to lure cash-strapped consumers.
Heinz sees more acquisition opportunities in emerging markets now than in the last five years, Johnson said.
"We are not spending much time looking for M&A opportunities in the United States and Western Europe. Our focus is almost entirely on the emerging world," he said.
While Johnson would prefer to buy a smaller business and grow it, he did not rule out making a larger acquisition.
EMERGING MARKETS GOAL
Heinz has said it plans to generate at least 20 percent of its global sales from emerging markets by 2013, but it may be possible to reach that goal sooner, Johnson said.
Sales in emerging markets like Russia, India and Indonesia rose 21.9 percent in the first quarter, excluding the impact of acquisitions, divestitures and currency fluctuations, compared with global growth of 3.6 percent, the company said. [This is the so-called “organic” growth rate.]
Sales rose 4.8 percent at North American retailers, with volume up 5.3 percent. But prices were down 2.7 percent, and a quarter of the volume increase came from sales at Wal-Mart Stores Inc, which discounted Heinz ketchup to attract customers.
Gross margin rose to 36.6 percent from 35.7 percent a year earlier.
Heinz confirmed the preliminary earnings data it released on Tuesday. Net income rose to $240.4 million, or 75 cents per share, in its fiscal first quarter from $212.6 million, or 67 cents per share, a year earlier. Sales rose 1.6 percent to $2.48 billion.
Johnson said he expected second-quarter profit to mirror that of the first quarter. Analysts on average forecast 81 cents a share for the quarter, according to Thomson Reuters I/B/E/S.‹
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