Earnings Preview: Heinz - Analyst Blog

H.J. Heinz Company (HNZ), one of the leading manufacturer and marketer of processed food products worldwide, is scheduled to report its second-quarter 2011 financial results on Friday, November 19, 2010. The current Zacks Consensus Estimate for the quarter is 76 cents a share.

First Quarter Synopsis

The company posted robust earnings of 75 cents per share for the first quarter of fiscal 2011. The result was in line with the Zacks Consensus Estimate but came in ahead of the 68 cents per share recorded in the year-ago quarter. Profits were driven by strong performances in Emerging Markets and North American Consumer Products segments.

During the quarter, Heinz recorded total sales growth of 1.6% to $2.48 billion from $2.44 billion in the prior-year quarter. The growth was primarily driven by a 2.5% gain in volume, 1.1% benefit from increased pricing, which was partially offset by a 2.1% unfavorable impact from foreign currency translations.

Organic sales for the quarter grew by 3.6%. However, total sales fell short of the Zacks Consensus Estimate of $2.51 billion.

First Quarter 2011 Consensus

Analysts surveyed by Zacks expect Heinz to post second-quarter 2010 earnings of 76 cents a share, which is below the company's guidance range. The current Zacks Consensus Estimate represents a year-over-year growth of 1.3%. The estimates in the current Zacks Consensus for the quarter range has increased by a penny to 76 cents.

The current Zacks Consensus Estimate has increased by a penny over the last 30 days; with 1 out of 17 analysts covering the stock revised the estimates upward. However, in the last 7 days, none of analysts raised their forecast.

Earnings Surprise History

With respect to earnings surprises, Heinz has reported well above the Zacks Consensus Estimate over the last four quarters with an average of 5.19%. This suggests that Heinz has outperformed the Zacks Consensus Estimate by an average of 5.19% in the last four quarters.

Our View

Heinz is expected to deliver continued growth in its domestic business, while it strengthens its international operations and the reallocatesresources to key brands.  The company is focusing on the top 15 brands, which hold strong market positions and represent nearly 70% of total sales. Also, the company is cutting costs to improve margins.

However, intense competition from other established players and commodity inflation undermines the company's future growth prospects and profitability. Consequently, we have a Neutral rating on the stock. Heinz holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.

H.J. Heinz, which competes with Sara Lee Corp. (SLE) and Campbell Soup Company (CPB), primarily markets ketchup, condiments & sauces, frozen food, soup, beans, meals & snacks, and infant foods. Heinz's major brands are Heinz Ketchup, Ore-Ida frozen potatoes, Weight Watchers Smart Ones frozen dinners, Classico sauces, Jack Daniels barbeque sauces, and ABC Indonesian sauces.

 
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