Heinz Heads to $62 on Growth from Emerging Markets

57.12
Trefis
HNZ: H.J. Heinz logo
HNZ
H.J. Heinz

H.J. Heinz Co. (NYSE:HNZ) aims to generate 25% of its revenues from emerging markets by 2016 compared to just 10% in 2006. This year 20% of sales will come from these high growth markets. Heinz manufactures and markets an extensive line of processed food products that includes ketchup, condiments and sauces, meals and snacks and infant/nutrition products. The company competes with major food and consumer companies like Kraft Foods (NYSE:KFT), Tyson Foods (NYSE:TSN), ConAgra Foods (NYSE:CAG) and Campbell Soup Company (NYSE:CPB).

We have a $62 Trefis price estimate for H.J. Heinz Company, which is around 20% ahead of the market price.

High growth in emerging markets

Emerging markets are the primary growth engines for Heinz’s top line. These markets generated 16% of its sales in 2010 and are expected to contribute to 20% sales by 2011, compared to just 9% in 2005. These results were led by double-digit organic growth in China, India, Indonesia and Russia. Heinz’s goal is to have them generate 25% revenues by 2016 and up to 40% in the long term.

Relevant Articles
  1. Heinz Savors Emerging Markets Growth And Reaffirms Brand Strength
  2. Heinz $28 Bn Acquisition Price Implies Faster Global Growth And Thicker Margins Ahead
  3. A Snapshot Of Our $57 Price Estimate For Heinz
  4. Heinz’s Thicker Margins And Global Growth Will Lift Results
  5. A Vote For Beer
  6. Heinz Q1 Earnings Show Big Emerging Markets Growth And Negative Currency Impacts

Emerging markets have the demographic advantage of growing middle class with rising purchasing power, offering greater growth potential than the already saturated developed markets of Europe and the U.S. By growing its presence in the world’s most populated and high-growth emerging markets, Heinz expects them to deliver 70% of its growth over the next few years led by China and India.

Strategic acquisitions to expand presence

Heinz’s growth strategy includes organic growth as well as strategic acquisitions to expand its international presence. Accordingly, it has made two major acquisitions in the last one year, including Foodstar in China in June 2010 and Quero in Brazil in March 2011. While Quero will double Heinz’ sales in Latin America, Foodstar’s solid market presence will boost Heinz sales to $300 million per year in the fast growing Chinese market.

Infant/Nutrition: Special Focus category

Heinz is targeting Infant/Nutrition as the “Special Focus Area” aiming for about 25% of the so far less tapped market share in Emerging markets. Major brands like Complan and Glucon-D have been posting double digit growth rates in India and will continue to post impressive growth rates in coming years.

See our full analysis for Heinz