Heinz Preview: What We’re Watching Tuesday
H.J. Heinz (NYSE:HNZ) is on its way to generate 20% of its revenues from emerging markets by this year from 10% just 5 years back. We also expect its gross margins to show robust improvement resulting from its efficiency initiatives. 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.
- Heinz Savors Emerging Markets Growth And Reaffirms Brand Strength
- Heinz $28 Bn Acquisition Price Implies Faster Global Growth And Thicker Margins Ahead
- A Snapshot Of Our $57 Price Estimate For Heinz
- Heinz’s Thicker Margins And Global Growth Will Lift Results
- A Vote For Beer
- Heinz Q1 Earnings Show Big Emerging Markets Growth And Negative Currency Impacts
High growth in emerging markets to add to top-line
Emerging markets are the primary growth engines for Heinz’s top line and will contribute to 20% sales by 2011 compared to just 9% in 2005. Heinz has a diversified footprint across majority of key emerging markets and will benefit from double-digit organic growth in China, India, Indonesia and Russia. The company also recently made two major acquisitions 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.
We wrote more about this in a recent article – Heinz Heads to $62 on Growth from Emerging Markets.
Efficiency measures to improve bottom line
Heinz has undertaken several measures to enhance productivity and efficiency on a global basis and has created the Global Supply Chain Task Force and Project Keystone to improve cost efficiency, profit margins and competitiveness. In 2011, Heinz has raised its previous 5-year productivity target of $1 billion to $1.3 billion. Heinz is pushing annual productivity targets to reduce costs of goods sold by 4% every year over the next five years. This is expected to drive up gross margins up by 40-60 basis points annually.
The company has also created a consolidated warehousing and supply chain to drive down transportation costs in the US. It plans a similar initiative in Europe with a centralized supply hub in Netherlands.