H.J. Heinz Company (HNZ) is scheduled to report its first-quarter 2012 financial results on Tuesday, August 23, 2011.
The current Zacks Consensus Estimate for the quarter is 76 cents per share, an improvement of 5 cents from the prior quarter.
Fiscal Year 2011 Synopsis
The company posted robust earnings of 71 cents per share for the fourth quarter of fiscal 2010, missing the Zacks Consensus Estimate by a penny. The adjusted earnings came in ahead of last year's 60 cents per share.
The company also lifted its annualized dividend by 6.7% to $1.92 per share from $1.80 a year ago, effective with the July payment.
Excluding two cents of Quero acquisition, adjusted earnings increased to $3.08 per share in fiscal 2011, against the earnings of $2.87 per share in fiscal 2010.
In the fiscal year ending April 27, 2011, Heinz recorded sales growth of 2.0% to $10.7 billion from $10.5 billion in the prior-year quarter. The growth was primarily driven by a 14.4% organic sales growth and a strong performance in the emerging markets, which generated more than 16% of the company’s total sales in fiscal year 2011. In addition, volume growth of 0.7% and a 1.2% benefit from increased pricing also added to the growth.
Moving forward, Heinz expects to invest approximately $160 million or 35 cents per share in fiscal 2012 on initiatives to increase the manufacturing efficiency and accelerate productivity on a global scale. Furthermore, Heinz is also accelerating investment in Project Keystone, its ongoing global initiative to improve productivity and make the company more competitive by adding capabilities, harmonizing global processes and standardizing its systems through SAP. Heinz expects an incremental cost of approximately $40 million, or 8 cents per share, for Keystone expenses, which are included in the company’s constant currency outlook.
Excluding the cost of its one-time productivity initiatives, but including the higher costs of Keystone, Heinz expects its fiscal 2012 constant currency earnings to be in the range of $3.24 to $3.32.
For fiscal 2013, Heinz expects its constant currency earnings per share in the range of $3.60 to $3.70, fueled by its productivity investments, representing a two-year average growth rate of 8.5% to 10% on a constant currency basis.
Furthermore, Heinz raised its long-term constant currency outlook for EPS growth to a range of 7% to 10% from a previous range of 6% to 9%.
Heinz also expects strong operating free cash flow for fiscal 2012 of approximately $1.15 billion, before special items. On a reported basis, Heinz expects its operating free cash flow to exceed $1 billion.
The company expects its emerging markets to generate more than 20% of the company’s total sales in fiscal 2012, reflecting double-digit organic growth and the acquisitions of Quero and Foodstar.
Agreement with Analysts
Analysts have projected strong growth from the company over the next two years after the solid fourth quarter results. However, we don’t see any significant movement in analyst estimates for the current quarter or the fiscal year over the past 30 days or 7 days. With no changes in the estimate revision trends for the coming first-quarter 2012, we justify a neutral sentiment on the stock.
None out of the nine analysts revised their estimates for the first quarter ending July 2011, whereas only one enhanced over the past 30 days in the second quarter ending October 2011.
For the fiscal year 2012, only one out of the fourteen analysts provided an upside in the estimate. However, none of the analysts moved their estimates for the fiscal year 2013.
The limited number of changes to estimates point to the fact that there was no major catalyst during the quarter that could drive results.
Magnitude of Estimate Revisions
There was no change in the estimates trend for the first quarter of 2012, nor for the fiscal years of 2012 and 2013 over the past 30 days. However, the estimates have moved up by a penny to 85 cents per share in the past 30 days for the second quarter of 2012.
Heinz has a solid balance sheet and strong free cash flow, which the company uses to pay off its shareholders through regular dividend payments.
Moreover, Heinz is expected to deliver continued growth in its domestic business, while it strengthens its international operations and reallocates resources 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 #3 Rank, which translates into a short-term Hold 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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