Although H.J. Heinz Co. (NYSE: HNZ), the food company known for Heinz ketchup and other name brands, had a slight earnings drop off from its same quarter last year, prospects are still fairly bright. Unlike other agricultural businesses, such as fertilizer and equipment producers, Heinz and other food companies have more flexibility in attacking the dynamics of this deep recession. Let's take a look at how food companies can maneuver through a downturn.
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A Slowly Rising Stock
Heinz's stock price fell to a 52-week low of $30.50 in March, but has risen slowly from there to $38.50 a share - still shy of its $53 high, but moving nicely. While Heinz's recent rise can be partially attributed to the overall market's rise, the company is still seen as being stable during a recession, as it sells much needed food, and has been historically well run. With the earnings off 7% this last quarter, and revenue down by 4%, Heinz earned $212.6M or 67 cents a share, compared to $229 million or 72 cents a share in the same quarter a year ago. These are not bad numbers when you consider that this occurred during the heart of the worst post-World War II recession.
How Heinz Does It
With commodity prices still mixed, Heinz and other food companies have to rely on their strong traditional brands and other strategies, like trying to develop new products and markets for them. These strategies have to be combined with balancing ingredient and productivity costs, and financial factors like currency exchange rates. With all of this in mind, Heinz sees 4-6% revenue growth for next year.
Other Food Strategies
Other companies, such as ConAgra (NYSE: CAG), are pursuing extensive consumer marketing research in an integrated comprehensive way with their supermarket partners to try to get ahead of shifts in consumer behavior, a move the company claims has already paid off. Some companies, such as Campbell Soup (NYSE: CPB), are simply staying the course with their traditional successful brands and approaches that have weathered the recession and keep them poised for better things when the economy bounces back. Giant Kraft Foods (NYSE: KFT) pulled off the recession coup of successful companies by increasing profits 11% in its last earnings period despite a decline in revenue. Kraft has also, like many of these companies, been a solid dividend payer. Even Tyson Foods (NYSE: TSN), which saw troubles from food plant violations to potential problems with its pork segment, may have left its worst quarters behind.
Bottom Line
With slowly improving economic data and a steadily rising stock market, it's not unreasonable to think that the recession is ending and that Heinz and many other food companies have made it through, slightly bruised but largely intact. Though there are still potential commodity problems, particularly major concerns over the sugar supply, and although Heinz has been getting squeezed in terms of volume by competitors, Heinz is also resisting the temptation to do too much price slashing, keeping long-term pricing power and margins. While some investors see ConAgra or Kraft as better stock buys, Heinz's business is still positioned to do well coming out of the recession, and the stock, while not spectacular, should continue to inch its way up the charts. (For more, see Guard Your Portfolio With Defensive Stocks.)
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