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business newsHeinz's Higher Earnings Have Already Been Baked In
By
Justin Sharon
Mar 03, 2011 5:15 pm
The company announced an intention to acquire an 80% stake in tomato sauce maker S.A. Industrias Alimenticias of Brazil.
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Shares have underperformed the market over the past 12 months, and food inflation looms large as a headache for 2011, though today’s results did contain positive developments. Third-quarter net income increased 20% at the consumer products giant as it earned $273.8 million, or $0.84 on an Earnings Per Share basis. This comfortably bested both the $0.72 of a year ago and Street consensus of only $0.83 while the firm reaffirmed its prior full-year profit forecast of as much as $3.10 per share.
Additionally, it announced an intention to acquire an 80% stake in tomato sauce maker S.A. Industrias Alimenticias of Brazil. Besides being warmly welcomed by patriotic Pennsylvanians -- how the tables have turned since just late last year, when a Brazilian outfit was itself eying America’s own iconic Sara Lee Corp. (SLE) -- the deal is expected to eventually double Heinz sales in Latin America. While it will be modestly dilutive to earnings in fiscal year 2012, company CEO Bill Johnson hailed the move as “a major growth step under our emerging-market strategy” and UBS analyst David Palmer, although no better than a Neutral on the name, has nonetheless called Heinz “a smart acquirer and a good integrator.”
Such forays into fast growing foreign segments are essential amid increasing market saturation in its more mature markets; third-quarter profits were primarily propelled by 7.2% volume gains in emerging economies. By contrast sales were relatively sluggish in the United States and Europe, though the latter was up against especially challenging comparisons. The company’s baked beans and other canned fare populate many a pantry, and will always tend to sell well in a recession.
Intelligent investors can disagree on the stock -- after all, our own government once waged a fierce debate over whether or not ketchup should be classified as a vegetable. Twenty-three consecutive quarters of sales increases is an undeniably enviable track record, a 3.63% dividend yield offers obvious attractions in these uncertain times, and ongoing portfolio and productivity enhancements should soon start to bear fruit (or vegetables). However, Heinz could continue to be hamstrung by both heightened private-label competition and ever-rising commodity cost pressures.
Please see Heinz Profit Beats Expectations on Emerging Markets Growth, Recession Discovers 57 Uses for Heinz, and The Future of Food Prices: Sugar.
Between Justin Bieber and the Bikini Barber, it has been hard to keep hair out of the headlines recently. Regis Corporation (RGS), the 89-year-old owner of salons such as Supercuts and Cost Cutters, ended up 1.64%. It was initiated with an Outperform rating by analysts at Oppenheimer on Tuesday, and is due to present at an institutional investor consumer conference in New York City one week from today.
Oppenheimer cited a compelling dividend yield in rolling out bullish coverage of the Minnesota hair-care concern, which also owns Hair Club, a particular favorite of those of us who are follicularly challenged. (Just an FYI to the hair-today, gone-tomorrow head honchos at Goldman Sachs, currently in the process of transplanting their own barbershop closer to home.)
Regis recently paid $56 million for an increased 46% ownership interest in Provalliance, Europe’s largest hair salon company. The deal, expected to close by June 30, should add about $0.06 of incremental EPS on an annual basis. Regis boasts a reliable income stream, with roughly 80% of revenue coming from repeat customers, and its value offerings should be relatively resistant to any retrenchment in consumer spending.
Areas to watch include managerial musical chairs -- the firm just named a new CFO -- and any signs that comparative sales growth is not turning around as quickly as investors expect.
Also check out The Currency of White Women’s Hair in a Down Economy, Fed-Up Hair Plug Doc Threatens to “Out” Hair Extension Industry, Russia’s Greatest Financial Asset? Human Hair.
If Imelda Marcos would be highly unlikely to ever stop by Cost Cutters for a trim, it’s utterly inconceivable to picture her in Payless shoes. To be fair, its corporate parent, Collective Brands (PSS), has an outfitted actor in history’s highest grossing movie, Avatar‘s Sam Worthington, deeming the company’s low-cost offerings worthy of stepping out on the red carpet at the Oscars. But Collective Brands has built up a loyal following by catering to a more cost-concious crowd. Shares slipped 5.22% on an otherwise excellent session for equities, and this in spite of an analyst upgrade this morning.
The specialty footwear retailer yesterday reported a better-than-expected fourth-quarter loss of $0.16, which beat Street estimates by $0.03 per share. Revenue rose 4% to $773.8 million, again above expectations, amid strength in the wholesale segment. The stock still sold off sharply, as investors opted to take profits after a strong run up over the past eight weeks.
Dorothy, having walked the Yellow Brick Road in those famous ruby red slippers, may no longer be in Kansas, but this company has been an integral part of Topeka since 1956. Shares had been under water for the past year even before today’s tumble however. Domestic same-store sales remain flat and inventories are stubbornly high.
Turn to Collective Brands Walking on Sunshine, Crazy Business Ideas That Actually Worked: Zappos, and Ernest Hemingway’s Sock Hatred Inspires New Line of Men’s Shoes for more.
Those Budweiser turtles took a back seat to a guy in his turtleneck today, at least as far as attention goes, but Anheuser-Busch InBev (BUD) -- up 3.01% -- actually easily outperformed Apple's (AAPL) 2.06% stock price increase.
The world’s biggest brewer, now based in Belgium and whose better-known brands besides Bud include Stella Artois, Beck’s, Skol, and Michelob, reported fourth-quarter revenues rose to $9.47 billion from $9.30 billion, even as sales slipped slightly. It also more than doubled its annual dividend to $0.80 amid an encouraging draw-down in debt. Food and beverages analyst Gerard Rijk at ING Group called it “really a good result.”
A hangover could yet be brewing however, as InBev itself expects beer volumes to remain “soft” in the current quarter amid a still sluggish US economy.
Believe It or Not, There Was Beer Before Budweiser, Name Games: Budweiser vs. Budweiser, and Video: Budweiser Loyalty Erodes, have additional analysis.
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No positions in stocks mentioned.
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