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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerHeinz (NYSE: HNZ) beat analyst expectations, and mine for that matter, when it released its first-quarter report on Thursday. Wall Street was looking for about 66 cents per share on the bottom line. Heinz delivered 72 per cents share, a figure that represents a 14% growth rate. This was achieved with the help of a 15% rise in top-line sales.
Management mentioned that organic sales were aided pretty evenly by volume growth and pricing strategies. Looks like brand equity wins the day yet again. People are simply willing to pay for their name brands. This isn't to say that generic, private-label items won't always be a concern for companies like Heinz, as well as competitors such as Hershey (NYSE: HSY), Kraft (NYSE: KFT), Campbell Soup (NYSE: CPB), PepsiCo (NYSE: PEP) and General Mills (NYSE: GIS). They always will be.
Heinz is proving to be one heck of a defensive business during this tough recession. The only segment where the company is having problems is in its U.S. Foodservice where sales and operating income declined. Not so surprising, I suppose, since some restaurants are having trouble getting patrons through the door. People may be willing to spend for Heinz ketchup in the supermarket, but if they're not willing to go to the local casual-dining hangout, then those places won't be demanding as much Heinz ketchup for their tables.
That aside, here's another nifty element to the Heinz tale. The company raised the lower end of its fiscal-year guidance. Previously, management believed it would do somewhere between $2.83 and $2.91 per share in 2009. Now, execs are confident that they will do between $2.87 and $2.91 per share. I'll tell you, that's rather encouraging, as is the dividend yield on the shares. At the time of this writing, it was better than 3%.
I think Heinz is a definite candidate for due diligence on a pullback considering its current track record. Even though I was wrong about Heinz's earnings-beating abilities, I still would temper any expectations that the company will always beat like this in upcoming quarters. It might not always happen, but management seems to be making the right moves here, and the stock is probably setting itself up for future success.
Disclosure: I don't own any company mentioned; positions can change at any time.
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