Heinz (NYSE: HNZ), whose supermarket colleagues include Kraft (NYSE: KFT), Kellogg (NYSE: K), General Mills (NYSE: GIS), and Campbell Soup (NYSE: CPB), will be reporting second-quarter numbers on Friday, November 21. According to AOL Finance, the call is for approximately $0.76 in terms of earnings per share. That would represent about 7% of bottom-line growth. That wouldn't be too bad in this market.
Whether or not Heinz can beat the estimates, it's hard to say. My opinion? I wouldn't be betting on such an outcome. If I were a shareholder of the ketchup company, I would just hope that management at least meets expectations. I doubt that anything in the report will make me say that Heinz is now a perfect defensive stock. Literally nothing is defensive; best thing you can do in this market is hedge yourself by shorting some of it via an instrument like the ProShares Ultrashort (NYSE: DXD) ETF.
Heinz wasn't too far off from its 52-week low at the close on Wednesday. Considering that consumer-products companies may have a tough time competing with generic brands on price points, it's going to be difficult to see how the outlook for Heinz will be anything but cautious at best. Investors will be tracking the changes in volumes and how currency affects profits. And then there's the gross margin. With energy prices down, that should in theory help the metric, or at least I imagine that would be the case.
The one thing Heinz has going for it, as I've mentioned in previous posts about it and similar businesses, is the huge consumer recognition for its portfolio of products. That is an advantage, no doubt. But again, it depends on the consumer. Obviously many out there could care less if they buy No-Name-Brand Ketchup or not. I hope an analyst on the Heinz conference call asks about this.
I would like some commentary from management as to how much marketing and promotional activity it feels is needed going forward to bolster its brand equity. And how it will impact profits, of course.
Look, I think Heinz is cheap, especially considering its dividend yield, but from a technical perspective, nothing is cheap. So I still remain bearish on all earnings trades. Come Friday, we'll see if Heinz can still deliver the goods in this recessionary (and maybe even deflationary) period.
Disclosure: I don't own any company mentioned; positions can change at any time.
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