Heinz Catch-Up

It took some effort, but the ketchup appears to be flowing freely these days at Motley Fool Income Investor pick Heinz (NYSE: HNZ  ) . The easy money may have been made, but the company is quickly developing a reputation for predictable operational improvements.

Earlier today, Heinz posted fourth-quarter and year-end results that met or exceeded Wall Street expectations. For the year, total sales advanced only 4.1%, but reported earnings jumped nearly 25%. Excluding special restructuring charges, the bottom-line results improved a more-than-respectable 13.3%.

The North American consumer products segment continued to grow the fastest, posting full-year sales growth of 7.3% and a slightly smaller increase in operating income. Higher pricing for the flagship Heinz ketchup helped results, while acquisitions accounted for 1.9% of sales growth. European and rest-of-the-world sales grew a couple of percent, while Asia/Pacific sales advanced a stronger 7.6% on volume and pricing increases.

Overall, Heinz looks to be building on the momentum initiated by activist shareholder Nelson Peltz in mid-2006, including recommendations to cut costs, focus on higher margins and faster-growing brands, and enhance shareholder returns. The stock price moved up quickly in anticipation of the turnaround, and more recently, improvements are starting to show up in the financial statements.

Restructuring and other charges will continue in the foreseeable future as Heinz plans to leave more manufacturing plants and "pursue global sourcing opportunities," but management still raised earnings guidance for the new fiscal year. It also announced an 8.6% increase to the quarterly dividend.

Heinz is trading at just under 19 times earnings projections for the new year. That isn't a bargain-basement multiple, but the company continues to generate strong free cash flow, and free cash flow has exceeded reported net income for the past two years, leaving plenty of room to increase the dividend further, buy back shares, or pay down some of the hefty debt load.

In any case, turnaround efforts are progressing nicely, and Heinz has quickly caught up to rivals such as Sara Lee (NYSE: SLE  ) and Unilever (NYSE: UL  ) as they also adjust the size of their businesses. Kraft (NYSE: KFT  ) may just be getting warmed up, because it was recently freed from Altria Group (NYSE: MO  ) , while Campbell Soup (NYSE: CPB  ) and Kellogg (NYSE: K  ) look to be performing well. However you cut it, food stocks have plenty of investment appeal, and Heinz is turning out to be the tastiest of the bunch.                     

For related Foolishness:

Heinz, Unilever, and Kraft are all Income Investor selections. To see what other great dividend-paying companies have been recommended to subscribers of the market-beating newsletter, take a free 30-day trial.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.


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