Ketchup isn't just red, it's on fire! Forget about the global credit crunch, falling home prices, and nervous consumers. H.J. Heinz Company (NYSE: HNZ) is proving that savvy marketing and innovation can drive impressive sales and profit growth in seemingly mundane products like ketchup, soup, and beans. The company reported second-quarter results yesterday that match the best of the global consumer-products companies.
Quarterly sales jumped 13%, with organic sales growth (excluding acquisitions, divestitures, and foreign exchange) of 8.1%. By product category, the sales gains were 9% in ketchup and sauces, 14% in meals and snacks, and 26% in infant foods. The last time I checked, I hadn't heard anything about a new baby boom going on, so from a sales perspective, the company is clearly getting it right with the consumer.
Profitability is looking solid as well. Operating income rose 10%, despite commodity cost inflation that has stalled earnings at other packaged-goods manufacturers like Kraft Foods (NYSE: KFT). A lower tax rate helped the company grow earnings per share from continuing operations by 20% -- 6% higher than analysts were expecting.
What's at the bottom of this recent success for a company that's been in essentially the same business since 1869? Nothing remarkable -- just a laser-like focus on the basics: understanding what the consumer wants, filling the pipeline with innovative products like Plasmon (now the leading brand of infant nutrition in Italy), and getting the message out with impactful marketing.
Based on the first two quarters, management increased the top end of their annual EPS target to $2.62, which would represent 10% growth compared to last year.
While I've recently been recommending that Foolish investors take a closer look at the top consumer-brand companies, Heinz -- at slightly less than $10 billion annual revenue -- can get overlooked in favor of giants like Procter & Gamble (NYSE: PG), Unilever plc (NYSE: UL), Coke (NYSE: KO), and Pepsi (NYSE: PEP). But given a dividend of more than 3% and double-digit growth, it doesn't look like "big ketchup" is taking a backseat to anyone.
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