Innovation. It's the source of thinking that creates new products and new markets. From Apple's (Nasdaq: AAPL ) launch of the iPhone to portable GPS units by Garmin (Nasdaq: GRMN ) , innovation is integrated into our daily lives. But the inspiration to be innovative isn't reserved just for high-tech companies. The "i" word is the key driver in the other word that all equity investors love -- growth -- and it's an essential component to any business model.
Firms that lack innovation eventually begin to lag behind those that continually alter their products or their way of thinking. Companies that commit to continuous innovation are those that can sustain continued growth and leadership in their markets for extended periods of time. For example, H.J. Heinz (NYSE: HNZ ) is a company that's been making ketchup, condiments, and sauces for 138 years!
That's a lot of years of making ketchup. But if you think they ought to be running out of new possibilities after all this time, you'd be wrong.
Rival food manufacturers like General Mills (NYSE: GIS ) and Campbell Soup (NYSE: CPB ) have become champions of packaging techniques over the years. And Heinz is no foreigner to this, as it has invested heavily in product and packaging research over the years. But more recently, the company has been shifting its innovative efforts toward concentrating on what goes in the product.
Central to this effort is a Global Research and Quality Center that opened in 2005. This facility includes a pilot manufacturing plant, a mock supermarket, experimental laboratories, and a consumer focus group area.
The company also maintains the world's largest stock of hybrid tomato seeds at a facility in California that is developing new varieties of tomatoes that are sweeter and more pest-resistant.
This probably sounds to you like Star Wars meets Fried Green Tomatoes, but there is a point worth noting here for investors. Heinz's innovative tomato fields may not be as glamorous as Steve Jobs' latest Macworld releases, but food companies need growth, too. In the last five years, Heinz grew sales at an annual rate of 3.6%, and earnings per share at 6.3%. That kind of performance didn't make too big of a splash on Wall Street.
However, the food maker's new aspiration to bulk up its innovation strategies for new products has revitalized performance. In its latest quarter, the company reported sauced-up sales that jumped 13% and squeezed out a 20% increase in earnings per share from continuing operations.
That's pretty impressive growth acceleration for a company that most investors think about only when they're dressing up a burger and some fries.
Now, I'm not suggesting that Heinz is ready to out-innovate Google. But if there's a new and better way to make ketchup these days, I'm betting on Heinz. Its drive to become a leader in food and nutrition innovation leads me to believe that stronger growth is ahead for Heinz. Selling at a forward P/E of 15.3 and with a 3.5% dividend yield, this company is worth a second look.
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