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Packaged-foods producer H.J. Heinz (NYSE: HNZ ) posted fiscal 2010 performance that was middling at best -- a fact that's only briefly obscured by the company's self-congratulatory press release.
Full-year sales ticked up by 4.8% to $10.5 billion. However, organic sales, which exclude the effects of currency movements and acquisitions or divestitures, inched up by 2.1% -- and even that gain was solely supported by pricing. Emerging markets, responsible for roughly 15% of total sales, drove "virtually all" of the company's organic sales growth.
Moreover, management sees pricing pressure in North America throughout this fiscal year. This suggests that investors may be better off in other packaged-foods stocks, period -- or at least those boasting greater exposure to developing and emerging markets. On that note, diversified global giant Unilever (NYSE: UL ) fits the bill, as does the recently transformed Kraft (NYSE: KFT ) .
As for Heinz's bottom line, adverse currency movements pushed earnings per share from continuing operations 1.4% lower, to $2.87. And if we want to take a really hard view of things, the GAAP results, which include the effects of divestitures, register EPS of $2.71. For those in a forgiving mood, currency-neutral EPS shows a gain of more than 9%.
The fourth quarter, however, did offer improvement. Volume moved up 1.6%, reflecting a trend of improvement in the second half of the year. Revenue from continuing operations advanced a little more than 8%, to $2.7 billion. But organically, sales rose only 2.6%.
In the fourth quarter, Heinz experienced higher year-over-year marketing spending, and its cost-saving productivity initiatives weighed on profitability.
The cost-savings goal is also being pursued by competitors Kellogg (NYSE: K ) and General Mills (NYSE: GIS ) and, for Heinz, likely will produce greater margin benefits with each consecutive year, out to fiscal 2014. As for marketing, Heinz's quarterly investment jumped a massive 60% versus the year-ago quarter. Of course, consumer-staples companies of all kinds are spending more to support their products, but it's unclear when this level of competition might ease.
Going forward, management expects sales growth of 3% to 4% and EPS gains of 7% to 10% during fiscal 2011. But that's a currency-neutral forecast. In reported terms, the company warns that performance will "likely be affected by significant currency fluctuations."
If Heinz's North American business were picking up substantially, I'd be inclined to look past the currency issues. But given the realities, my advice to investors remains little changed from the previous quarter: As an investment, Heinz offers little to relish.