Motley Fool Income Investor recommendation Heinz (NYSE:HNZ) has been red-hot since early 2006, thanks to an activist shareholder and strategy to get growth moving in a positive direction. Judging by the stock price, the restructuring plan has been successful so far, but Heinz has more work to do to convince investors that bottom-line earnings will move consistently upward. Tomorrow's fourth-quarter and full-year results will shed further light.  

What analysts say:

  • Buy, sell, or waffle? Fifteen analysts follow Heinz. Four are bullish on the stock, two are bearish, eight are on the fence, and one is pleading the Fifth with no opinion.
  • Revenues. Analysts are projecting fourth-quarter sales of $2.4 billion.
  • Earnings. Analysts project fourth-quarter earnings are $0.55 per share, or a couple of percent above last year's earnings of $0.54. They also are calling for full-year earnings of $2.37 per share.

What management says:
When Heinz released third-quarter results in February, it didn't offer fourth-quarter guidance, but did mention it expected full-year earnings of $2.35 per share-$2.39 per share, or year-over-year growth of 12%-14%. Management updated investors on its ambitious, two-year restructuring plan  announced in June 2006, saying it was "on track" to deliver supply chain savings of $175 million, unwind 15 processing plants, and report better-than-expected selling, general, and administrative "productivity targets." 

What management does:
If profitability trends are any indication, management's turnaround plan is working, as operating margins have been trending upward. Bottom-line net margins are more of a work-in-progress due to restructuring charges as Heinz eliminated lower-margin businesses from its portfolio of food brands.

Margins

10/05

01/06

04/06

07/06

10/06

02/07

Gross

37.3%

37.0%

36.8%

36.9%

37.1%

37.2%

Operating

15.7%

15.6%

15.9%

16.0%

16.4%

16.8%

Net*

7.6%

7.5%

5.1%

5.6%

5.9%

6.8%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
*Earnings from continuing operations.

One Fool says:
 Recent trends at Heinz suggest sales growth is accelerating as underperforming businesses have either been fixed or sent packing, allowing a renewed focus on existing brand development and new-product introductions.

Based off full-year expectations, shares of Heinz are trading at just under 20 times earnings. This is in line with peers such as Sara Lee (NYSE:SLE), Kraft (NYSE:KFT), Campbell Soup (NYSE:CPB), and JM Smuckers (NYSE:SJM). Heinz's dividend yield of 3% is one of the higher yields in the industry, with European-based Unilever (NYSE:UN) (NYSE:UL) the only firm to post a higher yield of around 4%.    

Overall, the food industry has a number of appealing investment characteristics, including above-average income potential and downside protection should the economy head south. Shares of Heinz continue to hover near their 52-week highs, but if restructuring continues to enhance sales and earnings prospects, shareholders could see further gains.

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