The tax collector took a bite out of Heinz's
Fortunately, the tax bite is a one-time effect: The unusually low tax rate last year owed to the reversal of a foreign tax reserve. The company predicts it will get back on track with 9% to 10% earnings growth in its final quarter.
Sales growth continued to accelerate, up 13.8% for the quarter compared with 12.1% for the nine months year to date. Organic sales growth of 8.6%, combined with currency benefits that added 5.3%, fueled the 13.9% jump in the top line. This organic sales increase is starting to outpace best-in-class consumer products companies Procter & Gamble
But Heinz faces challenges. Sure, it's gaining market share with brands like Ore-Ida potatoes and Weight Watchers. But the higher commodity costs that have plagued food producers like Campbell Soup
For now, the name of the game at Heinz is innovation. The company has invested heavily in new products that are obviously a hit with consumers. This quarter alone, investments in research and development were up 21%, and the company spent 16% more on marketing.
As long as Heinz can keep growing its prodigious market share (which just reached 81% of the ketchup business in Canada), I like its prospects. And the sector recently drew attention when Warren Buffett of Berkshire Hathaway took a shine to food businesses, gobbling up a major stake in Kraft.
Although the companies are different, what Kraft is to the cheese business, Heinz is to ketchup. Both companies sport trailing-12-month P/E ratios in the high teens, generate appetizing cash flow, and pay dividends of more than 3%. They're worth a second look.
For related Foolishness:
Heinz and Kraft are Motley Fool Income Investor selections. Colgate-Palmolive is an Inside Value pick. Berkshire Hathaway is recommended in both Stock Advisor and Inside Value. Try any of our services free for 30 days.
Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, but doesn't own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Berkshire Hathaway. The Fool's disclosure policy is a tasty topping for your burger and fries.