HNZ H.J. Heinz Company

H.J. Heinz Company (HNZ), completed the Quero brand acquisition from the Brazilian food manufacturer Coniexpress S.A. Industrias Alimenticias. The Quero brand is a market leader in numerous tomato-based categories in Brazil and also holds a lead position in vegetables.

Therefore, as Heinz is already the world’s largest manufacturer of ketchup, this acquisition is an ideal strategic decision by the company. The acquisition also brings in its train a modern factory that is centrally located in Nerópolis and a new, fully automated distribution centre.  However, the terms of the transaction were not disclosed.

The acquisition is another major step in the company’s Emerging Markets strategy. Further, Brazil has been on Heinz’s priority list for quite some time as it is one of the largest economies in Latin America, contributing approximately 45% of Latin America’s Gross Domestic Product.

The Quero brand is already a leader in small, independent stores and shops throughout the country. Therefore, Heinz expects to build on that position by leveraging its experience in larger supermarkets and commercial outlets.

With Quero in the bag, Heinz will be well positioned in the key Emerging Markets of Brazil, Russia, India, China and Indonesia, thereby aligning with the company’s Emerging market strategy. Heinz expects that the acquisition will double its sales in Latin America in the very first year itself.

However, Heinz expects the acquisition to be modestly dilutive to earnings in fiscal 2012 as the company will invest in the business to drive growth, but accretive to earnings beginning fiscal 2013.

Management at Heinz intends to drive growth in the Quero product line through increased innovation and marketing and by leveraging its technical expertise in tomato products, ketchup, sauces and vegetables. Furthermore, the business provides an already well established platform to expand sales and distribution of Heinz-branded products across Brazil.

Heinz expects Emerging Markets to generate more than 20% of its total sales in fiscal 2012. This projection is based on strong organic sales growth and the acquisitions of the Quero business and Foodstar, a leading soy sauce manufacturer in China that Heinz acquired in November 2010.

Heinz posted robust earnings of 84 cents per share for the third quarter of fiscal 2011. The result was above the Zacks Consensus Estimate of 81 cents and also ahead of the 72 cents per share recorded in the year-ago quarter.

Profits were primarily driven by robust volume growth of 7.2% in Emerging Markets backed by strong performance of brands like Complan and Glucon-D nutritional beverages in India, ABCbranded products in Indonesia, Heinzbranded products in Russia, particularly Ketchup and Heinz infant nutrition products in China.

Heinz, which competes with ConAgra Foods, Inc. (CAG) and Campbell Soup Co. (CPB) currently has a Zacks #3 Rank, implying a short-term Hold recommendation.

 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
CAMPBELL SOUP (CPB): Free Stock Analysis Report
 
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
 
Zacks Investment Research