Heinz Savors Emerging Market Growth, Reaffirms Brand Strength

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Quick Take

  • Heinz (HNZ) reported organic sales growth of 2.3% y-o-y for the third quarter
  • Sales from emerging markets grew by 17.6% y-o-y organically
  • Top 15 brands contributed more than 70% of total sales for the period
  • Operating income grew 4.3% y-o-y driven by higher prices and productivity improvements

H. J. Heinz & Co., which recently announced its acquisition by Berkshire Hathaway and 3G Capital, reported earnings for the third quarter of fiscal 2013 on Thursday, February 21. The ketchup giant witnessed organic sales growth of 2.3% led by emerging markets where organic sales grew by 17.6% over the previous year. Strong performance of its ketchup business in Russia, Latin America and Canada was visible in the 4.2% y-o-y top-line growth. The company’s top 15 brands, including Heinz, ABC, Quero and Classico, contributed to more than 70% of total sales for the period. Higher pricing and productivity improvements drove operating income 4.3% higher to $480 million despite higher commodity costs.

Heinz Savors Emerging Markets Growth

Heinz’s emerging markets operations continued to thrive with 17.6% organic sales growth driven by its ketchup and sauce business in Brazil, Russia and Indonesia. The company witnessed smart volume gains in Brazil driven by Quero and Heinz brands. China and Indonesia led volume gains in the Asia-Pacific region. Post acquisition, we forecast aggressive growth strategies by the company marked by higher marketing and promotional spends and a possible acquisition of local brands like Quero in Brazil to tap the huge potential in emerging markets. (See Heinz $28 Bn Acquisition Implies Faster Global Growth And Thicker Margins Ahead)

Heinz, Classico and Quero Drive Growth

Most of the volume gains in Brazil were a result of successful marketing and promotional activities, increased distribution and introduction of Heinz branded ketchup. Pricing gains in the rest of the world region that includes operations in Africa, Latin America, and the Middle East increased sales by 11.9% largely due to price increases on Quero branded products in Brazil. The company also reported gross margin improvements in all geographies, including North America and Europe driven by higher pricing and productivity measures despite higher commodity costs. Effective pricing measures driving bottom-line growth in markets with relatively weaker fundamentals demonstrates the company’s brand strength.

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