Grown not Made - HJ Heinz (nyse:hnz)

Ketchup giant HJ Heinz is exploding in emerging markets. What does this mean for the long-term dividend payer?

Emerging markets are paying off for global food giant HJ Heinz (HNZ), as the company delivered an impressive 10.2% growth in earnings for the second quarter of 2011. This segment of the business now contributes 15% of sales with a strong performance from the infant nutrition products, ketchup and nutritional beverages product ranges.
 
The strategy to accelerate growth in Emerging Markets is producing excellent results, especially in Asia, where Heinz (HNZ) is well-positioned with strong brands in growing economies that possess expanding numbers of new middle-class consumers. Emerging Markets is the driving force behind growth this year and is on track to generate at least 20% of the Company’s total sales by 2013.
 
The recent acquisition of Foodstar, a leading manufacturer of soy sauce in China, is a potential growth driver for the group which now trades on a price to earnings (PE) multiple of 16 times earnings and offers investors a handy 3.6% dividend yield.
 
For the recently reported second quarter operating income grew 2.1% to $417m while earnings per share grew 2.6% to 78 cents per share from 76 cents a year while operating cash flow came in at $297m.
 
Sales for the quarter declined 1.2% to $2.61bn with this move being attributed to currency related factors rather than operating conditions.
 
For the full year Heinz (HNZ) is expecting both income and earnings growth of between 7% and 10% and free cash flow is likely to receive a kicker in the year on the improved operating outlook.
 
Heinz (HNZ) delivered solid results in the first half of Fiscal 2011 and the Company is raising its operating free cash flow outlook as a result. Heinz (HNZ) remains on track to deliver on financial targets for the full year.
 
For investors, eyeing the cash flow and whether this translates into dividends is important. Over the last 7 years, dividends have risen by around 67% and more than $3bn has been returned to stakeholders.
 
The pay-off line for Heinz (HNZ) ketchup is "grown not made" and this is fitting for a brand which has grown to a point where it now sells about 650 million bottles and 11 billion packets each year across six continents. Similarly Heinz (HNZ) as an investment has grown to be a well managed and diversified company which is also a consistent dividend payer, a strong generator of cash and has overall a solid share in most markets around the world.

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