Heinz (HNZ) Remains Stable

While posh and exotic condiments could be the flavor of the season, ketchup seems to be retaining its demand. Heinz (NYSE: HNZ) produced a rather lack-luster second quarter results Tuesday and its stock has traded sideways for a decade. Like its defensive peers, Heinz has just rebounded by a third as equity markets have rebounded since March. But it has consistently paid and increased dividends, yielding 4 per cent, which comforted investors nervous about weak consumer spending.

There were fears that consumers will trade down toward generic foods and private label goods in larger numbers. However, branded sauces and ready meals and snacks of which Heinz is a part has proved resilient. Heinz has increased prices in the past six months, and is quite used to private label competition in Europe, its largest market. Heinz makes over 60% of its revenues outside the US which provides a good currency hedge. It makes a quarter of its non US sales in emerging markets and has seen decent profitability. Operation margins are solidly in the mid-teens. It certainly looks like a good bet for investors.