Food companies tend to do steady business in good economic times and bad. As a result, well-managed food stocks represent an appealing option in any investment environment.
Two of the strongest food-stock plays right now are H.J. Heinz (HNZ) and Kraft Foods (KFT), not least for their aggressive moves outside the United States to diversity their sources of income.
The world’s biggest ketchup maker reported that net income soared 20 percent in its fiscal third quarter ended Jan. 26, to $273.8 million from $228.5 million a year earlier.
In March, Heinz agreed to buy an 80 percent stake in Brazilian food manufacturer Coniexpress S.A. Industrias Alimenticias, which makes the Quero brand of ketchup, sauces and vegetables.
The investment represents Heinz’s first acquisition in Brazil, one of the world’s fastest-growing economies. It will allow the company to increase its Latin American sales by 100 percent in the first full year it owns the brand.
Brazil isn't the only emerging market Heinz is targeting. In November, it bought Foodstar, a top soy-sauce maker in China.
“You want companies that have emerging-market exposure, because that’s where there is volume growth,” Deutsche Bank Securities analyst Eric Katzman told FoodBusinessNews.net.
Citigroup analyst David Driscoll raised his target for Heinz’s share price to $57 from $54 after the earnings news.
The world’s second-biggest food company saw its profit surge 37 percent to $4.1 billion last year from $3 billion in 2009. The gain came despite an increase in prices that Kraft had to impose to compensate for higher commodity prices.
Last year, Kraft bought Britain’s Cadbury, the maker of Dairy Milk chocolate, for $19.5 billion. That allowed Kraft to surpass Mars as the world’s biggest candy maker. Analysts were impressed with the deal because of the additional sales it will generate.
Cost savings from the deal are coming faster than Kraft expected. The company realized 25 percent of the expected $750 million in annual savings last year, compared to its initial forecast of 15 percent.
“We see the acquisition of Cadbury offering strategic value for KFT, including the opportunity to boost its presence in developing international markets and accelerate overall growth,” writes Standard Poor’s analyst Tom Graves.
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