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H. J. Heinz Company Message Board

  • irosen1 irosen1 Mar 1, 1998 5:31 PM Flag

    El Nino!!!

    Has anyone consider what affect on costs El Nino is having. For example, California farmers are now charging $20 per box of
    tomatos VS. $10 per box just a few months ago. The prices for potatos(which affects HNZ's Ore-Ida potato's) are going up as well.
    Can they pass on all of the increases? I doubt it. That means a squeze on profits. The alternative is to buy produce from other
    countries(South America), but the quality is low and they have a very poor inspection process for produce exported. El Nino could help take
    down an already overvalue stock.

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    • To be very honest I have not yet shorted the stock thru puts because I am not yet comfortable enough with it to make the play. But I will probably do so just before the earnings come out for the last quarter.

      My reasoning is this. The better food companies have for years relied upon large margins to keep their earnings up. The
      cereals have done it. The soups do it. And the better companies like Heinz have too. But what happens when competition gets a little
      stiffer and resistance sets in. As they raise prices it reaches a point of diminishing returns. And efficiencies can only go so far.
      I believe they have reached the point where old remedies will no longer work. There is an assumption by many that because
      Heinz has always performed well it always will. That is a fatal flaw in rational thinking. It sits at the penacle of the P/E
      scale. Now, if it bobbles just a wee bit how does it stay up? And why should it? You inquire as to why I believe this stock is
      going to go down. Well, it just made its number last time with nothing to spare. It has the most pressure on it to keep up its
      number of any food company. I just do not think it can stand up under the stress. I think it will fall short and I think Kellogg,
      Campbell Soup, Ralston Purina, Hershey and a lot more will too.

      I operate on an inner feeling as to what I feel good about. I feel very good as to this opinion. Perhaps it is a little bit too subjective for the analytical investor but that's how I feel and how I read it and we'll soon know whether I an psychic or buffoon or something in between. Thank you for your questions.

    • 1. look up the past history on HNZ - check out the splits.
      2. last Mar. $40 per share - today over $57 per share
      3. over 26 years of increased dividens.
      4. major mgmt change from O'Riley to Johnson who moved HNZ pet food up into great sales and profits.
      5. new stock split may be the end of the fiscal year in April.


    • You state;

      "There are several reasons for my thinking. First, I believe most food stocks are going to be under pressure on earnings"


      "and I frankly cannot see it achieving vigorous results in an industry that I think is on decline"

      What I am asking is why you think that food stocks won't be
      able to deliver on earnings. What is the rationale for your
      belief that the food industry is in a decline? I understand
      that these are the reasons you are shorting the stock, but
      why do you believe that they [the reasons] are going to happen?

    • There are several reasons for my thinking. First, I believe most food stocks are going to be under pressure on earnings. And
      in my view HNZ is in a terrible position. Its P/E is about the highest in the industry and last quarter it just hit its
      earnings estimate. All it has to do is stumble a little and it will tumble and if my first premise is correct (that most food stocks
      are going to be greatly stressed), then I think HNZ is the prime candidate in the sector to get crunched. It has no room at all
      on the downside of the earnings scale and I frankly cannot see it achieving vigorous results in an industry that I think is on
      decline--at least for the next year of so. Also, I am not a downside player as a rule but in my view HNZ is a classic put play in the
      present environment. It is the safest play in a very dangerous game that I do not engage in very often.

    • Why do you guys/gals believe that HNZ will
      come up short on earnings? They haven't
      warned of such, have they? Are you basing
      this on the Conagra earnings revisions?

      I've said this before, that I find it hard
      to believe people would short a consistent
      and historic American icon like HNZ. Granted,
      their p/e is high compared to many other food
      companies, but with world food demand increasing,
      and projections for a tenuous growing season at
      best (thanks to El Nino) food prices will surely

      As an investor, I guess I live in a different
      time frame than market players like "shorters"
      and/or daytraders. Everyone has a right to make
      money from the market however they choose to
      play it. I can't say I'm rooting for you shorters,
      but I admire your courage.

    • Yes, Heinz will pass on all costs of raw product plus increase the retail in finish goods for more profits for the next reporting period.

      You can take this to the bank.