Buy Heinz Stock Not Ketchup

But in the end, ketchup is just ketchup, isn’t it?

Not really. For Americans, ketchup always contains tomatoes and vinegar and some kind of sweetener, along with spices, and a brand named Heinz.

H.J. Heinz Co. (HNZ) reported a 22% rise in its fiscal second-quarter profit and indicated that it may take fewer price increases on its products amid weakening consumer spending and falling commodity prices.

The company is still going ahead with some selected price hikes, but indicated that price cuts were unlikely.

Food companies have raised prices steadily over the last year amid soaring commodity prices. Investors and analysts have been watching closely to see how these companies now will handle the subject of price increases as commodities have pulled back and global economies have weakened. Price increases play a big role in offsetting costs, but in a weak economy companies run the risk of pushing away penny-pinching consumers. There has been some speculation that retailers may also be resisting efforts by manufacturers to raise prices.

The company took a fair amount of price hikes in the second quarter and that discussions with retailers on pricing are a “little more difficult.”

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“We plan on less pricing going forward, but we do anticipate some offsetting benefits from the decline in commodity prices over time.”

Heinz’s second-quarter net income rose on higher prices and a currency-hedge gain.

While its North American consumer-products business saw 2.9% volume growth amid strength in its biggest products, including Heinz Ketchup and Ore-Ida potatoes, declines in Europe, Asia and at restaurants resulted in overall volume falling 1.3%. Credit Suisse analyst Robert Moskow said the volume decline was disappointing. Heinz shares were recently down 1.3% to 37.51.

The company posted net income for the quarter ended Oct. 29 of $276.7 million, or 87 cents a share, up from $227 million, or 71 cents a share, a year earlier. The latest quarter’s results included a $92 million pretax gain from currency hedging.

Revenue rose 3.5% to $2.61 billion.

Analysts polled by Thomson Reuters were expecting earnings of 76 cents a share on revenue of $2.7 billion.

Gross margin fell to 35.2% from 36.9% amid currency fluctuations and the continued commodity-cost increases, which Heinz hasn’t been able to fully offset with its price hikes. The company noted some costs have eased since crude oil peaked in July, but it will take time for Heinz to realize the benefits. Many large food companies say they locked in contracts and hedges on commodities earlier in the year and won’t feel the benefits of falling raw material costs till those positions wear off in coming quarters, and point out that prices of some raw materials are still high.

The company reiterated its fiscal-year outlook.

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