H. J. Heinz: Estimating the Cost of Capital in Uncertain Times

2751 Words Apr 23rd, 2014 12 Pages
UV5147 Rev. Nov. 15, 2013
H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES
To do a common thing uncommonly well brings success.
—H. J. Heinz Founder Henry John Heinz
As a financial analyst at the H. J. Heinz Company (Heinz) in its North American Consumer Products division, Solomon Sheppard, together with his co-workers, reviewed investment proposals involving a wide range of food products. Most discussions in his office focused on the potential performance of new products and reasonableness of cash flow projections. But as the company finished its 2010 fiscal year at the end of April—with financial markets still in turmoil from the onset of the recession that started at the end of 2007—the central topic of discussion was
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Other well-known brands included Weight Watchers (a leader in dietary products), Heinz Beans (in 2010, the brand sold over 1.5 million cans a day in Britain, the “biggest bean-eating nation in the world”), and Plasmon (the gold standard of infant food in the Italian market).2 Well-known brands remained the core of the business with the top 15 brands accounting for about 70% of revenues, and each generating over $100 million in sales.
Heinz was a global powerhouse. It operated in over 200 countries. The company was organized into business segments based primarily on region: North American Consumer Products, U.S. Foodservice, Europe, Asia Pacific, and Rest of World. About 60% of revenues were from outside the United States and the North American Consumer Products and Europe segments were of comparable size. Increasingly, the company was focusing on emerging markets, which had generated 30% of recent growth and comprised 15% of total sales.
The most prominent global food companies based in the United States included Kraft Foods, the largest U.S.-based food and beverage company; Campbell Soup Company, the iconic canned food maker; and Del Monte Foods, one of largest producers and distributers of premium- quality branded food and pet

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