For exclusive use at Institute of Management Technology - Dubai, 2015

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 …show more content…

Heinz manufactured products in three categories: Ketchup and Sauces, Meals and
Snacks, and Infant Nutrition. Heinz’s strategy was to be a leader in each product segment and develop a portfolio of iconic brands. The firm estimated that 150 of the company’s brands held either the number one or number two position in their respective target markets.1 The famous
Heinz Ketchup, with sales of $1.5 billion a year or 650 million bottles sold, was still the undisputed world leader. 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