While JPMorgan analysts believe Heinz will weather the proxy battle between management and activist investors the Trian Group, the ketchup maker may still fall short of its earnings targets for 2007 investors were warned in a research note yesterday (13 July).

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Analyst Pablo Zuanic said that the food company could struggle to reach its 2007 financial targets because it may fail to push through price increases and meet cost-cutting targets.  


“Heinz’s cost-cutting track record is not good,” Zuanic observed, although he did note that Trian’s attack has injected new urgency into management. For 2007, “earnings per share could end up at $1.90,” he suggested.


Heinz set out to reassure investors, immediately issuing a statement rebuffing what it termed “speculation by a JPMorgan analyst”.


“Heinz remains well on track for its growth and financial targets in this fiscal year and very confidently stands by its June 1 guidance,” the company said.

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The suggestion that Heinz might miss its FY guidance comes at a difficult time for Heinz management, who are facing a proxy battle with the company’s second largest shareholder.


Trian, led by Nelson Peltz, have criticised the food group for its declining share price and alleged failure to return value to shareholders. Trian are attempting to get five of its members elected to the board of 12 directors.


JP Morgan’s Zuanic said that Trian will likely lose the proxy contest, leaving Heinz shareholders exposed to “execution risk” with the existing management team. He reiterated his underweight rating.


“We see downside risk once Trian fails to get board representation,” the analyst said. “But more importantly, we believe that there could be 40 cents of downside risk to earnings per share, and this could result in significant downside on Heinz shares.”


Heinz shares dropped to $41.58 at close of trade yesterday from a high of $42.50. Shares had risen 9% the previous day.