Heinz, P&G Overcome Rising Costs

It's tough not to be a Pollyanna after talking to Bill Johnson, the CEO of Heinz (HNZ - commentary - Cramer's Take), and after reading the Procter & Gamble (PG - commentary - Cramer's Take) quarterly transcript. Both of these companies have had to deal with hundreds and hundreds of millions of dollars of raw cost increases, and both have not only come through with flying colors but are more profitable than I bet even they thought they could be.

PG is amazing. Almost every business was up much more than people thought possible, with divisions like razors and hair care (shampoo) so strong that you would think that suddenly a large part of the populace has decided to start shaving and shampooing for the first time.

Innovations, like the Fusion blade, have produced remarkable returns in a short time, as Fusion is yet another billion-dollar brand that didn't exist a couple of years ago.

Most impressive? The price increases have held everywhere, even though times are tougher. One of the reasons is that it is harder than ever to trade down, because the knockoff companies have the same raw cost inputs and can't make it any cheaper. The other is that PG has created a value-added machine. The public, worldwide, believes that PG's products are better, and there is enough proprietary technology in their products to make me agree. Of course, they have the advertising budget to make you think that, but nobody in this industry believes that anyone makes anything better than PG.

Heinz used to be one of the most boring non-innovative companies on the planet. Last year, it introduced 200 new products and is getting double-digit growth worldwide, with more than 20% growth from emerging markets.

Yet it sells at 17 times earnings. This one is better than Wrigley (WWY - commentary - Cramer's Take) ever was and is cheaper with a fantastic brand name. Its stock has been stagnant even if management has produced huge value.

Neither of these stocks is expensive. Both have put through enough price increases that I have to believe if we had a month where ethanol was "suspended" you would be seeing profit margins go through the roof.

In the meantime, they are playing as if they are in the penalty box despite the great earnings. (Some of it is currency, so if you think the dollar is about to get strong, it could offset some of the win -- but not all -- that would come from lower input costs.)

The short-selling consensus was that PG couldn't possibly make the number with all of that plastic they have to buy and all of the ingredients that have anything to do with oil. The consensus couldn't have been more wrong.

And now the stock has a lot of room to run.

At the time of publication, Cramer had no positions in the stocks mentioned.

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