Heinz hits profit-high

By Anita Awbi

- Last updated on GMT

Related tags: Ketchup

In the face of rising production costs, global food producer Heinz
defied sceptics to announce a better than expected quarterly profit
rise, thanks to a major European reshuffle and ambitious
acquisition programme.

The iconic packaged foods label posted a profit of $203.8 million for the second quarter to October 26, up from last year's $199m, as the company moved to take control of rival food producer HP from French manufacturing giant Danone.

Generally Heinz Europe's sales increased 5.4 per cent. But the acquisition of HP and Petrosoyuz, a leading Russian condiments maker, bolstered sales 9.7 per cent in these areas, highlighting Heinz' success in consolidating interests and adapting to changing markets.

The manufacturer also recently announced it would pull out of its frozen food business in Europe, boost its presence in China and Russia, and spend more on developing new processing and packaging methods targeted at growing market categories such as 'natural' and chilled.

The announcement followed hard on the heels of Unilever's decision to look into 'strategic options' for its frozen food operations in Europe, which could include a sale.

Commenting on the company's performance, Heinz chairman, president and CEO William Johnson said: "We are generally pleased with the results for the quarter. Volume, operating income and operating free cash flow all showed solid progress.

"We achieved these results despite significant cost headwinds and during a period of extensive efforts to reshape the portfolio and streamline our core businesses."

Indeed, oil prices are currently posing problems for food manufacturers worldwide as the cost of plastic used for packaging and oil for transportation rise. Crude oil prices were nearly $57 a barrel yesterday.

This external pressure has driven Heinz to make modest increases to net prices of key branded products and reduce overheads at its European headquarters.

But the real success of the Heinz strategy lies in its focus on three market categories: ketchup, condiments and sauces, meals and snacks, and infant nutrition.

Heinz hopes this redirection will bring European operations in line with its successful growth-boosting model in North America and Australasia.

The company said earlier this year it is in discussion with investment banks regarding the potential divestitures of what it describes as non-core businesses, representing about $1.4bn in annual sales.

The potential sales would include seafood, vegetable and frozen businesses in Europe, including the Petit Navire, John West and HAK brands, along with the Tegel poultry business in New Zealand.

The announcement threw down the gauntlet to other processors to do more research and development in a competitive market, where consumer preferences are changing.

Related topics: Market Trends

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