Heinz sales up but profits slump

By Anita Awbi

- Last updated on GMT

Related tags: Cent, Revenue, Ketchup

Leading manufacturer Heinz has reported a 24 per cent drop in
third-quarter net income as downsizing, restructuring and increased
commodity costs take their toll.

The US producer saw sales increase by 5.7 per cent for the quarter, driven by the acquisition of leading HP brands, but net income fell from $152.4m (€128m) in last year's Q3 to $116.6m this year.

And the operational profit margin dropped from 15.4 per cent last Q3 to 14 per cent for this quarter.

This has been attributed to rising commodity and fuel costs, particularly in the US and Indonesia, but marks a change in fortunes for the company famous for leading brands Heinz Baked Beans and Tomato Ketchup.

Stagnant consumer spending in western Europe, increasing retailers consolidation and buying power, along with European price competition and higher input costs have also depressed food profits in the region.

Although Heinz hit its target of a 3-4 per cent rise in sales, profits have not followed suit and the firm failed to make its forecast 6-8 per cent rise. But the company insists it will continue with restructuring plans to bring new focus to its European and Asian markets.

Heinz' CEO William Johnson said: "Heinz set a very ambitious agenda this year as part of its strategy for growth to further focus on core categories and geographies, reduce management layers and overheads, and position the company for more consistent growth in its big brands."

Currently its top 10 brands account for 60 per cent of total sales, growing 4.4 per cent in the third-quarter.

This suits the company that said last year it is keen to engage with investment banks to sell non-core businesses, representing about $1.4bn in annual sales.

And so far the divesture of marginal divisions, such as the Northern European HAK vegetable line for $51m, the European seafood business for $597m and Tegel poultry for $165m, is expected to bring an influx of cash.

The move is hoped to align European operations with the more successful sales-boosting model in North America and Australasia that concentrates on the most popular brands.

But the loss of sales in non-core areas may already be impacting overall performance, piling pressure on these few key brands to outperform.

Nevertheless the company is attempting to follow its changing market, citing new product launches and recent packaging design changes as growth boosters.

Heinz, which has an annual turnover of $9bn and is present in more than 200 countries, plans to continue this strategy with increased innovation in recipes, marketing and packaging to bolster its household names range.

And the company confirmed it will continue to explore the possibility of further sales in its non-core business divisions, perhaps leading to the divesture of the European frozen foods business.

Related topics: Market Trends

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