Heinz and Campbell report sales growth, leading brands holding up well

Posted by James Ferre on 25th November 2008

H. J. Heinz Company has announced solid growth reflecting higher sales and the benefit of the Company’s strategic decision to hedge translation exposures on key currency exchange rates for the quarter. While the world’s leading soup maker, Campbell Soup Company, has posted sales growth of 3 per cent in their first quarter.

Heinz benefited from 5.8% organic sales growth, led by the Company’s Top 15 brands, which posted organic sales growth of 8.5%. Heinz banked a 3.5% second-quarter revenue increase to $2.61 billion.

“I am pleased with the Company’s second-quarter results particularly given the difficult economic environment,” Heinz Chairman, President, and CEO, William R. Johnson said. “The Company drove strong organic sales growth with many of our leading brands pricing to mitigate substantially higher commodity costs.”

For the quarter, market prices for the Heinz commodity basket increased almost 15%, led by increased costs for packaging, potatoes, tomatoes, edible oils and meats. Commodity inflation and unfavorable foreign exchange rates were only partially offset by net price gains, procurement savings and other productivity initiatives, Heinz advised. Due to effective forward purchasing, the net impact of commodity cost increases was limited to 10%. They also noted a time lag between the recent falls in commodity prices and recognition of the price falls in their supply chain.

In Australia, an integrated marketing campaign was credited with the success of Baked Beans – which realised a 21% sales rise in October. Overall, Heinz Asia/Pacific reported organic sales growth of 1.5% driven by a 5.2% increase in pricing. Overall, sales decreased 2.4%, reflecting a 3.9% unfavorable impact from foreign exchange rates. Convenience meals were popular in Australia but, overall, volumes were impacted by the timing of price increases.

US Foodservice was the major drag on the Company in the quarter as all other sectors reported sales gains.

“Our first-half results demonstrate that the Company’s growth strategy is working,” Mr Johnson added. “Heinz will accelerate its focus on boosting productivity and margins in light of the current economic climate. We will also shift investments in marketing and R&D toward value-oriented innovation, which is more important than ever to consumers. As we look beyond FY2009, we remain confident in our business fundamentals, but in light of the volatile economic conditions, we will closely watch currency and commodity movements before we advise investors of our financial outlook for FY2010.”

The Campbell Soup Company announced a sales increase of 3 per cent to $2.25 billion in the first quarter largely due to price increases, although volume and mix rose 1 per cent.

Douglas Conant, Campbell’s President and Chief Executive Officer was pleased with the results in a difficult marketplace. “We are off to a good start to the year,” he said. “Our product innovations and marketing efforts have resulted in strong top-line performance across our U.S. soup portfolio. We also are encouraged by the successful launch and early results of our new ‘Campbell’s Select Harvest’ and ‘Campbell’s’ ‘V8’ ready-to-serve soups.”

Their baking and snacking business, which includes Arnott’s, saw sales fall by 4 per cent due primarily to currency and divestitures. Arnott’s did, however, achieve significant growth in its savoury crackers business – which offset a smaller decline in chocolate biscuit sales. Arnott’s overall sales declined due to the divestiture of certain salty snack foods brands in May 2008 and the unfavourable impact of currency.

Asia Pacific sales of soup, sauces and beverages increased because of gains in Malaysia and Australia.

Mr Conant anticipates sales growth to remain reasonably robust throughout the year as they continue to look for ways to appeal to consumers who are searching for value. “We are pleased with our performance in today’s challenging and uncertain economic environment,” he concluded. “Campbell’s product portfolio is well positioned in both good and tough economic times. As consumers continue to seek value, they can choose a variety of Campbell’s products to help them provide wholesome, affordable food.”