Heinz surpasses profit estimates despite softer volumes in Australia and US
Heinz overnight reported an 11% rise in profit for the third quarter on the back of their sound decision to hedge translation exposures on key currencies, and higher organic sales of brands such as Heinz Ketchup and soup, and Classico pasta sauces.
Excluding the impact of foreign exchange, the manufacturer, famous for ketchup and baked beans, reaped sales growth of 3.9% with organic sales growth of approximately 2%, driven by ketchup, infant nutrition and soup in the UK. Overall third-quarter sales of $2.41 billion declined 7.5% from the prior year due to the impact of foreign exchange, while lower volumes were blamed on price increases, a weak economic environment and the decision not to match deep discounts in certain categories.
For the third quarter, market prices for the Heinz commodity basket were up 11% from a year ago, led by packaging, potatoes, and tomatoes, the company reported.
“Heinz delivered solid third-quarter net income and strong cash flow in a challenging economic climate,” Heinz Chairman, President and CEO, William Johnson, said.
Globally, ketchup achieved 9% organic sales growth behind the success of top-down and fridge fit bottles in many markets, as well as the success of the “Grown Not Made” campaign in Europe, and the benefit of pricing.
Sales in the Asia/Pacific region decreased 8%, due to unfavourable foreign exchange translation rates of 17%. Organic sales decreased slightly, with net pricing up 7%, offset by an 8% volume decline. Sales were driven by gains in the infant nutrition business in India and pricing in Australia. Acquisitions in the third quarter, including Australia’s Golden Circle, boosted sales a further 9%, but operating income for the segment decreased 23%.
Sales for the entire nine months to January 28 rose 3% on the back of organic sales growth of 6%. Volume decreased 1%, as volume improvements in emerging markets were more than offset by declines in their US, Australian and New Zealand businesses, which have been more affected by the recessionary economic environment – Heinz advised.
“Our business remains fundamentally sound with strong cash flow and a balanced portfolio of leading brands that deliver good value to consumers,” Mr Johnson concluded, upon affirming organic sales growth targets of 6% for the financial year.