Weak Australian profit fails to stop Heinz beating estimates

Posted by Daniel Palmer on 21st August 2009

The H.J. Heinz Company, one of the world’s largest food manufacturers, has reported a 4.5 per cent lift in sales in the first quarter, after stripping out the negative impact of currency movements. The ketchup maker saw emerging market strength and a rise in prices offset a fall in volumes but currency movements still ensured a 7 per cent fall in profit.

“Led by strong organic sales growth in Emerging Markets, our sharply focused global portfolio of leading brands performed well, especially in our core categories of Ketchup and Sauces and Infant/Nutrition, even as the recession continued to impact consumer behaviour,” William Johnson, Heinz Chairman, President and Chief Executive Officer, said. “At the same time, Heinz delivered robust cash flow, reflecting our strong focus on working capital and in particular on reducing inventory.”

The Company’s Top 15 brands globally generated approximately 70% of reported sales, led by the Heinz brand, Ore-Ida potatoes and T.G.I. Friday’s snacks – with organic growth for their leading brands up 2.2 per cent.

The company said their investment in marketing had risen, but they were now unwilling to chase volume at the expense of profit.

“Heinz continues to invest in marketing and innovation despite this difficult economy,” Mr Johnson advised. “At the same time, we have refrained from chasing unprofitable volume.”

Heinz added that higher commodity costs of core ingredients such as tomatoes, and potatoes had been a drag.

Asia/PacificHeinz Asia/Pacific organic sales increased 1.9% and reported sales increased 2.5%. The rise was led by price increases of 4.1 per cent but offset by a 2.2% decline in volumes – “largely reflecting softness in Australia”.

From a profit perspective, India and Indonesia were seen as leaders, while Australia was the key laggard.

Golden Circle acquisition

Heinz completed the acquisition of Golden Circle earlier this year which, while going to plan, has not yet had an impact on the bottom line.

“The competitive and commodity cost environments in Australia remain difficult and as expected Golden Circle has not yet contributed to the bottom line as this is their seasonally low period,” CFO Art Winkleback reported in a conference call. “We’re very excited about the prospects for Golden Circle as it expands our already strong presence in Australia and is a terrific health and wellness platform. This is a great brand and as you can see by the share results the business is very healthy. We expect that this brand will benefit even further from our marketing and distribution expertise.”

“The integration is going well, and should generate meaningful synergies over time. We anticipate a significant contribution from Golden Circle and expect the acquisition to increase our combined sales in Australia and New Zealand to US $1 billion.”

Outlook
The company reaffirmed guidance for the full-year, with sales growth of between four and six per cent forecast in constant currency terms.