Heinz performs poorly in Australia as first-quarter profits drop

Posted by AFN Staff Writers on 24th August 2011

US-based global food company Heinz has reported a 6% decrease in net income to US$226.1m for the three months to 27 July 2011. The company’s results in emerging markets, including Asia, were stronger but results from developed Pacific markets were adversely affected by shrinking gross margins from house-branded competition within Australia, and the high Australian dollar impacting Australian-sourced exports.

Heinz’s first-quarter report says costs relating to its global restructuring programme, announced in May 2011, had affected profits. Nonetheless, excluding the charges from the supply chain and manufacturing revamp, net income increased to US$255m, compared to US$240.4m a year earlier, while earnings per share were US$0.78.

Heinz saw its global sales rise 14.9% to US$2.85bn, boosted by acquisitions last year of Brazilian condiments maker Quero and the Chinese soy sauce firm Foodstar. On an organic basis, total sales grew by 3.1%.

Australia considered a “difficult market”

Reflecting on the first-quarter results, Heinz’s Chief Financial Officer and Executive Vice President Arthur Winkleblack said, “Australia continues to be a difficult market for us. In the US Foodservice business, we saw a weakening trend in restaurant traffic, particularly in July. Excluding these two businesses, organic sales growth in Developed Markets was a healthy 3% and total company organic growth would have been nearly 5%.

“For perspective, much of the decline in gross margin came from Australia, where we have appointed a new managing director, and are attacking the cost structure to stabilise performance in what has become an inhospitable grocery market.

“Australia is the clear challenge for us in this segment, with constant currency sales down 8% for the quarter. Again, we’re taking strong action to address our issues there.”

In May 2011, Heinz announced it would close its factory in Girgarre (in New South Wales) and downsize its factories in Northgate (in Brisbane), and Wagga Wagga (in regional New South Wales), with a loss of more than 300 jobs. Heinz also has factories in Echuca and Mill Park, both in Victoria.

Commenting on the first-quarter results, Heinz’s chairman, president and CEO Bill Johnston said the company’s operations in emerging markets had managed to help the company as it navigated challenging conditions in developed markets.

“Emerging markets generated a record 23% of our sales in the first quarter, up from 18% a year ago. Our strategy to accelerate growth in emerging markets organically and through acquisitions in countries with fast-growing populations helped Heinz deliver strong top-line growth and solid operating results despite the economic downturn in developed markets,” Johnston said.