Spread­ing it­self thin

H. J. Heinz cuts back in bid to boost rev­enue,

Ottawa Citizen - - BUSINESS & TECHNOLOGY - MARTINNE GELLER

H.J. Heinz Co. is turn­ing to smaller, less-ex­pen­sive pack­ages for its name­sake ketchup and sauces and bring­ing baked beans back to the U.S. mar­ket as it tries to gen­er­ate more sales in a tough econ­omy.

The moves come as the food maker posted weaker-than-ex­pected quar­terly sales and low­ered its ex­pec­ta­tion for its full-year gross mar­gin. Its shares fell three per cent.

The maker of Heinz ketchup, OreIda frozen pota­toes and other pack­aged foods cited sales weak­ness in Aus­tralia and its U.S. food ser­vice busi­ness, which it said hasn’t re­cov­ered as quickly as ex­pected.

In an ef­fort to adapt to a more dif­fi­cult op­er­at­ing environment, par­tic­u­larly in de­vel­oped mar­kets, Heinz said it will close three more fac­to­ries around the world in ad­di­tion to clos­ings it al­ready an­nounced.

The clos­ings will cost the com­pany 15 cents more per share this year, on top of one-time charges of 35 cents per share al­ready an­nounced.

Heinz will also in­tro­duce a range of smaller-size, less ex­pen­sive prod­ucts in the United States that will give it a big­ger pres­ence in dol­lar stores, where cash-strapped con­sumers are do­ing more of their food shop­ping.

“De­vel­oped mar­kets are ex­pe­ri­enc­ing low consumer con­fi­dence, high un­em­ploy­ment and eco­nomic uncer­tainty,” said Heinz chief ex­ec­u­tive Wil­liam John­son.

Heinz’s quar­terly profit beat ex­pec­ta­tions by a penny, but it did not raise its full-year fore­cast. The earn­ings fore­cast also now re­lies on a lower tax rate than pre­vi­ously thought.

“Heinz trades at a premium to the group, and these are not premium re­sults,” said RBC Cap­i­tal Mar­kets an­a­lyst Ed­ward Aaron.

Heinz said net in­come fell to $237 mil­lion U.S, or 73 cents per share, in its fis­cal sec­ond quar­ter, ended on Oct. 26, from $251.4 mil­lion, or 78 cents per share, a year ear­lier.

Ex­clud­ing items, it earned 81 cents per share. On that ba­sis, an­a­lysts on av­er­age were ex­pect­ing 80 cents per share, ac­cord­ing to Thom­son Reuters.

Sales rose eight per cent to $2.83 bil­lion, but fell short of an­a­lysts’ av­er­age es­ti­mate of $2.91 bil­lion.

Sales, ex­clud­ing the ef­fect of ac­qui­si­tions and for­eign ex­change, rose 1.5 per cent, as a 2.9 per cent de­cline in vol­ume partly off­set a 4.4 per cent ben­e­fit from higher prices.

To ap­peal to U.S. con­sumers with tight gro­cery bud­gets, Heinz is launch­ing a 10-ounce pouch of ketchup for 99 cents, a nine-ounce pack­age of mus­tard for 99 cents and a one-pound pack­age of Ore-ida french fries for $1.99.

CEO John­son said the smaller pack­ages are ex­pected to boost sales since they should ap­peal to con­sumers who were not buy­ing Heinz’ prod­ucts be­fore, such as dol­lar store shop­pers. They should also be largely neu­tral or ben­e­fi­cial to its profit mar­gins, he said.

In ad­di­tion, Heinz is bring­ing back its canned baked beans to the U.S. mar­ket af­ter an ab­sence of sev­eral decades.

“We be­lieve this is the right time for the re­turn of this con­ve­nient, nutritious, and value-ori­ented clas­sic,” John­son said.

“Con­sumers have been turn­ing to com­fort foods dur­ing the re­ces­sion,” he said.

The com­pany said it is on track to meet its goal for fis­cal 2012 earn­ings of $3.24 to $3.32 per share, ex­clud­ing items.

But com­pared with its assumptions in May, when it first gave the fore­cast, Heinz said it now ex­pects a lower gross mar­gin

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