Price hikes let Heinz squeeze out a profit
By Emily Fredrix
By Emily Fredrix
MILWAUKEE — H.J. Heinz Co. said yesterday that its third-quarter profit rose 11 percent as it raised prices, but volume slipped as budget-conscious consumers cleared out what was already in their pantries to save money.
The maker of Heinz ketchup and Ore-Ida potatoes said sales of its key brands held up, while other products like frozen foods slipped. The company also affirmed its forecast for full-year earnings. Shares of Heinz rose $1.80, or 5.6 percent, to close at $33.77.
Foodmakers like Heinz have been generally doing well in the recession as consumers eat at home more often and less at restaurants. But as worries about the economy soar, people are also trading down to less-expensive store brands.
Fresh Del Monte Produce Inc., which sells prepared and fresh fruits and vegetables, said yesterday that its fourth-quarter profit fell 33 percent on a drop in sales and volume slumps in key segments like tomatoes, fresh-cut and melon product categories.
The trend across the industry for consumers to finish up what they have at home before buying more is hurting volume, Heinz Chief Financial Officer Art Winkleblack told analysts.
He said grocery unit sales across the industry fell about 3.5 percent in the quarter, representing how people are using up what they have and also shopping more at discount retailers that are not counted in those figures. But the trend seems to be abating, he said.
"How far can you go on that? At some point, you get to the minimum and you can't operate as a household or a retailer," he said, referring to retailers limiting their stock as well.
Many food companies say stores are curbing their own spending when it comes to stocking their shelves. On Monday, Campbell Soup Co. said that major retailers cut back on their inventories at the end of 2008, and that especially hurt its condensed soup, Prego pasta sauces and Pace Mexican sauces, where it did not benefit as much as it would have from higher consumer sales.
Heinz earned $242.3 million, or 76 cents per share, for the three months ended Jan. 28, up from $218.5 million, or 68 cents per share, a year earlier. Revenue fell 7.5 percent to $2.41 billion. While the effect of the stronger dollar hurt results, Heinz said currency hedging helped lessen the effect.
The results beat the estimates of analysts surveyed by Thomson Reuters, who expected a profit of 64 cents per share on revenue of $2.55 billion.
Globally, sales of the company's namesake ketchup rose 9 percent. Prices rose 8 percent while volume dropped 6 percent.
Consumers turning to less expensive foods like pasta pushed sales of Classico sauces up 9 percent in the U.S. But overall U.S. sales fell 6 percent on an 8 percent drop in volume, while prices rose nearly 6 percent.
Winkleblack said Heinz wants to expand the frozen foods business and won't lower its prices to match competitors — yet. "But at some point if the environment doesn't change, we will need to respond in one way, shape or form," he said.