By Teresa F. Lindeman, Pittsburgh Post-Gazette
From its vantage point as a global company, H.J. Heinz reports that the tough economy has brought home a behavior that the Pittsburgh food company used to see more in developing markets -- consumers just trying to get through the week.
The split between the more traditional American value-shopper behavior of buying bulk items and the just-getting-by shopper came up Tuesday during a conference call in which Heinz discussed first quarter earnings with analysts.
Heinz beat earnings estimates for the three months ended July 27, although officials noted the global downturn has hurt many countries, and consumer confidence in the U.S. is the lowest it's been in decades. Commodity costs have risen and the company has passed those on in the form of price increases.
A drop in net income from $240 million, or 75 cents per share, last year to $226 million, or 70 cents, during this year's fiscal first quarter came in part because of costs associated with closing some factories to improve productivity. Excluding one-time charges, Heinz produced profit of $255 million, or 78 cents per share, 2 cents higher than the prediction from analysts polled by Thomson Financial.
Investors pushed the company's shares down 1.15 percent Tuesday to close at $51.44.
Sales grew 14.9 percent to $2.85 billion, driven by gains in emerging markets as well as the acquisition of businesses in Brazil and China. Ketchup sales were up around the world, with gains reported in Latin America, Europe and China.
In the North American consumer products division, sales were up 1.7 percent, as price increases helped offset volume declines. The U.S. Foodservice segment, which serves restaurants, dipped 1.1 percent.
The company reaffirmed its full-year earnings projection calling for a range of $3.24 to $3.32 per share, factoring out currency fluctuations and one-time charges.
Given the tough economy and the company's assessment that consumers are tightening up spending, one analyst asked why Heinz and other companies aren't lowering sales projections.
Company officials said they're hoping that, in addition to improving productivity and to introducing innovative products, Heinz has the right mix of packages at different price points.
The more affluent might pick up bulk sizes at warehouse clubs or fill the freezer when they find a good deal, but not everyone can shop that way.
"There's a portion of the population that has a very limited amount of funds," said Meg Nollen, senior vice president, investor relations and global program officer. "And we estimate somewhere between $40 and $50 a week to feed a family of four, which is really stark when you go to the grocery store and realize how tight that is."
Value to that kind of consumer, she said, is different. "It doesn't matter what the cost per ounce is; it matters 'Can I afford to buy even a small portion of that this week.' "
Small and convenient sizes are important, as is putting such packages in convenient places, such as dollar stores or pharmacies close to people's homes.
For example, the company is examining the entry price points and pack sizes in its Ore-Ida brand of frozen potato products to make sure those fit different types of consumers.
First published on August 24, 2011 at 12:00 am
Source: http://www.post-gazette.com/pg/11236/1169328-28-0.stm?cmpid=news.xml
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