On the money: Heinz to ramp up investment to "win" in US
Heinz said the company “feels better” about the prospects of the US going forward
Food giant Heinz has said it will make "significant" increases in investment and accelerate innovation in the US to boost its business in what it says is a "challenging" environment.
Heinz yesterday (20 November) reported an increase in first-half profits and reiterated its full-year sales and earnings guidance. The group, however, reported revenue declines in Europe and North America of 5.3% and 1.3% respectively.
In the US, chairman, president and CEO William Johnson said the company has seen "some signs of modest economic recovery and improving consumer confidence", but conceded there was "still great uncertainty as the fiscal cliff looms".
"I don't expect robust economic growth in the US in 2013, but I am encouraged by the progress in our US business as we invest in our leading brands to drive growth," he told analysts on the firm's earnings call yesterday.
Johnson said the company "feels better" about the prospects of its US business but said the company was "intentionally pressuring profits" in the US this year as it works restore the top-line growth.
"Fortunately, we're able to do that not only because of the tax rate, but because of the strength of the foodservice business and the strength of our emerging markets businesses in terms of growing the bottom line. One of the benefits of running a portfolio company like we do is it gives us an enormous amount of flexibility in terms of where we reprioritise investment. And so I think you'll see significant investment increases in the US as we continue to drive the top line."
The company increased group marketing spend by 10% in fiscal 2012 to around $70m, but did not break out spend by unit. The CEO did, however, say that spend in the US was "well into the double digits in the second quarter", the bulk of that behind ketchup, Hispanic advertising and snacks.
Johnson said the US business was responding to "significant" increase in marketing spend in the country, which he said was a balance of promotion and media and traditional marketing support. "I feel better about the prospects of the US going forward from a top line standpoint and a share standpoint."
Johnson sounded a similar note on Europe, where he said Heinz had experienced a "somewhat more difficult quarter" than recent months and that it was "carefully monitoring" the Eurozone crisis.
"Right now in Europe you're dealing with various austerity and tax regimes that aren't working very well and the efficacy of those is being challenged. We've got consumer unhappiness throughout the European continent, but particularly in southern Europe and on the Iberian Peninsula."
Johnson said the group's results "compared favourably" to its peers, primarily due to its strength in the UK behind "solid innovation and great results in soup" and its Russian business.
Despite the challenges, he said Heinz was "holding our own" in Europe despite an "extremely challenging economic environment".
"We are seeing signs that European consumers, in general, are altering their food shopping and dining habits as the continent struggles with the debt crisis, steep unemployment and a variety of austerity and tax regimes.
"Like their US counterparts, they are adapting to new economic realities and they have developed a strong value mindset as a result. I have challenged our European businesses to see this as an opportunity rather than a roadblock and believe we will continue to resiliently and successfully adapt to the economic trends and new consumer behaviour in their markets."
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