Pittsburgh-based food company Heinz has announced that it will soon have to give redundancy slips to nearly 2,000 employees, 4% of its workforce, because of struggling sales in its tuna and pet food businesses.

The US producer best known for its popular baked beans and tomato ketchup ranges has not enjoyed a particularly profitable Q3, which ended on 31 January. In an uninspiring earnings report it blamed prohibitive costs and falling sales at the StarKist tuna and North American pet food plants for CEO William Johnson's decision to take "aggressive action to improve earnings, to drive innovation in our leading brands and to increase the efficiency of our tuna and pet food operations."

Sales of the company's pet food products, including the brand 9Lives, plummeted by 12% in the third quarter to US$287.6m. This is something widely attributed to a consumer trend towards dry dog food, including the IAMS brands produced by Procter & Gamble. Similarly, while the StarKist brand is the retail leader in the US tuna sales, the profit margins of the operation slimmed by 4% to US$228.1m as weak raw tuna pricing meant lower retail prices.

Responding to this, Heinz will close its Puerto Rican tuna operations at the end of April and consolidate its US pet food plants in Bloomsburg and Pennsylvania. Some other unidentified assets will be sold, and the job cuts will come from Puerto Rico and Terminal Island, California, where only 200 workers will remain to process fish and label StarKist products.

Analysts are not convinced this cost-cutting action is aggressive enough however, and many have said they would like to see an entire divestiture of the struggling brands. Heinz defended this continued focus on failing brands by stressing that the measures to be taken will save US$25m in the next fiscal year. By fiscal 2004, the company hopes to have generated annual savings of about US$60m.

With the Q3 results, Heinz stressed that its condiments, foodservice products and frozen foods divisions were successful businesses, experiencing rapid growth. Sales of its ketchup and sauces rose 3% to US$596.8m. Overall, the company saw revenue fall by 1.1%, to US$2.27bn, but sales improved by 3.7% and earnings before special items amounted to US$227.4m, or 67 cents per share. While was not spectacular, this did not fall below expectations.

During the fourth quarter, Heinz will encounter a planned US$300m pre-tax charge and First Call believes that Heinz will earn 53 cents a share. Looking beyond that, the company has warned that production cuts and lower earning during the H2 of this fiscal year and First Call expects full year earnings per share of US$2.54.

By Clare Harman, just-food.com journalist