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November 18, 2011

GLOBAL: Heinz to close more factories

US food giant HJ Heinz plans to close more plants to adapt to what the ketchup maker described as a "difficult" trading conditions.

By Dean Best

US food giant HJ Heinz plans to close more plants to adapt to what the ketchup maker described as “difficult” trading conditions.

Heinz said today (18 November) it would close three factories “to further address the difficult environment in which the company is operating”.

The move follows Heinz’s announcement in May that it would revamp its supply chain and manufacturing network – a move that, it said, would lead to the sale or closure of five other plants. Of those five, Heinz has announced that two in US and one each in Australia and Poland would close with the fifth not yet revealed.

The identity of the three further sites to close has not been disclosed and Heinz said the plans remain subject to consultation and agreement with staff.

Heinz’s surprise announcement came as it announced mixed second-quarter results. The company’s net income for the three months to 26 October fell 5.6% to US$237m due to costs from the supply chain revamp. Excluding those costs, net income grew 4.4% to $263m and earnings per share increased 3.8% to $0.81.

Operating income dropped 14.2% to $358m. Excluding the costs from the revamp, operating income was still lower, down 5.2% at $395m. Heinz pointed to higher SG&A costs due in part to costs from recent acquisitions and investment in emerging markets. The company said its commodity costs had also risen during the quarter.

Heinz’s sales increased 8.3% to $2.83bn thanks to higher sales in emerging markets and from its ketchup business, the acquisitions of Brazilian sauce firm Quero and Chinese firm Foodstar, as well as the benefit of foreign exchange.

Excluding the impact of M&A, and currency fluctuations, Heinz’s sales grew 1.5% on an organic basis as higher selling prices offet a fall in volumes.

Heinz chairman, president and CEO Bill Johnson said: “Overall, we saw a combination of continued strength in Emerging Markets, the UK and much of Europe, and mixed results in other developed markets, where consumer confidence fell to its lowest level in 30 years.”

In response to the challenging conditions in developed markets, Heinz said it would introduce products during the next three months that it hoped would appeal to cash-conscious shoppers.

In the US, Heinz will launch products on sales at from $0.99 to $1.99, while in Europe, the company would introduce products at EUR1.

“Developed markets are experiencing low consumer confidence, high unemployment and economic uncertainty,” Johnson said, explaining the moves.

Heinz said it was “on track” for its previously-announced constant currency EPS forecast of $3.24 to $3.32, excluding the special charges for productivity initiatives.

It added it continues to expect constant-currency sales growth of 7 to 8% and EPS growth of 6 to 8% for the year, excluding special charges but including the incremental investment in Project Keystone, a programme separate to the supply chain revamp but drawn up to harmonise the company’s systems worldwide.

Nevertheless, shares in Heinz were down 2.33% at $51.59 at 10.23 ET today.

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