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June 1, 2006

US: Heinz to cut 8% of workforce in next two years

Under-fire HJ Heinz Company will cut 2,700 jobs and exit 15 production plants to contribute US$165m towards $355m of the cost savings revealed in its growth plan for 2007 and 2008.

Under-fire from shareholders who want to see higher returns, HJ Heinz Company will cut 2,700 jobs and close 15 production plants to make US$355m in cost savings as part the group’s growth plan for 2007 and 2008.

The job losses, representing 8% of its workforce, and plant closures will contribute US$165m towards the planned savings revealed by the company today (1 June). 

Heinz, facing pressure to cut costs from a group of dissident shareholders led by investor Nelson Peltz, also announced a 16.7% dividend increase to $1.40 per common share in 2007, from $1.20 per share in 2006.

Heinz will reinvest a significant portion of the savings in sales and marketing, pledging $317m on marketing and advertising in 2007, an increase of 18.7% compared to 2006. The company will also increase spending on research and development, and will spend $1bn in share repurchases over the next two years

The ketchup company forecasted EPS growth of 10% in 2007 and 8% in 2008, to reach $2.54 per share. Sales are projected to grow 3-4% in 2007 and over 4% in 2008, with operating income growth of more than 8% in 2007.

The company has put stress on three main priorities – to reduce costs and improve margins, grow the core portfolio, and generate cash to deliver superior shareholder value – reminiscent of its focus on the three main food categories of ketchup and sauces, meals and snacks, and infant food.

Heinz chairman, president and CEO William R Johnson said: “Our board and management are unified in our focus to deliver superior shareholder value. The Heinz plan sets aggressive but realistic goals for the next two years.

“We have the right strategy, the right brands and the right people to drive the business forward. We are in fighting shape to deliver high quality earnings growth by relentlessly attacking non-value-added costs and innovating and growing some of the world’s best brands.”

The company expects to launch over 100 new products in the two-year period, including Fridge Door Fit Ketchup, Ore-Ida Easy Breakfast Potatoes, and new recipe meals for toddlers in the UK.

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