Heinz has revised its earnings outlook. The US-based food company has cut earnings predictions by 7.6%, blaming falling tuna prices, energy costs and disappointing baby food sales for the decreased expectations. While the recent success of innovative new products suggests that there could be brighter times ahead, it will be some time before the new products impact revenues.
Heinz has again released a profit warning, making this the second time in six months. Part of the tale is becoming all too familiar – rising energy prices hurting margins – but the rest is a bit more Heinz specific. The new predictions are 7.6% less than before, bringing down market expectations for the year from $2.75 per share to $2.51.
The company has blamed several different factors for the lower results. One of the most important is the continued price pressure in US tuna, which is responsible for a third of the decreased expectations. The European baby foods division is also having problems, suffering from competitive pressures and trade destocking, which is responsible for another third. Low sales in
Australasia, a change of revenue recognition and the initial costs of cutting production are responsible for the remainder.
“With the exception of weakness in tuna pricing, Heinz’s underlying earnings are strong, fueled by rapid growth in our leading businesses, such as Heinz ketchup and food service,” commented William Johnson, Chairman, President and CEO of Heinz.
Sales and earnings for the company have risen, but unfavorable exchange rates mean that the company will fail to see much
benefit. But this is starting to look up: Heinz’s second half currency projection allowed the company to partially offset the negative factors by six cents per share on the grounds of encouraging exchange rate movements.
The success of various brands including EZ Squirt green ketchup, which took a 6% share of the ketchup market within seven weeks of its launch, and its Boston Market frozen entrees is heartening, reflecting the company’s new found focus on innovation. However for the time being Heinz is still exposed to slow growth in its core product markets and dependent on mature brands.
It will take time for the new brands to make a significant improvement to the bottom line.
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