Heinz has announced Q1 profits in line with expectations but warned on Q2.

US food company Heinz made $200 million profit in Q1. High energy costs and a weak euro still worked against it, while profits were down in the pet food and food services sections of the business. Heinz’s marketing strategy is paying off, but the company still needs further reorganization if it wants to make serious progress.

H J Heinz

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It’s been a while since Heinz really excelled itself. Profits excluding special items for Q1 were roughly in line with expectations, at 61 cents per diluted share, down from 69 cents a year earlier. However, income including special items was $200.5 million or 57 cents per share. This is a marked improvement on the $188 million, 54 cents a share, made a year earlier.

The weakness of the euro again hurt Heinz’ results. Sales in Europe were up 13.7% in constant currency, largely due to acquisitions, but this translated into a mere 7.4% increase in dollars. Higher energy costs were also a problem, as was the trend towards eating out less, which lowered income in the food service business. Other trends that have worked against Heinz
include a tendency for pet owners to opt for dry pet food rather than wet, canned food, where Heinz has more of a market presence.

On a more positive note, sales in US frozen foods were up 11.2%, helped by the launch of Hot Bites hand-held snacks and record sales from Smart Ones entrees, which have claimed another three points market share. The launch of EZ Squirt ‘Funky Purple’ has boosted ketchup sales and helped Heinz climb up to 56.1% of the market and increased consumption by 12.6% compared to last year.

However, Heinz also warned that profit for Q2 would be lower than expected. The company will continue suffering from the same problems it has been for the last few quarters: high energy prices, unfavorable exchange rates and adverse trends. While there is little Heinz can do about energy and exchange rates, it needs to work more in line with changing consumer habits. High marketing spend can boost sales for now, but more fundamental change will be needed in the long run.

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