Heinz boosts profit margins as market strategies pay off

By Ahmed ElAmin

- Last updated on GMT

Related tags: Gross profit, Cent, Generally accepted accounting principles

H.J. Heinz strategy to raise prices and cut costs has paid off in
profit margins increasing to 15.5 per cent in the second quarter of
2006, two percentage points higher than the comparable period last
year.

Increased sales of new ketchup and soup products boosted operating income and profits, indicating that the company's reorganisation to get rid of low performing units is beginning to pay off for shareholders.

Sales rose 8.4 per cent, to $2.06bn (€1.6bn) during the quarter. Sales volume, which factors out the effect of currency and price fluctuations, rose 5.1 per cent due to growth in all of the company's segments, stated William Johnson, Heinz's chief executive.

Gross profit of $772.4m increased 9.6 per cent from adjusted gross profit in the second quarter of 2006. The company's financial year begins on 1 April.

Gross profit margin, which does not take into account selling, general and administrative expenses, increased to 37.5 per cent from the adjusted gross profit of 37.1 per cent over the same period last year.

"These increases were due to higher volume, increased pricing and higher margin acquisitions, partially offset by substantially higher commodity costs," Heinz reported.

The company had an operating income of $319.6m, for the quarter, an increase of 10.5 per cent. The increase was due to increased volume, a higher adjusted gross profit margin and workforce reductions, particularly in Europe and Asia.

The increases were partially offset by a 22 per cent increase in marketing expense, higher selling and distribution costs resulting from increased volume, higher professional fees and higher accrued incentive compensation costs, including the expensing of stock options.

Johnson said Heinz remains on track to deliver 10 per cent growth in earnings per share (EPS) for the full financial year.

"Heinz delivered dynamic growth in sales, volume, operating income and EPS in the first quarter, reflecting the success of the company's aggressive plan to drive sales of our core brands, reduce costs and enhance shareholder value,"​ Johnson stated.

The company recently sold off its European seafood and New Zealand poultry businesses along with other units.

Excluding discontinued operations and special items in the prior year, Heinz's EPS in the first quarter of its current fiscal year increased 23.4 per cent and net income increased 18.6 per cent.

Related topics: Processing & Packaging

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