Heinz margins dip over higher costs

By Charlotte Eyre

- Last updated on GMT

Related tags Cent Marketing Chief executive officer Heinz

An increase in commodity and marketing costs led Heinz to yesterday
report slightly lower margins for the third quarter 2008, despite
sales and operating profit growth.

The global food company said that costs for the period, ending 30 January 2008, increased 11.3 per cent to $529m (€350.9m). As well as higher commodity prices, Heinz upped its marketing and research and development (R&D) spend by 16 per cent and 19 per cent respectively. It also had to face a tax rate of 31.6 per cent during the quarter, compared with a rate of 26 per cent one year earlier. However, the drop in margins was not too drastic - falling 0.8 percentage points to 15.6 per cent. The company attributed the result to a 16.8 per cent sales increase of Heinz branded products and the company's top 15 brands, such as Ketchup, soup, pasta sauces and snack potatoes. "I am very pleased with our continued strong performance and growth momentum,"​ said chairman and chief executive officer William Johnson. "We continue to succeed by driving consumer-validated innovation and investing in top-line growth." ​ Overall net sales were up 13.7 per cent to $2.6bn (€1.7bn) compared to the same period in 2007, while operating profit increased 7.9 per cent to $406m (€269m), the company said. Johnson remained optimistic about the company's future performance, predicting "record full-year sales",​ as well as an earnings per share (EPS) growth rate of nine to ten per cent. In terms of regions, all areas achieved profit growth except the US Foodservice business, which represents approximately 42 per cent of Heinz North America's overall sales. Operating profit for this division fell 13.9 per cent, as increased volume sales were more than offset by higher commodity and energy costs, the company said.​ The most profitable area for the company was Heinz Asia Pacific, where operating profit increased 38.2 per cent. Sales were particularly strong in the emerging markets of Indonesia, China and India as well as Australia. For the nine months ended 30 January 2008, net sales increased 12.1 per cent, and operating profit went up 10.7 per cent, the company said.

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