Heinz Faces a Difficult Year

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Heinz's (NYSE: HNZ  ) drive to grow its global productivity took its toll as the company's fourth-quarter profits dropped by 22%. On the brighter side, when you exclude these one-time charges, the company's adjusted profits rose by 8%. While Heinz did reduce its growth outlook in the face of tough economic conditions, the company also came out with plans to spend more to help drive its business forward.          

Tough times
It's been a challenging environment for food makers across the board as they've tried to combat the pressures of rising input costs by increasing prices. Some companies have had an easier time doing this than others. And big steps have had to be taken. General Mills (NYSE: GIS  ) recently announced it would look to cut 850 jobs and use those savings to help make new products to drive sales.     

The quarter at hand
Turning to Heinz's fourth quarter, total revenue increased by 6% from the year-ago period. Sales growth was driven by double-digit growth from emerging markets, with organic sales in the region rising by 17%. Heinz's acquisition of Brazilian food company Quero helped drive additional sales growth, as well. Overall, Heinz's global portfolio posted a 4.5% rise in organic sales, which includes the dual effect of a 3% rise in net pricing and a 1.5% increase in sales volume.

The company's sales were also helped by increased marketing efforts. Marketing costs this quarter rose by 7.7%, excluding the productivity-related charges. These charges include more spending on Project Keystone, a worldwide project to help improve and synchronize systems and processes. Including these charges, Heinz's operating income fell by 22%. Its operating margin thus contracted to 9.9% from 13.4% a year ago. Food makers' margins in general have been hit this quarter. Peer Campbell Soup (NYSE: CPB  ) , whose first-quarter profits slid by 5%, saw its operating margin fall to 15% from 20% last year.    

On the horizon
If you look at it from a broader perspective, Heinz didn't do too badly during this quarter. The company will look to continue its brand building and marketing efforts to help drive sales, especially abroad. The company said it expects more than $120 million in business-building expenditure in the next fiscal year.

Heinz has also started introducing more and more items at lower prices and in smaller packages that are primarily targeted at low-income consumers in the U.S. Given that economic conditions aren't very encouraging, we can expect more such offerings in the future. Since the European economy is also in a weak state, we may see such products being offered in those markets, as well.

Along with new products and marketing initiatives, Heinz is on the lookout for new businesses in budding economies. It'll possibly look to acquire more food businesses in emerging markets. It's going to be an interesting but tough year for the packaged-food maker. The pressure of rising commodity costs is possibly going to weigh on margins and there is no guarantee that price increases are going to be well-received. To stay up to date on how Heinz tackles these problems, use the help of our free Watchlist service by simply clicking here.

Click here to see what the Motley Fool Money analysts recently had to say about Heinz.

Heinz isn't the only company looking to capitalize on the growth in emerging markets. For three such global plays, check out our free report "3 American Companies Set to Dominate the World." The report won't be available forever, so we invite you to click here to get your copy today!   

Shubh Datta doesn't own any shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of Heinz. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1899549, ~/Articles/ArticleHandler.aspx, 5/28/2016 4:01:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 31.74 0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

6/7/2013 4:00 PM
HNZ.DL $72.49 Down +0.00 +0.00%
H.J. Heinz Company CAPS Rating: ****
CPB $61.19 Down -0.07 -0.11%
Campbell Soup CAPS Rating: **
GIS $62.87 Down +0.00 +0.00%
General Mills, Inc… CAPS Rating: *****