Heinz 1Q profit rises 11 percent

Food maker H.J. Heinz Co. said Thursday that its fiscal first-quarter profit rose 11 percent, fueled by double-digit sales growth in North America and Europe.

The earnings offset a drop-off in Heinz's U.S. restaurant business, which is slowing on weaker consumer demand as people grapple with increasing food and fuel costs and eat more meals at home.

For the three months ending July 30, the Pittsburgh-based maker of Heinz Ketchup, Weight Watchers products and Ore-Ida potatoes said it earned $229 million, or 72 cents per share. That compares with a year-ago profit of $205.3 million, or 63 cents per share.

Revenue in the quarter rose 14 percent to $2.58 billion, an increase from $2.25 billion during the same period last year. Net pricing in the quarter, companywide, was up 5.2 percent as Heinz, like other food makers, raised prices to offset commodity cost increases.

The earnings beat the expectations of analysts. Thomson Reuters said analysts had expected earnings of 66 cents per share on revenue of $2.46 billion for the quarter.

Shares of Heinz rose 36 cents, or 0.7 percent, to $52.07 in morning trading Thursday.

Sales in the company's segments all grew except for the U.S. food service segment, which supplies food to restaurants and other businesses. Sales in that segment fell 2.8 percent to $353.4 million from $363.7 million, while pricing led to a sales increase of 1.5 percent, the company said. The price increases were largely for Heinz Ketchup, other condiments and tomato products. Operating income fell 43 percent on higher commodity costs and lower volumes.

The segment was hurt as consumers continue to eat more at home because of the weakening U.S. economy, Heinz said. As a result, Heinz eliminated some of its products in the category and accounts that weren't contributing to profits, said Ed McMenamin, senior vice president of finance and corporate controller.

In North America, sales of the company's consumer products were up almost 12 percent to $741.2 million, up from $664.7 million in the same period last year. Volume in the quarter was up 4.7 percent, driven largely by sales of its Smart Ones frozen entrees and Ore-Ida frozen potatoes. Net prices were up 5.6 percent in the segment as the company tried to keep up with rising commodity costs.

Though the company's food service business was affected by the economy, its consumer products business could stand to gain, Citigroup analyst David Driscoll wrote in a research note. The company's portfolio of products, which focus on health and value, "tend to outperform in tough macro-economic conditions," he wrote.

McMenamin said nearly all of the company's input costs were up, especially packaging, tomato products and oils used for cooking. He said Heinz expected commodity costs to remain high through the rest of the year.

Throughout the rest of the world, sales were up as volume and pricing increased to also offset rising commodity costs. In Europe, sales rose 20 percent, while volume increased 6.4 percent. Net pricing in Europe was up 4.3 percent driven by Heinz Ketchup, beans and soup, and other items.

In Asia and the Pacific, sales were up 23 percent, while volume was up 10 percent and pricing 5.6 percent.

In other areas, such as the Middle East and Latin America, sales rose 36 percent, while volume rose 12.6 percent. Pricing increases pushed sales up 24.6 percent, the company said.

Heinz said it now expects full-year earnings per share to be in the upper end of the range it previously gave, meaning earnings per share should fall in a range of between $2.87 to $2.91.

Analysts polled by Thomson Reuters expect profit of $2.90 per share.

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