Soaring commodity costs prompted H.J. Heinz Co. to raise prices on a host of consumer products, helping the food maker post a 7.2 percent increase in fourth-quarter earnings today.
The company also boosted its dividend.
The Pittsburgh-based maker of Heinz ketchup, Weight Watchers products and Ore-Ida potatoes said commodity costs rose by 8 percent in the year and expects similar increases for the next two years - foreshadowing continued higher food prices for consumers.
During a meeting with analysts, Heinz executives said costs were being propelled upward by growing demand from an expanding middle-class in India and China, plus higher fuel prices. Still, Heinz sees future growth coming from abroad, especially in emerging markets, in the near term.
The company unveiled a new two-year plan whose focus will be health and wellness products, selling to emerging markets, and scouring for ways to lower costs and improve efficiency. To this end, Heinz said it is exiting five to six plants over the next two years to save $400 million.
"It's clear more consumers are making conscious efforts to lead healthy lives," said William R. Johnson, chief executive officer. It affects all age groups, "from babies to boomers."
In the quarter, Heinz earned $194.1 million, or 61 cents per share, compared with $181 million, or 55 cents, a year earlier.
Sales rose by 11 percent to $2.69 billion, driven by strong sales in Heinz's top 15 brands. Prices rose 4.5 percent while sales volume went up by 1.2 percent.
Analysts polled by Thomson Financial, on average, forecast a profit of 61 cents per share on revenue of $2.67 billion.
Sales in Asia rose by 23 percent to $446.1 million in the quarter, while Europe - representing the largest chunk of sales for Heinz - went up 16 percent to $970.8 million. North American sales rose by 6 percent to $783 million, while sales for the rest of the world went up by 25 percent to $99.8 million.
The only decline was in U.S. food service, down 2.2 percent to $388.6 million.
Heinz also boosted its dividend by 9.2 percent, to 41.5 cents per quarter.
For fiscal 2008, earnings rose to $844.9 million, or $2.63 per share, from $785.8 million, or $2.36 per share, a year earlier. Annual sales rose by 12 percent to $10.1 billion from $9 billion in the previous year. Prices were up 3.3 percent while sales volume rose by 3.6 percent. A weak dollar also boosted results by 5.1 percent in foreign currency exchange.
The company introduced more than 200 new products, many of which centered on health by offering lower salt, sugar and fat content.
Growth was strongest in Heinz brands, Weight Watchers products and sales in emerging markets. The company stepped up marketing by 15 percent and research and development by 17 percent.
Heinz expects earnings of between $2.83 and $2.91 in fiscal 2009. Analysts expect $2.88 per share.
For 2009 to 2010, the company sees organic sales growing by at least 6 percent, with earnings per share rising by 8 to 11 percent. Operating income is targeted to increase by 6 to 7 percent annually. Heinz plans to boost marketing by $60 million to $100 million over the two years and introduce more than 400 new products.
Health and wellness will be a major thrust for Heinz, which sees the category growing as much as two times faster than other packaged foods.
Yearly sales growth in emerging markets is expected to be particularly robust, in the high-teens.
UBS analyst David Palmer said he likes what he's heard so far about Heinz's strategic plan.
In particular, he pointed to Heinz's plan for "more aggressive growth, accelerating growth in emerging markets, improving productivity through leveraging scale and becoming more efficient, and making talent an advantage."
Shares of Heinz rose $1.10, or 2.3 percent, to $48.65 in morning trading. That is near the upper end of their 52-week range of $41.37 to $48.83.