Heinz has warned on Q2 profits, due to high supply chain costs and weakness in foodservice.
Heinz has been slightly over-optimistic at predicting its results lately, as it finishes its second quarter with another profit warning. No mention of high energy prices or poor exchange rates this time – instead the slowing economy has taken its toll on the company. Q2 earnings are now expected to be 59-60 cents per share, rather than the 64-66 cent range previously forecast.
Heinz’ foodservice division has hit a speed bump. It had been one of Heinz’s stronger divisions recently, showing good growth over the last few years. Heinz pointed out this was the first time in ten years that restaurant meal purchases had declined, which disturbed the company’s predictions. Q2 profits from the division, which sells ketchup, sauces, soups and desserts to hotels and restaurants, will be $25-30 million lower than last year.
Heinz is also having problems with supply chain costs at its production base in New Zealand. Operating income in Australasia will come in lower than expected, due to high supply chain costs following an extensive realignment of manufacturing in the region. It has a new management team addressing the issue, but gave no estimation of when this might change.
The company is at last being realistic about market conditions, predicting that sales will continue to deteriorate in Q3. However, it expects Q4 will be strong enough to counterbalance this decline and the second half will be roughly in line with the first. But with many of Heinz’ business units full of commodity products in slow-growth areas, it’s going to be a rough ride to get back to strong growth figures.
