International strength and growth of its top brands remain the key strategies of growth for The H.J. Heinz Co., Pittsburgh.
In May, the company announced plans to invest an incremental $120 million to drive growth, including an increase in marketing of about $70 million to build brands and invest in ideas and innovation. Then in September, the company updated this initiative and said its priorities are investing in big brands in core categories, driving consumer value and fully supporting the best ideas, and collaborating across the globe to quickly adapt innovations and commercial successes.
Ketchup and sauces remain a core category representing as nearly half of the company’s sales, and Art Winkleblack, executive-vice president and chief financial officer, referred to the category as the company’s “crown jewel.” He said the company is working on flexible packaging in this area as the convenience and affordability will drive the category in the future.
Mr. Winkleblack also made it clear much of the opportunity for company growth lies outside the United States.
“Two-thirds of our sales are generated outside of the United States,” he said. “One-quarter of our sales are from high-growth emerging markets, and our emerging market business is well diversified across the BRIC markets, Indonesia and a number of other countries.
“To get here, we refocused around three core categories by divesting more than $3.5 billion in non-core revenue and acquired $2.5 billion of sales in our core; executed a buy-and-build strategy in emerging markets; and drove strong organic growth in our core categories and top 15 brands. Our current portfolio position is a critical advantage for Heinz given the volatility in today’s economy, the tough consumer environment in developed markets and the dramatic growth opportunity represented by the middle class in emerging markets.”
Overall, emerging markets represented 21% of the company’s total sales in the fiscal year ended April 29, 2012. Mr. Winkleblack also said the company plans to seed the Heinz brand in Brazil, with the company beginning the manufacturing of Heinz ketchup in Brazil in 2013. Additionally, while infant nutrition represents 11% of global sales, it’s an even more important part of their emerging market portfolio.
Recent divestures include the sale of the Heinz North America’s Foodservice Dessert business, which private equity firm Superior Capital Partners acquired and renamed Dianne’s Fine Desserts. At the same time the company increased its investment in the T.G.I. Friday’s line, with Scott O’Hara, president and chief executive officer of Heinz North America, calling it an “important growth driver for our North American business.”
Smaller sizes of new products will also be a driver of growth in U.S. operations.
“Nielsen data show that up to 50% of purchases in our key categories are now in smaller sizes,” said William R. Johnson, chairman, president and chief executive officer. “In response, our U.S. team is building a portfolio of products that addresses the needs of consumers seeing value through accessible price points.”
The company’s earnings were down 7% on special charges, declining to $923,159,000, equal to $2.87 per share, in fiscal 2012 from $989,510,000, or $3.07 per share, in 2011.