 MILWAUKEE (AP) - With consumers looking for comfort foods and ways to save money, foodmakers H.J. Heinz Co. and J.M. Smucker Co. posted higher earnings Friday and said they're benefiting from price increases and the trend of more people eating at home.
Sales in the recent three-month quarter were strong for Heinz's core products, like its namesake ketchup, and T.G.I. Friday's frozen meals, and Smucker's fruit spreads, Hungry Jack potatoes and pancakes.
Heinz plans to invest in marketing to show consumers how its foods provide value, even offering recipe books on how to make nutritious, inexpensive meals, Chief Executive William R. Johnson told analysts on a conference call. The company is also looking at changing the size of packages and launching new items to keep consumers wanting its products.
"Consumers will generally remain loyal to our brands if we give them reason," Johnson said.
The Pittsburgh-based company's revenue rose 4 percent to $2.61 billion in the quarter ended Oct. 29, on a 7.1 percent worldwide price increase. Volume slipped 1.3 percent as consumers in some areas, including Britain and Russia, cut back their spending on items like frozen meals and secondary branded products.
Smucker's sales rose 19 percent to $843.1 million in the three months ended Oct. 31, and the Orrville, Ohio-based company said pricing was the primary driver, though it also saw volume gains.
Food companies have been facing high costs for key ingredients like corn and oil, so they've raised prices in the past year to offset that. Now that commodity prices are falling, their bottom lines are benefiting.
Tim Smucker, chairman and co-chief executive of Smucker, likewise said that the company's brands — which include Folgers, Jif, Crisco, Eagle Brand and Hungry Jack and others in addition to its namesake jams — are in a position to meet the needs of consumers.
Smucker hasn't seen such a shift to eating-at-home in more than a decade, he said.
"The number of meals prepared and consumed at home, as recent market data indicate, continues to be trending upward in this challenging economic environment, and is currently at levels not seen since 1994," he said.
But since people are looking to save money, there's some worry among companies and analysts that consumers will trade down to store brands, forgoing the name-brand products.
That's why Heinz said it will be pushing its value message to consumers, said Christopher Shanahan, a research analyst with Frost & Sullivan.
"They know that in the short term there's higher traffic in the grocery store but that means all of a sudden they're competing against private label," he said.
But Smucker thinks there's room for all players, branded or not. The food categories are growing so much, since more people are eating at home now, that all companies can benefit, said Steve Oakland, Smucker's president of its consumer business area.
Core comfort foods, like the company's jams, peanut butters, mashed potatoes and other items are doing well, he told analysts on a conference call. The pancake mix category was up 27 percent in the last four-week period, and peanut butter was up 10 percent.
"So when you've got core categories where we have these kinds of positions growing that much, there's room for a little private label growth this period and there's room, frankly, for us to grow," he said.
Smucker, which doubled its size by acquiring Folgers coffee from Procter & Gamble Co. earlier this month, saw its fiscal second-quarter profit rise 3 percent to $51.5 million, or 94 cents per share. That compared with earnings of $50.2 million, or 87 cents per share, a year ago.
Excluding one-time costs, Smucker earned $1.02 per share, beating analyst estimates. The consensus forecast of analysts surveyed by Thomson Reuters, who generally exclude one-time charges, was for $1.01 per share.
Heinz beat estimates too. Quarterly profit rose 22 percent to $276.7 million, or 87 cents per share, from $227 million, or 71 cents per share, a year earlier.
The company said it benefited from hedging against currencies, as it reported a $92 million pretax currency benefit from the use of contracts to mitigate unfavorable exchange rates.
Analysts had predicted the company would earn 76 cents per share on revenue of $2.7 billion, according to Thomson Reuters.
Up next for the food companies could be a competitive pricing environment with private label brands, analysts say.
Johnson said Heinz hopes to keep its higher prices in place as much as it can.
Smucker, though, planned to drop some prices to correspond with its lower costs. Oils, like the Crisco brand, will go down 13.6 percent, shortening 6.9 percent and flour 17.5 percent in January, said Paul Smucker Wagstaff, president of oils and baking. The company said it expects to assess pricing in certain categories in the last quarter of the year.
Shares of Smucker rose $3.28, or 8.6 percent, to $41.53 while shares of Heinz fell 15 cents to $37.87. |