PITTSBURGH – Food maker H.J. Heinz Co., which warned on Thursday of profit shortfalls due to slowing sales to restaurants and other institutions — its largest business — said on Friday it cannot yet determine when the business will start to rebound.
"Our food service business, which has grown both sales and earnings at a double-digit rate over the past four years, has suffered significantly during the post-Sept. 11 period, with a precipitous fall-off in dining out, airline traffic and other travel-related dining experiences,'' Chief Executive William Johnson told investors during a conference call to discuss Heinz' outlook.
"While fundamentally sound and well-managed, we have not yet seen any improvement in our food service business.'' The business accounts for roughly 20 percent of sales and earnings, he said.
Heinz on Thursday cut its fiscal second-quarter earnings forecast, citing a slowdown in its food service business as a result of lower demand from restaurants, and higher than expected supply chain costs in certain countries.
For the second quarter ending Oct. 31, Heinz now anticipates diluted earnings per share of 59 to 60 cents, compared with earlier projections of 64 to 66 cents.
Analysts' estimates ranged from 62 to 73 cents, with a mean of 66 cents, according to data tracking firm Thomson Financial/First Call.
Heinz also said that its full-year outlook was being revised with second-half performance expected to mirror first-half results. The company expects third-quarter results to be slightly less than the second quarter, with a stronger fourth quarter.
Second-quarter sales are expected to increase by 10 percent, boosted by acquisitions and several new product innovations.
While certain areas in Heinz's Asia Pacific region are performing well, Japan continues to pressure profits, hurt by a slower economy, higher supply chain costs, and most recently, the effect of a mad cow health scare on consumer spending for some of Heinz' products, Johnson said.
Heinz' second-quarter food service operating profits are now anticipated to be $25 million to $30 million less than a year ago. The recent slowdown in the U.S. economy has caused, for the first time in 10 years, a decline in restaurant meal purchases, the most important market indicator for the food service business, Heinz said.
Since Sept. 11, there has been further deterioration in dining out, particularly at travel-related venues such as airports, resort destinations, hotels and theme parks, Heinz said.
Heinz's U.S. retail businesses, particularly ketchup and condiments, frozen foods, pet snacks and tuna, are performing well, as are its ketchup and tuna businesses outside the U.S. Heinz Europe is also on track, it said.