Financial History of Heinz Company from 1990 - Research Paper Example

?Heinz Company: Financial History From 1990 H.J. Heinz Company, generally known as Heinz is the most famous US based food company that has a portfolio of world-class food products wherein it possesses the top spots in various markets across the globe. Today, Heinz brands and products have become the cultural icons in various parts of the world, selling more than 1,000 products ranging from Ketchups to snacks. This paper will discuss the financial history of the Heinz Company’s operations since 1990. Today Heinz is a $ 10.7 billion global company selling 650 million bottles of its iconic Ketchup every year; and its products enjoy #1 or #2 market share in more than 50 countries (Heinz, 2011). More than two-third of the company’s annual sales are constituted by its top 15 power brands. The company was founded in Sharpsburg, Pennsylvania, in 1869 by entrepreneur Henry John Heinz. Heinz has employed about 35,000 people around the globe. The Heinz Company operates as a responsible corporate citizen that is committed to safe practices, environmental stewardship, and returning back to the community for development. Therefore, each change in the social and commercial environment becomes a new opportunity for the growth and expansion of the business. As Moloney and Cadamore (2009) point out, the period during 1990s and the later ones were crucial to the operations of the company for its slower growth and restructurings. O’Reilly had adopted some financial strategies and found them succeeding in the 1980s, and as a result, the Heinz’s sales mounted from $2.9 billion in 1980 to $6.1 billion in 1990, and the net profit of the firm quadrupled to $504 million. The CEO, considering his intention to close his contract in 1995, aimed to increase company’s annual revenues to $10 billion by 1994. However, competition from private-label products as well as the consequences of recession during the early 1990s affected the plans and held the sales back to $7 billion in 1993 and 1994. Moreover, despite the constantly rising dividends, the company’s growth slowed from its double-digit level in the previous decade. Its stock also went down 30% from 1992 to 1994. This situation endangered the financial position of the company and forced O’Reilly to postpone his retirement and he concentrated on a reorganization of the structure. The new financial policies of the company included divestments, especially of the Hubinger subsidiary during 1993 which totaled about $700 million and internal cost-cutting measures that comprised of workforce and management staff cutbacks and manufacturing efficiency methods. As Moloney and Cadamore, (2009) noted, in order to overcome the financial tight spot, O’Reilly cut down the American brand advertising by 40% from the levels in 1990 and also extended the discounting revenue to overcome the market share losses to private labels during 1990. In the same way, another strategy was to change the firm’s domestic sales attention to the high-margin foodservice sector by acquiring J.L. Foods from Borden Inc. for $500 million in 1994. However, the domestic market operation remained just a little above the half of Heinz’s operations during the 1990s. And O’Reilly’s idea was to expand the business in the overseas markets and so the concentration was given to baby food in particular, pinning his expectations for future growth. The financial history of the company shows that in 1994, it controlled about 29% of the global infant food industry acquiring the renowned Farley’s baby food of Great Britain and Glaxo Holdings baby foods in India the same year. The financial position was not bad and the firm remained unchallenged for quite a long time in the international baby food market until it faced some serious competition from the U.S.’s leading Gerber during the same period. On the other hand, Heinz was able to enhance its interests throughout the Asia/Pacific region with the acquisition of New Zealand’s Wattie’s Limited for $300 million in 1992, where O’Reilly identified the new addition as a ‘mini-Heinz’ intended to meet the requirements of New York Society of Securities Analysts in 1994. However, Heinz celebrated its 125th year in food industry with flat sales and a not-excellent financial position which O’Reilly himself stated as disappointing. However, as Moloney and Cadamore (2009) have commented, the following two years witnessed good results which pointed that O’Reilly’s reorganizing efforts were really paying off. Sales started to move upward and pitched at more than $1 billion in each of those years, finally resulting in $9.11 billion revenues in 1996. Further purchases had a great role in the advancement of the firm like, taking over Kraft General Foods, Inc., known for making Budget Gourmet line of frozen meals for a $200 million. With the acquisition of the North American pet food business of the Quaker Oats company in March 1995 for $725 million, the company almost doubled the range of pet food operation in the international markets. In order to balance the inequalities in the financial position and instability Heinz intended for anther major restructuring in March 1997 and decided to sell off its 25 plants, to cut down work force of 2,500, and to dissociate from the foodservice business of the Ore-la da unit and sold it in June 1997 to McCain Foods Limited of New Brunswick for about $500 million. As a course of the restructuring process, the company had to meet pretax charges of $647.2 million in the fiscal year ended 1997, which had a great impact on the net income reducing it to $301.9 million when compared to the $659.3 million for 1996. Moreover, as Moloney and Cadamore (2009) has remarked, the company adopted a selective acquisition attitude, for example undertaking John West Foods Limited, the well known and leading producer of canned tuna and fish in the firm’s home country, the United Kingdom, from Unilever in June 1997. Johnson was elected president and CEO of Heinz in May 1998, with O’Reilly being a nonexecutive chairman, but the restructuring efforts were prolonged into the early 21st century such as, allocating a $150 million to combine the operations of its two different food production units into a new unit called Heinz Frozen Food Company. In 1999, the Heinz Company had gone through its largest restructuring, cutting down an additional work force of 4,000 and closing about 20 of its remaining 100 plants. The company also decided to realign along the global category lines rather than staying on its geographic arrangements, and to concentrate on six main categories that generated 80% of global revenue for the company. In the same way, the financial management team advised the firm to concentrate more on the six countries namely, the United States, the United Kingdom, Italy, Canada, Australia, and New Zealand, which constitute about 80% of the company’s revenue. All this reorganizing processes were carried out aiming at obtaining ultimately $200 million in annual savings from these endeavors. Besides, in the fiscal year 2000, the firm also decided to set apart $100 million in order to augment the spending on marketing its flagship brands. The pretax restructuring charges of the company during the fiscal 1999 amounted to a total of $552.8 million. In February 2000 the company undertook the business of Milnot Holding Corporation, the producer of Beech-Nut, the number one baby food brand in the U.S., for $185 million. The Milnot Holding Corporation had procured 13% of the baby food products market where as Heinz was on the third place in the market with 11%. In the same way, the company procured a foothold in the fast-developing natural and organic foods sector through the acquisition of a 19.5% stake in Hain Food Group Inc. for $100 million. On the other hand, the association with Heinz enhanced Hain to posses the Earth’s Best line of organic baby foods, thereby brining a greater profitability to Heinz. A new pace of total organizational restructuring, including financial restricting took place under the leadership of Johnson, and in 2000 started to sell StarKist tuna in vacuum-sealed pouches, claiming that they were fresher-tasting and firmer than the ordinary, traditional canned variety offered in the market. Even when the overall revenues continued to remain flat after the restructuring, there was an increase in 2000 with $9.41 billion that was comparatively larger than the $9.11 billion of 1996. However, the pretax restructuring charge for 2000 was $392.7 million, an amount that was more than offset by a pretax gain of $464.6 million on selling off the Watchers unit, ultimately leading to an overall net income for the year of $890.6 million. The Heinz’s speculation about future food industry consolidation remained predominant but there prevailed an uncertainty about the firm’s future in spite of its improvements. According to the financial reports of the company, during the fiscal year ended on May 3, 2006, the Heinz Company witnessed a boost in the sale of its European seafood undertakings that included famous brands like, Mareblue, Petit Navire, John West and Marie Elisabeth (Heinz, 2006). Besides, the European segment of the company which includes convenience meals in Poland and the United Kingdon, frozen foods in the United Kingdom and Italian infant feedings, also acquired HP foods and Petrosoyuz that contributed a 9.1% increase in the sales volume of the company (Heinz, 2011). The Economic factors of the company are concerned with the overall view of the economy and the macro economy at the international levels. In the same way, the macro economy of a country like that of the European Union has a great impact on the business of the company. Such factors influencing the business operation within a country include gross domestic product, the foreign trades, and surplus of the country, and the unemployment and inflation rates. The Heinz Company’s current financial management strategy is not to expand their business in a country if its overall economy is unstable or undesirable because there is a greater chance for the firm to lose great amount of money. The heavy consumer expenditure in Western Europe and the increasing consolidation and greater price competition from discount supermarkets together with higher costs of inputs have trimmed down the sales for the company across the western regions of Europe. Financial management plays a great role when the prices of fuel has gone high in the international market where the company directly distribute its own products to convenience stores, hotels, and supermarkets. Thus today, the financial department is facing a great challenge as the increased prices in fuel forces the company to increase the prices of its products. Besides, the immense competition faced by the company is from the supermarkets who sell cheap food products thereby attracting the customers and withdrawing them from buying the products of the company. Moreover, the economic slowdown in the market like the Asian Financial Crisis is likely to happen in this age of globalization. On the other hand, some of the European countries who are members of the European Union normally have unwavering economies, and therefore venturing new business undertaking in such regions would not be difficult for the company; instead it will only improve the financial feasibility of the firm.              References H. J. Heinz Company 2006, ‘Annual report 2006’, pp.1-81, Viewed 28 November 2011, Heinz 2011, ‘Financial highlights’, 2011 H. J. Heinz Company Annual Report and 10-K, Viewed 28 November 2011, Heinz 2011, ‘Welcome to our home’, Viewed 28 November 2011, Moloney, S & Cadamore, W 2009, ‘Success in every bottle: The H.J. Heinz Company’, Viewed 28 November 2011, Read More