Heinz Income Falls 5.7 Percent on Weak Sales in North America

H.J. Heinz Co. saw its fiscal second-quarter net income dip 5.7 percent, as organic sales growth in emerging markets could not offset continually weakening sales in North America.

Heinz, the world's largest ketchup producer, said Friday in an earnings report its net income fell to $237 million, or 73 cents per share, from $251 million, or 78 cents per share, the same period one year ago.

Net sales grew 8 percent, from $2.6 million to $2.8 million. But product costs grew at an even higher rate: 13.4 percent, from $1.64 million to $1.86 million.

Growth in emerging markets represented 20 percent of total company sales. But rising commodity costs and, subsequently, prices, forced Heinz to raise prices.

Led by our trio of growth engines - emerging markets, global ketchup and our Top 15 brands - reported sales grew more than 8 percent and Heinz delivered organic sales growth for the 26th consecutive quarter despite the challenging economic environment in Developed Markets, especially in Australia and U.S. Foodservice, Heinz chairman and CEO William Johnson said in a company statement .

Overall, we saw a combination of continued strength in emerging markets, the U.K. and much of Europe, and mixed results in other developed markets, where consumer confidence fell to its lowest level in 30 years.

Heinz saw strong growth in emerging markets like Brazil and China, where sales increased by 5 percent. And globally, organic sales of ketchup grew 6.5 percent, which the company said was driven by consistent pricing across markets and higher volume in Europe.

And the company's Top 15 brands also grew 3 percent, fronted by Heinz brand products, Complan nutritional beverages in India, chili sauces in Indonesia, and T.G.I. Friday's frozen meals in the U.S.

But Heinz also announced it would close three factories globally in order to further address the difficult environment in which the company is operating.

Heinz's weakest segment came in U.S. Foodservice, in which sales fell 2.8 percent to $352 million. Sales of North American Consumer Products also fell 1.1 percent to $794 million, and operating income decreased 1 percent because of higher commodity costs.

The difficulties in these markets aside, Johnson said he expects the growth in emerging markets to continue growing.

Given our growing strength in emerging markets and our continuing focus on productivity, we believe Heinz is well positioned to continue driving solid organic growth in this challenging economic environment, Johnson said.

Shares of Heinz fell 3.45 percent to 50.96 as of 1:15 p.m. ET.