U.S. food makers H.J. Heinz Co and Hormel Foods Corp said they expect sales to rise in the coming months as they spend more on marketing to win the attention of recession-weary consumers who are dining at home instead of eating out.

Still, the companies reported results for the past quarter that failed to impress investors, who had expected both to get more of a lift from an increase in meals eaten at home.

Heinz, which makes ketchup and Ore-Ida frozen potatoes, posted a smaller-than-expected decline in quarterly profit on Tuesday, as overall sales rose despite a decline in North America. But it is optimistic about sales heading into the second half of fiscal year 2010 and raised its profit forecast.

This year, Heinz has faced intense promotional discounting in the frozen food section by competitors like Nestle SA's Lean Cuisine. It will respond by increasing marketing spending by about 40 percent on its Smart Ones frozen meals and bringing out new Smart Ones products in the spring.

They're showing a lot of confidence going forward, said Solaris Asset Management chief investment officer Tim Ghriskey, whose firm no longer owns Heinz shares. They say they're going to increase marketing, they're going to increase some new-product work and that shows a lot of management confidence.

Hormel posted a bigger-than-expected increase in quarterly profit due to lower hog prices, but sales fell more than expected as sales of foods such as Spam lunch meat were flat. It said earnings should rise in the current fiscal year.

Shares of Hormel fell 1.9 percent to $38.14, while Heinz shares rose 0.02 percent to $43.24.


Heinz earned $231.4 million, or 73 cents a share, in its fiscal second quarter, ended October 28, down from $276.7 million, or 87 cents per share, a year earlier. The previous year's results included a sizable gain from currency hedging.

Earnings of 76 cents per share from continuing operations topped analysts' average forecast of 69 cents, according to Thomson Reuters I/B/E/S.

Sales rose 2.5 percent to $2.67 billion, ahead of analysts' forecasts. Heinz said foreign exchange cut sales by 1 percentage point.

JP Morgan analyst Terry Bivens said he was disappointed by Heinz's 4.1 percent volume decline, particularly the weakness in North America, where volume fell 8 percent. Heinz attributed some of that fall to comparisons from a strong showing a year ago, when retailers stocked up before the company raised prices to help offset what were soaring commodity costs.

Heinz expects to see meaningful volume growth in the current quarter, Chairman and Chief Executive William Johnson said during a conference call. He said Heinz plans to increase marketing spending by at least 15 percent this year.

Heinz now expects to earn $2.72 to $2.82 per share this year, up from a previous view of $2.60 to $2.70. Analysts expected a profit of $2.75 per share.

It still expects 2010 sales growth of 4 percent to 6 percent, excluding the impact of currency fluctuations.

Heinz completed the sale of its private-label frozen desserts business in the United Kingdom on Monday, which will result in a $33 million pretax loss in the third quarter.


Hormel earned $103.9 million, or 77 cents a share, for its fiscal fourth quarter, ended October 25, up from $67.8 million, or 50 cents a share, a year earlier. Analysts, on average, had expected a profit of 68 cents per share.

Hormel's sales fell a steeper-than-expected 10 percent, to $1.68 billion, and volume dropped 3 percent.

It has just been a very choppy environment over the last quarter, Chairman and Chief Executive Jeffrey Ettinger said during an interview.

Hormel expects to return to sales growth in 2010, Ettinger said. Sales in the latest quarter were significantly hit by changes in consumer spending, he said, as shoppers opted for items such as its namesake canned chili rather than its pricier Compleats microwaveable meals.

Hormel also plans to increase advertising spending, as well as capital spending, during fiscal 2010.

Hormel forecast fiscal 2010 earnings of $2.63 to $2.73 per share, up from a fiscal 2009 profit of $2.53 per share. Analysts' average forecast has been $2.59 per share.

The company raised its annual dividend by 10.5 percent to 84 cents per share.

(Additional reporting by Brad Dorfman; editing by John Wallace, Gunna Dickson and Steve Orlofsky)