Heinz Agrees to Acquire 80% Stake in Brazilian Based Coniexpress S.A.
Heinz also reported strong third-quarter results with growth of 1.5% in sales, an increase of 20% in total Company net income, and higher earnings per share of $0.84. Heinz delivered organic sales growth of more than 14% in Emerging Markets.
3/4/2011 --- H.J. Heinz Company has agreed to acquire an 80% stake in Coniexpress S.A. Industrias Alimenticias, a leading Brazilian manufacturer of the Quero brand of tomato-based sauces, tomato paste, ketchup, condiments and vegetables. The acquisition of the Quero business, which has annual sales of approximately $325 million, accelerates Heinz's growth in Latin America and gives the Company its first major business in Brazil, the world's fifth most populated nation.
Heinz also reported strong third-quarter results with growth of 1.5% in sales, an increase of 20% in total Company net income, and higher earnings per share of $0.84. Heinz delivered organic sales growth of more than 14% in Emerging Markets, led by China, India, Indonesia and Russia, as well as organic growth of 3.8% in its Top 15 brands and higher sales and volume in North American Consumer Products.
"The Quero brand is a natural fit with the global capabilities of Heinz and gives us a scalable growth platform in Brazil, a key Emerging Market with nearly 200 million consumers and a growing economy," said Heinz Chairman, President and CEO William R. Johnson. "This transaction is another significant step in our Emerging Markets strategy. With Quero, Heinz will be well positioned in the key Emerging Markets of Brazil, Russia, India, and China as well as Indonesia. We expect the Quero business to approximately double Heinz's sales in Latin America in the first full year."
The Querobrand holds number one or number two positions in numerous tomato-based categories in Brazil and the leading position in vegetables. The acquisition comes with a modern factory that is centrally located in Nerópolis and a new, fully automated distribution center. The Quero business has nearly 1,800 employees. Terms of the transaction were not disclosed. Heinz expects to close the transaction in the next few months.
Mr. Johnson said: "Quero will benefit from the same ˜buy-and-build' strategy that has fueled our success in other Emerging Markets. We intend to drive growth in the Quero product line through increased innovation and marketing, by applying our proven capabilities with the modern trade and by leveraging our technical expertise in tomato products, ketchup, sauces and vegetables. The business provides an excellent platform from which to expand sales and distribution of Heinz-branded products across Brazil."
Quero is already a leader in small, independent stores and shops throughout the country. Heinz expects to build on that position by leveraging its experience in larger supermarkets and commercial outlets.
Mr. Johnson said: "Brazil has been on our priority list for some time because it generates about 45% of Latin America's Gross Domestic Product and is one of the fastest growing economies in the world. It is a market with attractive economic growth, a large number of middle-class consumers and strong upside potential."
He said Heinz now expects Emerging Markets to generate more than 20% of its total sales in Fiscal 2012, which begins on April 28. This reflects continuing strong organic sales growth and the acquisitions of the Quero business, and Foodstar, a leading soy sauce manufacturer in China that Heinz purchased in November to accelerate growth in the world's second-largest economy.
Heinz expects the Quero acquisition will be modestly dilutive to earnings in Fiscal 2012 as the Company invests in the business to drive growth, but accretive to earnings starting in Fiscal 2013.
Heinz was advised in this transaction by J.P. Morgan Securities, LLC.
In the quarter ended January 26, Heinz reported sales of $2.72 billion and achieved its twenty-third consecutive quarter of organic sales growth. Sales reflected volume growth of 0.5%, a 1.2% benefit from the acquisition of Foodstar in China and net price increases of 1.2%. Foreign exchange translation rates reduced sales by 1.4%.
Operating income increased 0.4% to $438 million. Total Company net income grew 19.8% to $274 million from $229 million in the year-earlier quarter. Earnings per share from continuing operations increased 1.2% to 84 cents per share, reflecting higher sales, volume and mix, improved margins and a more favorable effective tax rate.
On a constant currency, continuing operations basis, sales rose 2.9%, operating income 2.1% and EPS 3.6%. These increases were achieved while overlapping the highest profit quarter of the prior year. Currency movements had a $0.02 unfavorable impact on EPS in the third quarter, as 63% of the Company's sales were generated outside the U.S.
Mr. Johnson said: "Heinz delivered strong third-quarter results, reflecting our strategic focus on accelerating growth in Emerging Markets and driving innovation and marketing behind the leading brands in our portfolio. Overall, Heinz continues to demonstrate that we are one of the most consistent and best-performing companies in the packaged foods industry, with strong businesses and brands, and a winning strategy in a changing world."
Emerging Markets were the most dynamic growth driver for Heinz, delivering volume growth of 7.2% as the Company reported higher sales and volume of Complan and Glucon-D nutritional beverages in India, ABC branded products in Indonesia, Heinz branded products in Russia, particularly Ketchup, and Heinz infant nutrition products in China. The November acquisition of Foodstar, a leading manufacturer of soy sauce and fermented bean curd, added to strong organic sales growth in China. Pricing in Latin America also contributed to the growth in Emerging Markets. Overall, Emerging Markets generated 16% of the Company's total reported sales as Heinz continued to launch new products and expand marketing and distribution in these highly populated markets with growing economies and rising numbers of new middle-class consumers.
North American Consumer Products, posted strong results, with 3.0% sales growth and 3.6% volume growth. The volume increases were led by Heinz Ketchup and Heinz Gravy, which had a record holiday season, Ore-Ida frozen potatoes, Smart Ones nutritional entrees, and Classico pasta sauces. Heinz invested behind its leading brands in North America to drive growth and innovation and supported its product line with cost-effective marketing and disciplined promotion.
The growth in the Company's Top 15 brands was led by Heinz branded products, ABC, Complan and Smart Ones. Heinz delivered organic sales growth of 3.0% in ketchup (flat on a reported basis), led by higher sales and volume in the U.S. and Russia.
Gross profit increased 2.3% to $1.03 billion and the gross profit margin increased to 37.8% from 37.5%, an improvement of 30 basis points, as productivity improvements, favorable sales mix in U.S. retail products, higher volume and net pricing more than offset current commodity costs. Gross profit benefited from the impact of the Foodstar acquisition, but that benefit was more than offset by a $16million unfavorable impact from foreign exchange translation rates.
Selling, general and administrative expenses increased 3.7%, largely reflecting costs associated with the Foodstar acquisition, and Heinz's increasing investment in Keystone, a company-wide initiative to leverage global scale and enhance productivity by implementing global capabilities, systems and processes.
The effective tax rate for the quarter was 26.1%, compared with 27.2% last year.
Operating free cash flow was strong at $438 million.
