Heinz Expecting Solid Q3 Results

The results were “driven by continued robust organic growth of approximately 14% in Emerging Markets, led by China, India, Indonesia and Russia, and a solid performance in North American Consumer Products, which delivered strong growth in Ketchup and Sauces.”

2/25/2011 --- H.J. Heinz Company expects to report “solid third-quarter results with earnings per share of around 84 cents,” Chairman, President and CEO William R. Johnson said during his presentation at the annual conference of the Consumer Analyst Group of New York (CAGNY) in Boca Raton, Florida.

Mr. Johnson previewed the results that Heinz will report on March 3.

“We expect to deliver our twenty-third consecutive quarter of organic sales growth, with organic growth of about 2%. Globally, our Top 15 brands generated organic sales growth of approximately 4%,” Mr. Johnson said. “We expect organic growth in North America, Asia Pacific and Rest of World and we are holding steady in Europe, where we lapped a very strong volume quarter last year.”

The results were “driven by continued robust organic growth of approximately 14% in Emerging Markets, led by China, India, Indonesia and Russia, and a solid performance in North American Consumer Products, which delivered strong growth in Ketchup and Sauces.”

Mr. Johnson added: “Heinz expects very strong operating free cash flow of around $440 million in the quarter.”

Looking forward, Heinz is raising the outlook for full-year reported EPS to a range of $3.04 to $3.10, from its previous range of $2.95 to $3.05, Mr. Johnson announced. Heinz also raised its outlook for full-year operating free cash flow to $1.2 billion, up from a previous projection of $1.15 billion.

“In short, Heinz is on track to deliver another solid year,” Mr. Johnson concluded.

In addition to previewing third-quarter results, Mr. Johnson discussed the consumer and economic environment; challenges and opportunities for the packaged foods industry; and Heinz's plan to drive growth in Developed and Emerging Markets. The following are excerpts from his presentation.

“While the consumer and economic environment has become more difficult, I still believe the food business is a good place to be, as evidenced by the industry's strong returns in 2010 and the significant growth potential in the developing world,” Mr. Johnson said. “Looking at the economy, we expect an uneven global recovery, with slightly improved economic growth in the U.S. and Europe in 2011 and robust growth in Emerging Markets.”

“Our industry is experiencing dramatic increases in the cost of commodities like meat, dairy and grain, as well as packaging reflecting higher oil prices and decreased supply capacity,” Mr. Johnson said. “Fortunately, Heinz's input basket remains quite diversified, minimizing exposure to any single commodity. At Heinz, our goal is to effectively manage commodity costs while balancing the trade-off between pricing and productivity.”

Mr. Johnson noted that “Heinz brands have fared reasonably well amidst the increasing pressure for promotional discounts.”

“I expect the at-home dining trend in Developed Markets to remain strong in 2011,” he said.

“Appealing to consumers in Developed Markets is crucial, yet one growth opportunity stands above all – Emerging Markets,” Mr. Johnson said. “Heinz is well-positioned in Emerging Markets, whose combined revenues, I believe, will eclipse our largest segment, North American Consumer Products, by 2015.”

Mr. Johnson noted: “Reflecting our plans to invest in organic growth and acquisitions, coupled with the strong growth trends in these markets, I anticipate that Emerging Markets could generate 30% of the Company's total sales within the next five years if not sooner.”

To support growth in China, Heinz will open a new Foodstar factory in Shanghai next month, Mr. Johnson said. Heinz acquired Foodstar, a leading soy sauce manufacturer in southern China, in November. He said Heinz expects Foodstar sales to grow well beyond $100 million next Fiscal Year.

Mr. Johnson said the Company's strategy to drive top-line growth in Developed Markets is “centered on consumer-inspired innovation, effective marketing and increased ketchup penetration, especially in the U.S. and Europe.”

He said Heinz began shipping Dip & Squeeze, its dual-function breakthrough in foodservice ketchup, at the end of January, with Chick-fil-A as the first national customer.

Mr. Johnson said Heinz has a strong “pipeline of innovation” with new products including the first line of premium T.G.I. Friday's brand single-serve entrées. He called this launch “our most important news in frozen since the introduction of Smart Ones.”

To support future growth in frozen, Heinz is opening a new, state-of-the-art factory in Florence, South Carolina next month that will employ 300 people, Mr. Johnson noted.

“In the first half of the fiscal year, ketchup sales grew 6% organically, proving that our flagship product remains a growth catalyst and that maturity is simply a state of mind rather than a marketing fact,” Mr. Johnson said.

He added: “Heinz has a strong global position, holding the number-one share in seven of the world's top ten ketchup markets but we see substantial room for growth.”

Heinz is on track to meet its previously announced goal of “delivering better than $1 billion in cost savings over the next five years through our global supply chain initiatives,” Mr. Johnson said.

Mr. Johnson said Heinz and The Coca-Cola Company have formed a strategic partnership that will “give us access to a more sustainable, fully recyclable Heinz Ketchup bottle using Coca-Cola's proprietary PlantBottle technology.”

The PlantBottle is better for the environment because up to 30% of its packaging material is made from plants. Heinz Ketchup will convert to the PlantBottle globally over time, starting with a U.S. rollout of 120 million retail and foodservice bottles this spring.