Heinz Profits Down in Q1

The results reflected 14% organic sales growth (0.4% reported) in Emerging Markets, led by Latin America, India and Russia; 2.2% organic sales growth (-4.2% reported) in its Top 15 brands; and the positive impact of carryover pricing, despite a tough economic environment.

21 Aug 2009 --- The H.J. Heinz Company has reported first-quarter revenue of $2.47 billion, net income of $213 million and diluted earnings per share of $0.67. The impact of currency reduced sales by 9%, and both net income and EPS by 17%. On a constant currency basis, Heinz achieved 4.5% sales growth, 5.6% growth in Operating Income and 9.7% growth in EPS.

The results reflected 14% organic sales growth (0.4% reported) in Emerging Markets, led by Latin America, India and Russia; 2.2% organic sales growth (-4.2% reported) in its Top 15 brands; and the positive impact of carryover pricing, despite a tough economic environment. Solid performances in North America and Europe; significantly higher profit in the U.S. Foodservice business; and disciplined cost management throughout the Company also contributed to the results. Net pricing increased 6% while total volume declined 4.3%.

Heinz delivered strong Operating Free Cash Flow of $121 million, an improvement of $176 million from the prior year.

“Led by strong organic sales growth in Emerging Markets, our sharply focused global portfolio of leading brands performed well, especially in our core categories of Ketchup and Sauces and Infant/Nutrition, even as the recession continued to impact consumer behavior,” said William R. Johnson, Heinz Chairman, President and Chief Executive Officer. “At the same time, Heinz delivered robust cash flow, reflecting our strong focus on working capital and in particular on reducing inventory.”

Emerging Markets generated approximately 16% of the Company’s total sales, led by higher sales of Complan and Glucon-D nutritional beverages in India, and higher volume and pricing in infant/nutrition products and ketchup in both Latin America and Russia.

The Company’s Top 15 brands globally generated approximately 70% of reported sales, led by the Heinz brand, Ore-Ida potatoes and T.G.I. Friday’s snacks and skillet meals.

“Heinz continues to invest in marketing and innovation despite this difficult economy,” Mr. Johnson said. “At the same time, we have refrained from chasing unprofitable volume.”

Carryover pricing and tight cost controls were key factors in driving higher constant currency profit. As anticipated, the costs for key commodities such as tomatoes, tin plate and potatoes rose during the quarter. Overall, the Company’s net input costs rose 6% in the first quarter of Fiscal 2010.

During the quarter, the Company spent $16 million in upfront costs for new productivity initiatives, while benefiting from a $20 million mark-to-market gain on its total rate of return swap, which largely offset higher interest costs. In August 2009, Heinz took steps to restructure and extend the maturity of certain debt obligations through a private placement offering and exchange of notes. Heinz had a tax rate of 28.5% in the first quarter, which ended July 29, 2009, reflecting benefits from tax planning.

Heinz has reaffirmed its previous guidance for full-year Fiscal 2010 results. Based on its first-quarter performance, the Company remains on track to deliver the following results in constant currency (which excludes the impact of currency, which cannot be predicted with consistency):
• Sales growth of 4 to 6%;
• Growth in Operating Income of 6 to 8%; and
• Earnings per share growth of 5 to 8%.

Heinz also expects Operating Free Cash Flow of $850 to $900 million for the fiscal year.