Heinz Raises Targets After Reporting Growth in Sales

Heinz said is raising its full-year Fiscal 2010 outlook for EPS from continuing operations to a range of $2.72 to $2.82, from its previous target of $2.60 to $2.70.

25 Nov 2009 --- H.J. Heinz Company delivered strong financial results in its fiscal second quarter, achieving growth of 2.5% in sales, 6% in operating income and earnings per share of $0.76 from continuing operations on higher margins, despite unfavorable foreign currency. The results were driven by 11.7% organic sales growth (6.8% reported) in Emerging Markets, higher sales of its Top 15 brands and carryover pricing from Fiscal 2009. Operating free cash flow more than doubled to $293 million in the quarter ended October 28, reflecting the Company’s strategic focus on cash, working capital and inventory reductions.

On a constant currency basis, Heinz grew sales by 3.5%, operating income by 10.2% and EPS by 15.9% from continuing operations.

Heinz said is raising its full-year Fiscal 2010 outlook for EPS from continuing operations to a range of $2.72 to $2.82, from its previous target of $2.60 to $2.70. Heinz also is raising its outlook for operating free cash flow to approximately $1 billion for the year, from an earlier range of $850 to $900 million. Heinz’s upgraded outlook for EPS and cash is based on its strong first-half results, the improving currency climate, the Company’s plans to significantly increase marketing and value-focused innovation in the second half of the year and confidence in its operating momentum.

Heinz Chairman, President and CEO William R. Johnson said: “Heinz delivered a strong financial performance in an adverse economic climate, led by our growing strength in Emerging Markets. Looking forward, the Company is raising its full-year outlook for earnings and cash flow and we expect increased top-line momentum in the second half of the fiscal year.”

Sales grew 2.5% to $2.67 billion, despite a 1% unfavorable impact of foreign currency. Heinz delivered organic sales growth for the 18th consecutive quarter, driven by its strong growth in Emerging Markets, which was led by pricing and higher sales of nutritional beverages in India, and ketchup and baby food in both Latin America and Russia.

Globally, Infant Nutrition achieved 8.8% reported sales growth to lead the Company’s three core categories. The Company’s Top 15 brands delivered 5% reported sales growth, led by the Heinz brand. Rest of World led all segments with organic sales growth of 23.3%, followed by Europe and Asia-Pacific.

Acquisitions net of divestitures increased sales by 3.1%, driven by the December 2008 acquisition of Golden Circle in Australia, which has expanded Heinz’s Health & Wellness platform in beverages. Net pricing improved 4.6%, reflecting the carryover impact of pricing from the second half of Fiscal 2009, more than offsetting a 4.1% decline in volume. The volume results primarily reflected the timing impact of pricing actions taken last year in North America Consumer Products and lower volume in the U.S. Foodservice business, reflecting lower guest traffic in the U.S. restaurant sector and the Company’s ongoing strategy to discontinue lower profit products.

“We expect solid volume growth in the second half, fueled by significant increases in marketing, consumer-driven innovation and brand support initiatives that are underway to further leverage our strong brand equities, especially in developed markets,” Mr. Johnson said.

Gross margin increased to 35.8%, reflecting improved pricing and productivity, partially offset by higher commodity costs. Net input costs rose 4% as lower energy costs in the quarter were more than offset by higher costs largely for tomatoes, potatoes and tinplate and the continuing impact of currency cross rates. SG&A, excluding marketing, decreased as a percentage of sales due to effective cost management and productivity in S&D.

Operating income increased 6% to $408 million, reflecting carryover pricing, improved productivity and disciplined cost management. On a constant currency basis, operating income grew 10.2%.

Pre-tax profit and EPS from continuing operations declined 15.2% and 11.6% respectively, due to a $92 million pre-tax gain ($0.18 at EPS) in last year’s second quarter related to translation hedges on key currencies.

On a constant currency basis, EPS grew 15.9%. The Company’s tax rate for the quarter was 25.6%, versus 28.6% a year ago reflecting tax planning and audit settlements.

Including discontinued operations (discussed below), Heinz reported net income of $231 million, or $0.73 per share.

During the second quarter of Fiscal 2010, the Company completed the sale of its Kabobs frozen hors d’oeuvres business within the U.S. Foodservice segment, resulting in a $15 million pre-tax ($10.9 million after-tax) loss, which has been recorded in discontinued operations. In Fiscal 2009, Kabobs had reported sales of $17 million. The sale of this business is not expected to have a material impact on the future profitability of the Company.