Heinz Reports 9.8 pct Rise in Q4 Net Income

In the fourth quarter, sales grew 8.3% to $2.72 billion, led by higher sales in Ketchup and Sauces, as marketing behind Heinz’s leading brands increased 63% to drive growth.

28 May 2010 --- H.J. Heinz Company has reported excellent full-year and fourth-quarter results for Fiscal 2010 as the Company delivered dynamic double-digit organic sales growth in Emerging Markets. For the full year, sales grew 4.8% to a record $10.5 billion, operating income increased 3.8% and the Company generated record operating free cash flow of $1.08 billion while contributing over $500 million to its pension plans. Heinz delivered strong EPS of $2.87 from continuing operations despite the unfavorable impact of foreign currency fluctuations. EPS movement for the year was unfavorably impacted by $0.29 from net currency movements. The Company’s return on invested capital reached 18.7%, one of the highest in its history, excluding the losses associated with discontinued operations.

Heinz Chairman, President and CEO William R. Johnson said: “Heinz delivered strong profit with record sales and cash flow in Fiscal 2010 as our businesses and iconic brands around the world performed well in a challenging and volatile global environment. Heinz’s Emerging Market businesses drove much of our growth, paced by outstanding performance in India, Indonesia, Russia, Latin America and the Middle East. Overall, it was another excellent year for Heinz as we significantly increased marketing and innovation to enhance our brand equity and drive volume growth in the second half after focusing on maintaining prior-year pricing to offset commodity inflation in the first half. Heinz improved gross profit margins, reflecting strong productivity gains, while also improving shareholder equity and return on invested capital.”

The Company’s strong financial performance in fiscal year 2010 was driven by 15.3% organic sales growth in Emerging Markets and 3.4% organic sales growth in its Top 15 brands. Heinz increased consumer marketing investments by over 25% and accelerated new product development. The Company improved gross profit margin by 50 basis points as it benefited from increased productivity and higher net pricing, which together more than offset commodity inflation.

In the fiscal year ending April 28, 2010, Emerging Markets generated virtually all of the Company’s organic sales growth, 30% of the Company’s total reported sales growth and 15% of total Company sales. The robust growth in Emerging Markets was led by higher sales of Complan and Glucon D nutritional beverages in India, ABC products in Indonesia and significant growth in Heinz Ketchup and infant feeding products in Russia.

The Top 15 brands generated 70% of the Company’s sales and performed well, with Heinz branded products growing organically 6.3% (5.4% reported). Heinz Ketchup sales continued to grow around the world, strengthening its position as the number-one brand in 7 of the world’s top 10 ketchup markets, including the United States. Across Europe, Ketchup achieved 9.5% organic sales growth (7.2% reported) and 6% volume growth for the year, led by robust growth in Russia, the world’s second-largest ketchup market.

Heinz delivered sales growth in all three of its core categories Ketchup and Sauces, Meals and Snacks, and Infant/Nutrition – with total organic sales growth of 2.1% across its global portfolio.

Net pricing increased total sales by 3.4%, largely due to the carryover impact of price increases taken in Fiscal 2009 to help offset increased commodity costs.

Volume decreased 1.3%, as the Company focused primarily on generating strong profit and cash flow in the first half of the fiscal year in light of the poor economy and credit markets at the time. Volume was down 3.9% in the first half and up 1.4% in the second half. The modest full-year volume decline reflected lower volume in U.S. Foodservice and Australia. The second-half volume growth was led by increased volume in Emerging Markets and in U.S. and U.K. retail products, spurred by marketing and commercial initiatives that Heinz launched behind its brands, including the Consumer Value Program in the U.S. and “It Has to be Heinz” in the U.K.

Acquisitions, net of divestitures, increased sales by 2.2%, primarily reflecting the addition of Golden Circle in Australia in Fiscal 2009. Overall, foreign exchange translation rates increased sales by 0.5% compared with the prior year.

Gross profit grew 6.3% to $3.79 billion and gross margin increased by 50 basis points to 36.2%. The increase in gross margin reflected improved net pricing and strong productivity gains, which more than offset commodity inflation and the impact from foreign currency transaction cross-rates. Marketing spending increased by 70 basis points as a percentage of sales, while SG&A (excluding marketing expense) decreased by 10 basis points.

Operating income grew to $1.56 billion on higher pricing and improved productivity, partially offset by higher marketing investments and increased commodity costs. Operating income also reflected charges totaling $38 million for productivity initiatives, partially offset by a $15 million gain related to the sale of a factory in The Netherlands.

Net interest expense declined 9% to $251 million, reflecting lower average interest rates. Other expenses increased $111 million primarily due to prior-year foreign currency contract gains. The effective tax rate for Fiscal 2010 was 27.8%, compared with 28.4% for the prior year.

In the fourth quarter, sales grew 8.3% to $2.72 billion, led by higher sales in Ketchup and Sauces, as marketing behind Heinz’s leading brands increased 63% to drive growth. Heinz achieved its 20th consecutive quarter of organic sales growth, led by 21.1% organic sales growth in Emerging Markets, 4.0% organic sales growth in its Top 15 brands and higher volume in North American Consumer Products. Overall, volume grew 1.6%.

Global ketchup sales grew 7.7% on an organic basis (9.5% on a reported basis), led by Russia, Latin America, Egypt, the U.K., France, China and the Benelux market (Belgium, Netherlands and Luxembourg). ABC soy sauces in Indonesia delivered strong sales growth and in China, the Company’s Long Fong frozen dim sum business achieved double-digit organic sales growth. In India, sales of Complan and Glucon D nutritional beverages both increased at a double-digit rate. In the U.S., sales of Ore-Ida, the number-one brand of frozen potatoes, increased. Wet baby food delivered organic sales growth in Latin America and Italy, where the Company’s Plasmon brand remained number-one.

Fourth-quarter operating income gained 1.9% to $345 million. Total Company EPS rose 9.1% to $0.60. Constant currency EPS from continuing operations was flat to prior year reflecting the Company’s investment in marketing and productivity initiatives. Net income from continuing operations grew 7.6% to $193 million. Total Company net income increased 9.8% to $192 million.

To excite consumers and fuel growth, Heinz launched many innovative new products during the year. In the U.S., notable launches included Ore-Ida Sweet Potato Fries, Smart Ones mini-cheeseburger sliders and breakfast entrees, new varieties of T.G.I. Friday’s Skillet Meals and Simply Heinz, a new variety of ketchup made with sugar. Heinz also announced the launch of Dip & Squeeze Ketchup, with the biggest innovation in foodservice ketchup packaging in decades. Dip & Squeeze Ketchup, with a dual-function package, is on track to reach the U.S. market later this year.

Around the world, Heinz introduced new Complan nutritional beverages for children in India, Mr. Jussie Milky beverages for children in Indonesia, Golden Circle LOL fizzy fruit juices and Raw branded chilled fruit and vegetable beverages in Australia, Reduced Sugar & Salt Snap Pot Heinz Beanz in the U.K. and Plasmon vegetable pouches for infants in Italy. Heinz also announced plans during the year to launch its first infant formula in China and Russia, two key Emerging Markets where the Company’s growing Infant/Nutrition business is already well positioned.

In terms of fiscal 2011 Outlook, on a constant currency basis, Heinz expects:
• Sales growth of 3 to 4%
• Operating Income growth of 7 to 10%
• EPS growth of 7 to 10%
Operating free cash flow is expected to be more than $1 billion.

“We expect another year of strong growth on a constant currency basis for Heinz in Fiscal 2011. Our outlook is based on robust plans for our brands and businesses. We continue to execute our proven strategy to grow our core portfolio, accelerate growth in Emerging Markets, leverage global scale and make talent an advantage,” Mr. Johnson said. “However, in this volatile economic environment, our reported results will likely be affected by significant currency fluctuations.”