Heinz Reports Strong Sales Growth Through Emerging Markets

In the fiscal quarter ended July 29, reported sales declined 1.5% to $2.79 billion, reflecting the unfavorable impact of 5.6% from foreign currency exchange rates. Net pricing increased 2.3%, led by Emerging Markets, as well as the U.K. and the U.S.

30 Aug 2012 --- H.J. Heinz Company has reported strong first-quarter results, with growth of 10.1% in earnings per share from continuing operations (excluding special charges a year ago). The results reflected double-digit sales growth in Emerging Markets, improved results in the U.S. and Australia, higher volume and pricing, improved productivity and a favorable tax rate.

“Heinz delivered strong results and our 29th consecutive quarter of organic sales growth, despite the difficult economic environment, higher commodity costs and headwinds from foreign currency,” said Chairman, President and CEO William R. Johnson. “Heinz is off to a good start in Fiscal 2013, led by our trio of growth engines – Emerging Markets, Global Ketchup and our Top 15 Brands.”

In the fiscal quarter ended July 29, reported sales declined 1.5% to $2.79 billion, reflecting the unfavorable impact of 5.6% from foreign currency exchange rates. Net pricing increased 2.3%, led by Emerging Markets, as well as the U.K. and the U.S. Volume increased 2.5%, led by strong growth in Emerging Markets, as well as growth in Japan, the U.K. and the U.S. Divestitures reduced total sales by 0.6%, primarily reflecting the exit from the Boston Market license in the U.S. and the sale of a small soup business in Germany.

Heinz delivered organic sales growth of 4.8%, led by Emerging Markets, which posted organic sales growth of 19.3% for the quarter (11.2% reported). Emerging Markets represented a record 26% of total Company sales.

The Company's Top 15 Brands achieved organic sales growth of 5.9% (0.1% reported), led by Quero, Master, Golden Circle, ABC, Weight Watchers Smart Ones, Heinz and Ore-Ida. Global Ketchup delivered organic sales growth of 3.7% (1.2% decline on a reported basis), led by strong growth in Brazil, Russia and China.

On a reported basis, gross profit grew 1.9% to $1 billion and gross margin increased 120 basis points to 35.9%. Excluding charges for productivity initiatives in Fiscal 2012, gross profit decreased 1.3%, largely due to a $55 million unfavorable impact from foreign exchange, and gross margin increased 10 basis points. The gross margin improvement was driven by higher pricing and productivity, which more than offset higher commodity costs.

Marketing for the first quarter increased 4.5% on a constant currency basis (2.4% decline on a reported basis) as the Company continued to invest behind its leading brands.

Reported SG&A expenses (excluding marketing) decreased 3.8% to $476 million. SG&A as a percentage of sales declined to 17.1% from 17.5% a year ago, due to effective cost management, the overlap of prior-year productivity charges and the impact of foreign exchange. Excluding charges for productivity initiatives a year ago, SG&A (excluding marketing) decreased 2.0% and declined to 17.1% of sales from 17.2%. During the quarter, Heinz increased investments in Project Keystone, the Company’s global initiative to upgrade and harmonize systems and processes; and in greater capabilities in Emerging Markets.

Operating income grew 10.7% to $410 million. Excluding charges for productivity initiatives in Fiscal 2012, operating income was virtually flat due to a 5.3% unfavorable impact from foreign exchange (up 5.1% on a constant currency basis).

The effective tax rate for the current quarter was 17.7% compared to a prior year reported rate of 23.3% (24.0% excluding charges for productivity initiatives). The Company continues to expect a full-year tax rate in the low twenties for Fiscal 2013.

Net income from continuing operations grew 23.2% to $279 million from $227 million a year ago. Excluding charges for productivity initiatives a year ago, net income rose 9.5%, also impacted by 5.5% of unfavorable foreign exchange.

Reported diluted earnings per share from continuing operations grew 24.3% to $0.87 from $0.70 a year ago. Excluding charges for productivity initiatives last year, EPS grew 10.1% from $0.79 a year ago. EPS this year was reduced by $0.04 from unfavorable foreign currency translation and translation hedges.

On a constant currency, continuing operations basis, sales grew 4.2%, operating income increased 5.1% and EPS rose 15.2%, which excludes non-recurring items in the prior year. Total Company net income including discontinued operations was $258 million; and EPS grew to $0.80.

In the first quarter of Fiscal 2013, Heinz completed the previously announced sale of its U.S. Foodservice frozen desserts business. This transaction resulted in a $31.5 million pre-tax ($20.4 million after-tax) loss, which has been recorded in discontinued operations. The frozen desserts business had reported sales of $2.5 million in the first quarter, versus $17.0 million a year ago.

Fiscal 2013 Outlook
“Our strong first-quarter results put Heinz on track to deliver our previously announced outlook for Fiscal 2013,” Mr. Johnson said.

For the full year in Fiscal 2013, Heinz expects:
•  At least 4.0% organic sales growth;
•  Constant currency EPS growth of 5-8% on a continuing operations basis and excluding special items in Fiscal 2012; and
•  Strong operating free cash flow of more than $1 billion.