Raises Full-Year EPS Outlook to a Range of $2.72 -- $2.82 from Continuing Operations
PITTSBURGH--(BUSINESS WIRE)--H.J. Heinz Company (NYSE:HNZ):
Continuing Operations:
.Reported sales grew 2.5% to $2.67 billion, led by double-digit organic growth in Emerging Markets and acquisitions
.Operating income grew 6% to $408 million, with gross margins improving 60 basis points
.EPS of $0.76 was $0.10 lower than prior year due to an $0.18 currency hedge gain in Q2, Fiscal 2009
.On a constant currency basis, Heinz grew sales by 3.5%, operating income by 10.2%, and EPS by 15.9%
.18th consecutive quarter of organic sales growth
.Heinz raises full-year EPS outlook to a range of $2.72 -- $2.82 from its original range of $2.60 -- $2.70

Total Company:
.EPS of $0.73 reflects the one-time loss on sale of a small non-core business in U.S. Foodservice
.Operating free cash flow more than doubled to $293 million
.Heinz raises full-year operating free cash flow outlook to approximately $1 billion

Reconciliations of non-GAAP amounts are set forth in the attached financial tables. Organic sales are defined as volume plus price or total sales growth excluding the impact of foreign exchange and acquisitions and divestitures. Operating Free Cash Flow is defined as cash from operations less capital expenditures net of proceeds from disposal of Property, Plant & Equipment. Also, constant currency as used in this press release is defined as the reported amount adjusted for translation (the effect of changes in average foreign exchange rates between the current period and the corresponding prior year), the impact of the fluctuation in the British Pound versus the Euro and U.S. Dollar cross rates on UK transaction costs (impact of currency on particular transactions such as raw material sourcing), and the impact of current and prior year foreign currency translation hedges).

PITTSBURGH -- H.J. Heinz Company (NYSE:HNZ) 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 today 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.”

Second-Quarter Results from Continuing Operations
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.

Discontinued Operations
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.

Subsequent Event
On November 23, 2009, Heinz completed the sale of its private label frozen desserts business in the UK. The sale comprises two manufacturing facilities in the UK (Okehampton and Leamington Spa) with 580 employees. The transaction will result in a $33 million pre-tax loss during the third quarter, which will be recorded in discontinued operations.

Second Quarter Marketing Highlights
Marketing investments increased 14% from a year ago, reflecting Heinz’s commitment to driving growth in its core brands.
Heinz UK launched its biggest marketing campaign in five years to support its family of products – “It Has to be Heinz.”
Heinz reported soup sales in the UK grew 11% driven by innovation and pricing.
Heinz Ketchup achieved a share of 82% in Canada, fueled by a marketing campaign celebrating the Company’s 100th anniversary in that nation.
In Mexico’s modern trade, Heinz Ketchup achieved a record market share of 12% in that fast-growing Emerging Market.
In Russia, the second-largest ketchup market in the world, the Company achieved another record share of more than 22% for ketchup and sauces.
Reported sales of Complan nutritional beverages in India grew 15% as Heinz increased marketing and distribution, with a focus on children’s health.
In Australia, Heinz introduced Golden Circle LOL fizzy fruit juices and GC Raw, a blend of fruit and vegetable juices, to expand its healthy beverage line.

Second Quarter Results from Continuing Operations, By Segment

North American Consumer Products
Sales of the North American Consumer Products segment decreased 4.3%, with an organic sales decline of 4.7%. Sales were impacted by the timing of pricing actions at the end of Q2 last year. Favorable Canadian exchange translation rates increased sales 0.4%. Operating income increased 4.9% due to pricing, productivity and lower fuel costs.

Europe
Sales declined 3.3% due to unfavorable foreign exchange translation rates of 5.1%. Organic sales in Europe increased 1.7%. Operating income was flat versus prior year, primarily reflecting the cross currency rate movements in the British Pound versus the Euro and U.S. Dollar.

Asia-Pacific
Heinz Asia-Pacific’s sales increased 27.4%, primarily reflecting the impact of acquisitions, which included Golden Circle Limited, a health-oriented fruit and juice business in Australia, and La Bonne Cuisine, a chilled dip business in New Zealand. Favorable exchange translation rates increased sales by 4%. Operating income increased 4.6%. Acquisitions had a favorable impact on operating income dollars but negatively impacted margins.

U.S. Foodservice
Both reported and organic sales of the U.S. Foodservice segment decreased 0.9%, largely reflecting reduced restaurant guest traffic. Operating income increased 15.1% as the foodservice business continued to reduce costs and streamline and simplify its portfolio.

Rest of World
Both reported and organic sales for Rest of World increased 23.3%. Foreign exchange translation rates decreased sales 1%, which was offset by a 1% gain due to acquisitions. Operating income increased 40.1%.

Year-to-Date
In the six months ended October 28, 2009, total Company net income attributable to H.J. Heinz Company was $444 million, or $1.40 per diluted share, compared with $506 million, or $1.58 per diluted share a year ago. On a constant currency, continuing operations basis, sales rose 4.1%, operating income grew 7.8% and EPS increased 12.8%.