Heinz (HNZ)

[DewDiligence]

HNZ Reports FY4Q11 Results and FY2012-2013 Guidance

http://finance.yahoo.com/news/Heinz-Delivers-Strong-Fiscal-bw-649991263.html?x=0&.v=1

›Thursday May 26, 2011, 7:00 am EDT

Heinz Delivers Strong Fiscal 2011 Results with Record Full-Year Sales of $10.7 Billion, Record Total Company Net Income of $990 Million (up 14.4%) and Record Operating Free Cash Flow of $1.26 Billion

Heinz Also Reports Fourth-Quarter Growth of 6% in Sales, 15% in EPS ($0.69) and 16.4% in Net Income; Raises Annualized Dividend 6.7% to $1.92

Fiscal 2011 Full-Year Results

• Sales grew 2.0% to a record of $10.7 billion

• Emerging Markets delivered 14.4% organic sales (volume plus price) growth (12.0% reported)

• Top 15 brands delivered 3.8% organic sales growth (2.9% reported)

• Gross margin increased 70 basis points to 36.9%

• Operating income grew 5.7% to $1.65 billion

• EPS from continuing operations increased 6.6% to $3.06 including a 2 cent cost for closing the Quero acquisition

• Total Company net income grew 14.4% to $990 million

• Record operating free cash flow of $1.26 billion, up 16.7%

• Return on Invested Capital of 19.3%

• On a constant currency continuing operations basis, Heinz grew sales 2.6%, operating income 6.7% and EPS 8.7%

Fiscal 2011 Fourth-Quarter Results

• Sales grew 6% to $2.89 billion

• Emerging Markets delivered 11.5% organic sales growth (21% reported)

• Top 15 brands delivered 2.9% organic sales growth (6.0% reported)

• 24th consecutive quarter of organic sales growth (1.6%)

• Gross margin increased 90 basis points to 36.3%

• Operating income grew 12.2% to $387 million

• EPS grew 15% to $0.69, including 2 cents of costs for closing the Quero acquisition

• Total Company Net income grew 16.4% to $224 million

• On a constant currency basis, sales grew 2.7%, operating income 8.8% and EPS 11.7%


Fiscal 2012/13 Outlook

• Fiscal 2012 constant currency EPS outlook $3.24 to $3.32, excluding the impact of one-time productivity initiatives

• Based on projected currency rates Heinz expects Fiscal 2012 EPS (excluding approximately 35 cents of special items) in the range of $3.29 to $3.39

• Fiscal 2013 constant currency EPS in the range of $3.60 to $3.70, a two-year average growth rate of 8.5% to 10%

• Raising Long-Term EPS outlook to a range of 7% to 10% from previous range of 6% to 9% on a constant currency basis

PITTSBURGH--(BUSINESS WIRE)-- H.J. Heinz Company (NYSE:HNZ) today reported strong fourth-quarter and full-year results for Fiscal 2011, a year in which the Company delivered record sales of $10.7 billion, record total Company net income of $990 million and record operating free cash flow of $1.26 billion while completing key acquisitions in Brazil and China to accelerate its dynamic growth in Emerging Markets. Earnings per share from continuing operations increased 6.6% to $3.06 from $2.87 a year ago. EPS this year included 2 cents of cost related to closing the Quero acquisition in April 2011.

Reflecting the Company’s record performance and cash flow, Heinz today announced that it will raise the annualized common stock dividend by 12 cents to $1.92 per share from $1.80, an increase of 6.7%, effective with the July payment.

Heinz Chairman, President and CEO William R. Johnson said: “Heinz delivered record sales, net income and cash flow in Fiscal 2011, fueled by accelerating growth in key Emerging Markets like China, India, Indonesia and Russia and value-enhancing innovation in our core portfolio of iconic brands. Through excellent execution of our long-term plan, Heinz enhanced its position as one of the best-performing global food companies while driving shareholder value and continued dividend growth.”

Fiscal 2011 Full-Year Financial Results

In the fiscal year ending April 27, 2011, sales grew 2.0% to $10.7 billion, led by 14.4% organic sales growth (12% reported) in Emerging Markets. The Company’s dynamic growth in Emerging Markets reflected record sales of: Heinz® baby food in China, Complan® and Glucon-D® nutritional beverages in India, ABC® soy and chili sauces in Indonesia, and Heinz® Ketchup and baby food in Russia. Emerging Markets generated more than 16% of the Company’s total sales in Fiscal 2011 and accounted for 17% in the fourth quarter.

The Company’s Top 15 brands generated 3.8% organic sales growth (2.9% reported), driven by the Heinz®, ABC®, Complan®, Smart Ones® and T.G.I. Friday’s® brands. Heinz also delivered 3.8% organic growth (1.9% reported) in global ketchup.

Net pricing increased full-year sales by 1.2%, largely due to price increases in Emerging Markets, the U.K. and U.S. Foodservice to partially offset rising commodity costs.

Volume grew 0.7% for the year as strong growth in Emerging Markets and solid growth in North American Consumer Products were partially offset by lower volume in Australia, U.S. Foodservice and Germany.

Acquisitions, net of divestitures, increased sales by 0.6%. These results did not include the Brazil acquisition, whose results will be reflected beginning in Fiscal 2012. In April 2011, Heinz acquired an 80% stake in the Brazilian manufacturer of Quero, a leading brand of tomato-based sauces, ketchup and vegetables with annual sales of about $325 million. Quero gives Heinz its first major business in Brazil, a key Emerging Market with the world’s fifth-largest population. In November 2010, Heinz expanded in China by acquiring Foodstar, a leading maker of premium soy sauce and fermented bean curd with annual sales of almost $100 million.

Foreign exchange translation rates reduced sales by 0.5% compared with the prior year.

Gross profit grew 4.2% to $3.95 billion and gross margin improved by 70 basis points to 36.9%, led by strong margin improvement in U.S. Foodservice and Europe. The increase in gross margin reflected higher volume and net pricing and improved productivity, which more than offset commodity inflation. SG&A increased 3.1%, primarily reflecting costs related to the Brazil acquisition and global investments in process and systems upgrades through Project Keystone.

Operating income increased 5.7% to $1.65 billion. Net interest expense was little changed at $253 million. The effective full-year tax rate for Fiscal 2011 was 26.8% versus 27.8% last year. Total Company net income increased 14.4% to a record $990 million, or $3.06 per share.

On a constant currency continuing operations basis, sales grew 2.6%, operating income rose 6.7% and EPS increased 8.7%. The Company’s return on invested capital rose to 19.3%.

Fiscal 2011 Fourth Quarter Results

Fourth quarter Heinz sales grew 6% to $2.89 billion, led by 11.5% organic growth in Emerging Markets (reported 21%) and 2.9% organic growth in the Company’s Top 15 brands (6.0% reported). Heinz achieved its 24th consecutive quarter of organic sales growth. Heinz had organic sales growth of 1.6% (6.0% reported) reflecting higher net pricing of 1.9%. Volume dipped 0.3% in the quarter. Foreign exchange increased sales 3.3% and acquisitions increased sales 1.1%.

Operating income for the quarter grew 12.2% to $387 million. The tax rate for the fourth quarter was 29.3% versus 30.4% a year ago. Total Company net income grew 16.4% to $224 million. Earnings per share grew 15% to $0.69 including Brazil acquisition costs of two cents.

On a constant currency basis in the fourth quarter, sales grew 2.7%, operating income increased 8.8% and EPS rose 11.7%.

Fiscal 2012/2013 Outlook and Productivity Initiatives

Heinz today announced its two-year outlook, including plans to drive sustainable profitable growth.

Fiscal 2012 Outlook

Mr. Johnson said: “To provide fuel for future growth, the Company will invest approximately $160 million – 35 cents of EPS – on initiatives to increase our manufacturing efficiency and accelerate productivity on a global scale.”

The plan includes exiting five factories, including two in Europe, two in the United States, and one in the Pacific, leaving Heinz with 76 factories globally. In addition, Heinz will establish a European supply chain hub in The Netherlands to consolidate and centrally lead procurement, manufacturing, logistics and inventory control. Overall, Heinz will streamline its global workforce by approximately 800 to 1,000 positions. Certain projects included in the plan are subject to consultation and any necessary agreements being reached with appropriate employee representative bodies, trade unions and works councils as required by law.

In Fiscal 2012, Heinz is also accelerating investment in Project Keystone, its ongoing global initiative to improve productivity and make Heinz more competitive by adding capabilities, harmonizing global processes and standardizing its systems through SAP. Heinz expects an incremental cost of approximately $40 million, or 8 cents per share, for Keystone expenses during Fiscal 2012, which are included in the Company’s constant currency outlook.

Excluding the cost of its one-time productivity initiatives, but including the higher costs of Keystone, Heinz expects Fiscal 2012 constant currency earnings per share in the range of $3.24 to $3.32. The Company expects reported EPS in Fiscal 2012 of $3.29 to $3.39 based on projected foreign exchange rates and excluding approximately 35 cents of productivity investments.

Heinz also expects strong operating free cash flow for Fiscal 2012 of approximately $1.15 billion, before special items as the Company increases its capital spending behind new growth and capacity initiatives. On a reported basis, operating free cash flow is still expected to exceed $1 billion.

The Company also expects Emerging Markets to generate more than 20% of the Company’s total sales in Fiscal 2012, reflecting double-digit organic growth and the acquisitions of Quero and Foodstar.

Fiscal 2013 Outlook

In Fiscal 2013, Heinz expects to deliver constant currency earnings per share in the range of $3.60 to $3.70, fueled by its productivity investments this year. This would represent a two-year average growth rate of 8.5% to 10% on a constant currency basis.

The Company today raised its long-term constant currency outlook for EPS growth to a range of 7% to 10% from a previous range of 6% to 9%.

FISCAL 2011 FULL-YEAR SEGMENT HIGHLIGHTS

North American Consumer Products

Sales of the North American Consumer Products segment grew 2.3% to $3.27 billion. Volume increased 2.0% as new products and trade promotions helped drive Heinz® Ketchup and gravy, Smart Ones® frozen entrees, Classico® pasta sauces, Ore-Ida® frozen potatoes and T.G.I Friday’s® frozen meals and appetizers. The segment delivered volume growth despite transitioning away from the Boston Market license, which should be completed in the first quarter of Fiscal 2012. Net prices decreased 1.1%, reflecting the Company’s decision to increase trade promotions. Favorable Canadian exchange translation rates increased sales 1.1%. Operating income increased 7.9% to $833 million.

Europe

Heinz Europe sales decreased 2.9% to $3.24 billion. Foreign currency translation rates of 3.5% accounted for more than the total decline as organic sales grew 0.6%. Volume declined 0.4%, as gains in Weight Watchers® and Aunt Bessies® frozen products in the U.K., beverages in The Netherlands, and ketchup, particularly in Russia and France, were more than offset by lower soup volume in the U.K. and Germany, Honig® branded products in The Netherlands and infant nutrition across Europe. Net pricing increased 1.0%. Operating income increased 4.8% to $581 million. On a constant currency basis, operating income grew 9.0%.

Asia/Pacific

Heinz Asia/Pacific sales grew 15.6% to $2.32 billion, driven by higher volume. Volume increased 4.8%, due to significant growth in Complan® and Glucon-D® nutritional beverages in India, ABC® products in Indonesia, and infant feeding and frozen products in China and Japan. Theses increases were partially offset by continued softness in Australia. Pricing rose 0.2%. The acquisition of Foodstar in the third quarter of Fiscal 2011 increased sales 2.9%. Favorable exchange translation rates increased sales by 7.7%. Operating income increased 13.5% to $222 million, up 4.7% on a constant currency basis.

U.S. Foodservice

Sales of the U.S. Foodservice segment decreased 1.1% to $1.41 billion. Pricing increased sales 2.3%, largely due to Heinz® Ketchup and other branded tomato products, reflecting reduced trade promotions, and price increases taken to help offset commodity inflation. Volume was down 3.5%, reflecting declines in frozen desserts, soup and non-branded sauces, and ongoing weakness in restaurant traffic. Operating income increased 16.8%, to $176 million.

Rest of World

Sales for Rest of World decreased 11.9% to $470 million as foreign exchange translation rates decreased sales by 24.6%, largely due to the currency devaluation in Venezuela in January 2010. Higher pricing increased sales by 17.2%, fueled by price increases in Latin America and other markets to mitigate inflation. Volume decreased 4.5% as increases in the Middle East were more than offset by the impact of a work stoppage at our factory in Venezuela. Operating income decreased 22.9% to $53 million, but was up 4.7% on a constant currency basis. Importantly, fiscal year results do not include any operating results from the Quero acquisition in order to facilitate timely financial reporting.

MEETING WITH SECURITIES ANALYSTS – INTERNET BROADCASTS

Heinz will host its 2011 Investor and Analyst Meeting today starting at 8:30 a.m. Eastern Time. The meeting will be Webcast live on www.heinz.com and will be archived for playback. Questions will be taken from audience members only. Institutional investors and analysts can also call 866-515-2914 in the U.S. and Canada. Slides will be available for this call on www.heinz.com. The conference call will be hosted by William R. Johnson, Chairman, President and CEO.‹