HJ Heinz Q2 Profit Declines 16%; Boosts FY10 EPS Outlook - Update
(RTTNews) - Packaged foods company H. J. Heinz Co. (HNZ | Quote | Chart | News | PowerRating) on Tuesday reported a 16% decline in profit for the second quarter as the year-ago quarter's results were boosted by a currency hedge gain.
The latest quarter's results also reflect a one-time loss on the sale of a small non-core business in the US Foodservice segment However, sales for the quarter increased 2.5% and topped analysts' consensus estimate. Looking ahead, the company raised its outlook for earnings from continuing operations for fiscal year 2010.
Like most packaged food companies, the economic downturn has benefited Heinz as consumers started eating at home more often than going to restaurants to save money. However, the company's profitability is challenged by fluctuating price of ingredients as well as a stronger dollar as it does much of its business overseas.
Second-Quarter Results
Pittsburgh, Pennsylvania-based Heinz reported net income of $231.44 million or $0.73 per share for the second quarter, lower than $276.71 million or $0.87 per share in the prior-year quarter. On average, thirteen analysts polled by Thomson Reuters expected the company to report earnings of $0.70 per share for the second quarter. Analysts' estimates typically exclude special items.
According to the maker of Heinz ketchup, Weight Watchers meals and Ore-Ida french fries, the latest quarter's results reflect 11.7% organic sales growth in emerging markets, higher sales of its Top 15 brands and carryover pricing from the prior year.
The latest quarter's results include a one-time loss of $10.9 million after-tax on sale of the company's Kabobs frozen hors d'oeuvres business within the U.S. Foodservice segment, which was recorded in discontinued operations. Heinz noted that the sale of the business is not expected to have a material impact on the company's future profitability.
Net income from continuing operations attributable to common shareholders for the second quarter was $0.76 per share, down from $0.86 per share in the year-ago quarter. The decline in earnings was due to a currency hedge gain of $0.18 per share in the prior-year quarter.
Sales for the second quarter increased 2.5% to $2.67 billion from $2.61 billion in the same quarter last year, and topped analysts' consensus revenue estimate of $2.63 billion.
The increase in sales was led by double-digit organic growth in emerging markets and acquisitions, despite a 1% unfavorable impact of foreign currency. The 11.7% increase in organic sales growth for the quarter was driven by the company's strong growth in emerging markets, led by pricing and higher sales of nutritional beverages in India, and ketchup and baby food in both Latin America and Russia.
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 for the quarter improved 4.6%, reflecting the carryover impact of pricing from the second half of fiscal 2009. This more than offset a 4.1% decline in volume.
William Johnson, Chairman, President and CEO of Heinz 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."
Peer Performance
Camden, New Jersey-based Campbell Soup Co. (CPB | Quote | Chart | News | PowerRating) on Monday reported an increase in profit for the first quarter, reflecting improved gross margins as well as lower costs and expenses. The company's net income for the first quarter was $304 million or $0.87 per share, compared to $260 million or $0.70 per share in the year-ago quarter. Meanwhile, net sales for the quarter declined 2% to $2.20 billion from $2.25 billion in the previous-year quarter.
In late September, Omaha, Nebraska-based ConAgra Foods, Inc. (CAG | Quote | Chart | News | PowerRating) reported a 63% plunge in profit for the first quarter, mainly on the absence of prior year's divestiture gain. The company's net income for the quarter was $165.9 million or $0.37 per share, lower than $442.4 million or $0.94 per share in the prior-year period. Net sales for the quarter decreased 3.1% to $2.96 billion from $3.06 billion a year ago.
Other Metrics
Heinz's net input costs for the second quarter rose 4% as lower energy costs were more than offset by higher costs largely for tomatoes, potatoes and tinplate, and the continuing impact of currency cross rates.
Gross profit for the latest quarter increased to $957.39 million from $918.59 million in the prior-year quarter. Gross margin rose 60 basis points from last year to 35.8%, reflecting improved pricing and productivity, partially offset by higher commodity costs. Selling, general and administrative expenses for the quarter were $549.12 million, up from $533.34 million in the year-ago quarter.
The company's operating income for the second quarter increased 6% to $408.27 million from $385.25 million in the comparable quarter a year ago, reflecting carryover pricing, improved productivity and disciplined cost management.
The company recorded other expenses of $9.63 million during the latest quarter, compared to other income of $82.33 million a year ago.
Loss from discontinued operations for the latest quarter was $11.54 million, compared to income from discontinued operations of $0.68 million in the prior-year quarter.
Segmental Details
Product-wise, sales of ketchup and sauces during the quarter totaled $1.11 billion, up from $1.08 billion in the year-ago quarter, while sales of meals and snacks dropped to $1.13 billion from $1.17 billion in the prior-year quarter. Sales of infant/nutrition products increased to $291.57 million from $267.97 million a year ago. Other product sales were $139.88 million, higher than $93.22 million in the comparable quarter a year ago.
Segment-wise, North American consumer products sales declined 4.3% from the year-ago quarter to $791.51 million, with organic sales down 4.7%. Sales were impacted by the timing of pricing actions at the end of the year-ago quarter. Segment operating income grew 4.9% from the prior-year quarter to $200.87 million due to pricing, productivity and lower fuel costs.
Heinz Europe sales totaled $858.53 million, down 3.3% from the prior-year quarter due to unfavorable foreign exchange translation rates of 5.1%. Organic sales in Europe increased 1.7%. Operating income was flat with the year-ago quarter at $134 million, reflecting the cross currency rate movements in the British Pound versus the Euro and U.S. Dollar.
Sales for Heinz Asia/Pacific surged 27.4% from the comparable quarter a year ago to $491.96 million, 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. However, the acquisitions negatively impacted margins. Favorable exchange translation rates increased sales by 4%. The segment's operating income for the quarter increased 4.6% to $53.04 million.
Meanwhile, sales for U.S. Foodservice declined 0.9% from the same quarter last year to $381.98 million, largely reflecting reduced restaurant guest traffic. Organic sales also decreased 0.9%. Operating income climbed 15.1% from a year ago to $43.41 million, helped by lower costs.
Sales for Rest of World climbed 23.3% from the prior-year quarter to $148.17 million. Foreign exchange translation rates decreased sales by 1%, but was offset by a 1% gain due to acquisitions. The segment's operating income surged 40.1% from the year-ago period to $20.87 million.
Year-To-Date Results
For the six-month period, Heinz reported a decline in net income to $444.00 million or $1.40 per share from $505.67 million or $1.58 per share in the prior-year period.
Sales for the half year decreased to $5.14 billion from $5.19 billion in the same period last year.
Outlook
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 with 580 employees. The transaction will result in a pre-tax loss of $33 million during the third quarter, which will be recorded in discontinued operations.
For fiscal year 2010, Heinz raised its outlook for earnings from continuing operations to a range of $2.72-$2.82 per share from the prior range of $2.60-$2.70 per share. Analysts expect the company to report earnings of $2.75 per share for the year.
The company cited 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 for raising its earnings outlook for the full year. The company said it expects solid volume growth in the second half of the year, fueled by significant increases in marketing, consumer-driven innovation and brand support initiatives underway.
Heinz also raised its outlook for operating free cash flow for the year to approximately $1 billion from the prior range of $850 million-$900 million.
Stock Quotes
In Tuesday's regular trading session, HNZ is trading at $43.06, down $0.11 or 0.25%. In the past 52 weeks, the stock has been trading in a range of $30.51-$43.44.
For comments and feedback: contact editorial@rttnews.com
Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved
The latest quarter's results also reflect a one-time loss on the sale of a small non-core business in the US Foodservice segment However, sales for the quarter increased 2.5% and topped analysts' consensus estimate. Looking ahead, the company raised its outlook for earnings from continuing operations for fiscal year 2010.
Like most packaged food companies, the economic downturn has benefited Heinz as consumers started eating at home more often than going to restaurants to save money. However, the company's profitability is challenged by fluctuating price of ingredients as well as a stronger dollar as it does much of its business overseas.
Second-Quarter Results
Pittsburgh, Pennsylvania-based Heinz reported net income of $231.44 million or $0.73 per share for the second quarter, lower than $276.71 million or $0.87 per share in the prior-year quarter. On average, thirteen analysts polled by Thomson Reuters expected the company to report earnings of $0.70 per share for the second quarter. Analysts' estimates typically exclude special items.
According to the maker of Heinz ketchup, Weight Watchers meals and Ore-Ida french fries, the latest quarter's results reflect 11.7% organic sales growth in emerging markets, higher sales of its Top 15 brands and carryover pricing from the prior year.
The latest quarter's results include a one-time loss of $10.9 million after-tax on sale of the company's Kabobs frozen hors d'oeuvres business within the U.S. Foodservice segment, which was recorded in discontinued operations. Heinz noted that the sale of the business is not expected to have a material impact on the company's future profitability.
Net income from continuing operations attributable to common shareholders for the second quarter was $0.76 per share, down from $0.86 per share in the year-ago quarter. The decline in earnings was due to a currency hedge gain of $0.18 per share in the prior-year quarter.
Sales for the second quarter increased 2.5% to $2.67 billion from $2.61 billion in the same quarter last year, and topped analysts' consensus revenue estimate of $2.63 billion.
The increase in sales was led by double-digit organic growth in emerging markets and acquisitions, despite a 1% unfavorable impact of foreign currency. The 11.7% increase in organic sales growth for the quarter was driven by the company's strong growth in emerging markets, led by pricing and higher sales of nutritional beverages in India, and ketchup and baby food in both Latin America and Russia.
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 for the quarter improved 4.6%, reflecting the carryover impact of pricing from the second half of fiscal 2009. This more than offset a 4.1% decline in volume.
William Johnson, Chairman, President and CEO of Heinz 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."
Peer Performance
Camden, New Jersey-based Campbell Soup Co. (CPB | Quote | Chart | News | PowerRating) on Monday reported an increase in profit for the first quarter, reflecting improved gross margins as well as lower costs and expenses. The company's net income for the first quarter was $304 million or $0.87 per share, compared to $260 million or $0.70 per share in the year-ago quarter. Meanwhile, net sales for the quarter declined 2% to $2.20 billion from $2.25 billion in the previous-year quarter.
In late September, Omaha, Nebraska-based ConAgra Foods, Inc. (CAG | Quote | Chart | News | PowerRating) reported a 63% plunge in profit for the first quarter, mainly on the absence of prior year's divestiture gain. The company's net income for the quarter was $165.9 million or $0.37 per share, lower than $442.4 million or $0.94 per share in the prior-year period. Net sales for the quarter decreased 3.1% to $2.96 billion from $3.06 billion a year ago.
Other Metrics
Heinz's net input costs for the second quarter rose 4% as lower energy costs were more than offset by higher costs largely for tomatoes, potatoes and tinplate, and the continuing impact of currency cross rates.
Gross profit for the latest quarter increased to $957.39 million from $918.59 million in the prior-year quarter. Gross margin rose 60 basis points from last year to 35.8%, reflecting improved pricing and productivity, partially offset by higher commodity costs. Selling, general and administrative expenses for the quarter were $549.12 million, up from $533.34 million in the year-ago quarter.
The company's operating income for the second quarter increased 6% to $408.27 million from $385.25 million in the comparable quarter a year ago, reflecting carryover pricing, improved productivity and disciplined cost management.
The company recorded other expenses of $9.63 million during the latest quarter, compared to other income of $82.33 million a year ago.
Loss from discontinued operations for the latest quarter was $11.54 million, compared to income from discontinued operations of $0.68 million in the prior-year quarter.
Segmental Details
Product-wise, sales of ketchup and sauces during the quarter totaled $1.11 billion, up from $1.08 billion in the year-ago quarter, while sales of meals and snacks dropped to $1.13 billion from $1.17 billion in the prior-year quarter. Sales of infant/nutrition products increased to $291.57 million from $267.97 million a year ago. Other product sales were $139.88 million, higher than $93.22 million in the comparable quarter a year ago.
Segment-wise, North American consumer products sales declined 4.3% from the year-ago quarter to $791.51 million, with organic sales down 4.7%. Sales were impacted by the timing of pricing actions at the end of the year-ago quarter. Segment operating income grew 4.9% from the prior-year quarter to $200.87 million due to pricing, productivity and lower fuel costs.
Heinz Europe sales totaled $858.53 million, down 3.3% from the prior-year quarter due to unfavorable foreign exchange translation rates of 5.1%. Organic sales in Europe increased 1.7%. Operating income was flat with the year-ago quarter at $134 million, reflecting the cross currency rate movements in the British Pound versus the Euro and U.S. Dollar.
Sales for Heinz Asia/Pacific surged 27.4% from the comparable quarter a year ago to $491.96 million, 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. However, the acquisitions negatively impacted margins. Favorable exchange translation rates increased sales by 4%. The segment's operating income for the quarter increased 4.6% to $53.04 million.
Meanwhile, sales for U.S. Foodservice declined 0.9% from the same quarter last year to $381.98 million, largely reflecting reduced restaurant guest traffic. Organic sales also decreased 0.9%. Operating income climbed 15.1% from a year ago to $43.41 million, helped by lower costs.
Sales for Rest of World climbed 23.3% from the prior-year quarter to $148.17 million. Foreign exchange translation rates decreased sales by 1%, but was offset by a 1% gain due to acquisitions. The segment's operating income surged 40.1% from the year-ago period to $20.87 million.
Year-To-Date Results
For the six-month period, Heinz reported a decline in net income to $444.00 million or $1.40 per share from $505.67 million or $1.58 per share in the prior-year period.
Sales for the half year decreased to $5.14 billion from $5.19 billion in the same period last year.
Outlook
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 with 580 employees. The transaction will result in a pre-tax loss of $33 million during the third quarter, which will be recorded in discontinued operations.
For fiscal year 2010, Heinz raised its outlook for earnings from continuing operations to a range of $2.72-$2.82 per share from the prior range of $2.60-$2.70 per share. Analysts expect the company to report earnings of $2.75 per share for the year.
The company cited 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 for raising its earnings outlook for the full year. The company said it expects solid volume growth in the second half of the year, fueled by significant increases in marketing, consumer-driven innovation and brand support initiatives underway.
Heinz also raised its outlook for operating free cash flow for the year to approximately $1 billion from the prior range of $850 million-$900 million.
Stock Quotes
In Tuesday's regular trading session, HNZ is trading at $43.06, down $0.11 or 0.25%. In the past 52 weeks, the stock has been trading in a range of $30.51-$43.44.
For comments and feedback: contact editorial@rttnews.com
Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved
For full details on H.J. Heinz Co (HNZ) HNZ. H.J. Heinz Co (HNZ) has Short Term PowerRatings at TradingMarkets. Details on H.J. Heinz Co (HNZ) Short Term PowerRatings is available at This Link.
For full details on Campbell Soup Co (CPB) CPB. Campbell Soup Co (CPB) has Short Term PowerRatings at TradingMarkets. Details on Campbell Soup Co (CPB) Short Term PowerRatings is available at This Link.
For full details on Conagra Foods (CAG) CAG. Conagra Foods (CAG) has Short Term PowerRatings at TradingMarkets. Details on Conagra Foods (CAG) Short Term PowerRatings is available at This Link.
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