Exhibit 99.1
News Release
[HEINZ LOGO]
FOR RELEASE UPON RECEIPT
HEINZ REPORTS SECOND QUARTER INCOME FROM CONTINUING OPERATIONS OF $191.5 MILLION
OR 54 CENTS PER SHARE VS. $168.5 MILLION OR 48 CENTS PER SHARE IN THE PRIOR YEAR
- - EPS FOR THE SECOND QUARTER OF 54 CENTS PER SHARE FROM CONTINUING
OPERATIONS, EXCLUDING SPECIAL ITEMS, UP 8% OVER PRIOR YEAR;
- - VOLUME GROWS 1.6% IN THE SECOND QUARTER AND GROWS 1.9% THROUGH THE FIRST
HALF OF FISCAL 2004;
- - IMPROVED SALES MIX, SKU REDUCTION AND PRODUCTIVITY IMPROVEMENTS HELP
INCREASE GROSS MARGINS 150 BASIS POINTS TO 37.4% IN THE SECOND QUARTER.
PITTSBURGH, November 25, 2003 - H.J. Heinz Company (NYSE: HNZ) today announced
results for the second quarter ended October 29, 2003. Heinz reported net income
of $191.5 million, or $0.54 per diluted share, for the period. This compares
with the following results for the prior year:
- - On a fully reported total company basis, Heinz's current-quarter EPS of
$0.54 compares with prior-year earnings of $212.1 million, or $0.60 per
diluted share, which included earnings from discontinued operations ($43.5
million, or $0.12 per share) that were spun off and merged with Del Monte
Corporation in December 2002.
- - On a continuing operations basis, without the profits associated with the
spun-off business units, the current quarter diluted EPS of $0.54 is a 13%
increase over the earnings of $168.5 million, or $0.48 per diluted share,
from continuing operations in the prior-year period.
- - For continuing operations excluding special items recorded in Fiscal 2003,
Heinz's current quarter diluted EPS of $0.54 is an 8% increase over the EPS
of $0.50 for these operations in the year-earlier quarter. (Comments that
follow refer to the results of continuing operations, excluding special
items. See attached tables for further details, including reconciliation of
non-GAAP financial measures.)
Commenting on the second quarter, H.J. Heinz Company Chairman,
President and CEO William R. Johnson said: "We are pleased with Heinz's results
for the second quarter, and the company's performance continues to confirm our
confidence in the target ranges we set for EPS, Net Sales and Operating Free
Cash Flow (cash flow from operations less capital expenditures) in Fiscal 2004.
We saw continued volume, margin and operating income growth in the second
quarter, reflecting the improved focus of our international portfolio and strong
performances by Heinz(R) Ketchup and our leading sauces brands, our U.S.
Foodservice, European seafood and rapidly growing Asia Pacific businesses. We
are particularly pleased with the margin performance in Asia Pacific, where the
operating income margin increased more than 300 basis points.
"We continued to reduce Working Capital, especially accounts receivable
and inventories, driving improvement in our Cash Conversion Cycle 8 days versus
the second quarter last year. Net debt (total debt, net of the value of interest
rate swaps, less cash and cash equivalents) also continued to decline and our
Operating Free Cash Flow remained strong and in line with our Fiscal 2004
target. We
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achieved all of this even as we continued to improve our business mix with
strategic divestitures. Looking forward, we remain focused on increasing sales,
cash and earnings, which we are successfully driving through the previously
announced Four Strategic Imperatives of driving profitable growth, removing
clutter, squeezing out costs, and measuring and recognizing performance."
Second quarter sales excluding divestitures, net of acquisitions,
increased 7.7%, reflecting volume growth of 1.6% and favorable foreign exchange
translation rates of 6.0%. Divestitures, net of acquisitions, had a negative
impact on sales of 8.1%, causing overall sales for the quarter to decline 0.4%
to $2.09 billion.
Heinz's Gross Profit Margin was 37.4% in the quarter, an increase of
150 basis points over the year-ago period. This improvement reflects the
company's progress in reducing less-profitable SKU's and improving sales mix and
productivity, especially in developing markets. Operating income grew more than
2% and was favorably leveraged to 9% growth in income from continuing operations
through lower interest costs, reduced minority interest expense and a favorable
effective tax rate.
EPS from discontinued operations was $0.12 per share in the
year-earlier quarter. (On December 20, 2002, Heinz completed the transaction by
which it spun off its U.S. and Canadian pet food, U.S. tuna and retail private
label soup, and U.S. infant feeding businesses to its shareholders and then
merged these businesses with Del Monte Corporation, a subsidiary of Del Monte
Foods Company, NYSE:DLM. The results of the spun-off businesses have been
accounted for as discontinued operations.)
SECOND QUARTER SEGMENT HIGHLIGHTS
NORTH AMERICAN CONSUMER PRODUCTS
North American Consumer Products saw strong performances by Heinz(R)
Ketchup, EZ Marinader(R) marinading pouches and Classico(R) pasta sauces. These
gains were offset by declines in several frozen brands and the continuing
process of rationalizing Boston Market(R) side dishes and Hot Bites(R) frozen
snacks. Excluding divestitures, sales for the unit were down 1% versus the
prior-year period. Lower pricing decreased sales by 2.9%, consistent with
Heinz's Every Day Low Pricing strategy. This decrease was largely offset by
favorable Canadian currency translation rates.
Operating income decreased $1.4 million, or 1.1%, to $126.5 million, as
manufacturing cost savings and decreased consumer marketing expenses related to
Boston Market(R) frozen entrees and the prior-year launch of Heinz(R) Easy
Squeeze!(TM) upside-down Ketchup were offset by lower net pricing. The company
expects similar performance in the third quarter with several previously
announced new product innovations such as Ore-Ida(R) Extra Crispy french fries
and a new line of Smart Ones(R) frozen entrees for carbohydrate-conscious
consumers slated for introduction in the fourth quarter.
HEINZ U.S. FOODSERVICE
Heinz U.S. Foodservice's sales increased $29.3 million, or 8.6%,
reflecting growth in Heinz(R) Ketchup, single-serve condiments, Escalon(R)
processed tomato products and Dianne's(R) frozen desserts. The introduction of
several innovative new products such as Fry Shakers, Stand-Up Premium Pouches
for condiments and jellies, and a restaurant line of Heinz's Delimex(R) Taquitos
helped drive foodservice sales growth. Acquisitions, net of divestitures,
increased sales 4.5%, mainly due to the acquisition of Truesoups LLC, a
manufacturer and marketer of premium frozen soups.
Operating income increased $0.6 million, or 1.1%, to $57.5 million,
primarily due to strong growth in sales and improved gross margins, partially
offset by the timing of SG&A costs and investment in infrastructure.
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EUROPE
Heinz Europe's sales increased $60.5 million, or 8.5%, driven by higher
volumes for John West(R) and Petit Navire(R) seafood, Heinz(R) Salad Cream and
convenience meals, and favorable foreign exchange translation rates. Heinz(R)
Ketchup in the U.K. increased its value share to nearly 76%, almost 3 share
points higher than a year ago, while Heinz(R) Salad Cream increased its share
4.7 points to more than 78% while driving category growth of nearly 8%. The "Win
A House" promotion in the U.K. helped drive 6% volume growth for the core
Heinz(R) soups and beans business during the second quarter.
Overall volume in Europe increased 1.5%, led by good performance in the
U.K. and Western Europe. European volume gains were partially offset by
decreases in infant feeding and frozen food products, and the previously
announced SKU rationalization of low-margin products. Divestitures reduced sales
2.3%, primarily related to the sale of the U.K. frozen pizza business and the
Northern European bakery business.
Operating income increased $10.5 million, or 7.8%, to $144.7 million,
mostly attributable to favorable exchange translation rates and improved Gross
Profit Margin, partially offset by increased General & Administrative expense,
mainly related to increased pension expense.
ASIA PACIFIC
Asia Pacific had another very strong quarter, with sales up $64.6
million, or 23.9%. This was driven by a 6.2% increase in volume and by strong
foreign exchange translation rates across the region. Tegel(R) poultry in New
Zealand continued to perform well, while Australia achieved double-digit volume
growth for the quarter in its leading Heinz(R) sauces and convenience meals and
Greenseas(R) tuna. Indonesia's ABC(R) branded soy sauces and juice concentrates
delivered strong double-digit sales growth and benefited from holiday promotions
that came earlier than last year. New products and packaging also added to
volume growth. Divestitures decreased sales by 0.7%.
Operating income increased $16.9 million, or 62.8%, to $43.7 million,
primarily due to strong volume growth, holiday timing in Indonesia, increased
net pricing and manufacturing cost improvements in Australia and New Zealand, as
well as favorable exchange translation rates.
YEAR TO DATE HIGHLIGHTS
Heinz reported income from continuing operations of $371.3 million in
the six months ended October 29, 2003, up 8.7% compared to $341.4 million for
the year-earlier period (excluding the adoption of SFAS No. 142). Diluted
earnings per share from continuing operations were $1.05 for the period, an 8.2%
increase over $0.97 in the prior year (excluding the adoption of SFAS No. 142).
Sales increased 1.2% for the six-month period, driven by strong volume
increases of 1.9%, at the top end of the company's 1-2% target range. Gross
profit increased 4.7% and the Gross Profit Margin was 37.4%, up 120 basis points
versus the prior year. Operating income increased $23.3 million, or 3.6%.
The company's balance sheet and cash management showed significant
improvement compared to the first half of Fiscal 2003. The Cash Conversion Cycle
improved 11 days during the first half of the year compared to the prior-year
period, and operating free cash flow improved 18.4% to $418 million.
# #
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MEETING WITH SECURITIES ANALYSTS - INTERNET BROADCASTS
Heinz will host a conference call with security analysts today at 8:30 a.m.
(Eastern time). The call will be webcast live on www.heinz.com and will be
archived for playback beginning at 2 p.m. The call is available live via
conference call at 1-800-659-6183 (listen only). It will be hosted by William R.
Johnson, Chairman, President & CEO, Art Winkleblack, Executive Vice President
and Chief Financial Officer; Casey Keller, Chief Growth Officer; Jack Runkel,
Vice President - Investor Relations; and Edward J. McMenamin, Vice President -
Finance.
# #
SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS:
This press release contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect management's view of future
events and financial performance. These statements are subject to risks,
uncertainties, assumptions and other important factors, many of which may be
beyond Heinz's control and could cause actual results to differ materially from
those expressed or implied in these forward-looking statements. Uncertainties
contained in such statements include, but are not limited to, sales, earnings,
and volume growth, general economic, political, and industry conditions,
competitive conditions, production, energy and raw material costs, the ability
to maintain favorable supplier relationships, achieving cost savings programs
and gross margins, currency valuations and interest rate fluctuations, success
of acquisitions, joint ventures, and divestitures, new product and packaging
innovations, the effectiveness of advertising, marketing, and promotional
programs, supply chain efficiency and cash flow initiatives, the impact of
e-commerce and e-procurement, risks inherent in litigation and international
operations, particularly the performance of business in hyperinflationary
environments, changes in estimates in critical accounting judgments, the
possibility of increased pension expense and contributions, and other factors
described in "Cautionary Statement Relevant to Forward-Looking Information" in
the Company's Form 10-K for the fiscal year ended April 30, 2003, and the
Company's subsequent filings with the Securities and Exchange Commission. The
forward-looking statements are and will be based on management's then current
views and assumptions regarding future events and speak only as of their dates.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by the securities laws.
# #
ABOUT HEINZ: H.J. Heinz Company is one of the world's leading producers and
marketers of branded foods in ketchup, condiments, sauces, meals, soups,
seafood, snacks and infant foods. Heinz is a global family of leading brands,
including Heinz(R) Ketchup, sauces, soups, beans, pasta and infant foods
(representing nearly one-third of total sales), Ore-Ida(R) french fries, Boston
Market(R) and Smart Ones(R) meals and Plasmon(R) baby food. Heinz's 50 companies
have number-one or number-two brands in 200 countries, showcased by Heinz(R)
Ketchup, the world's favorite ketchup. Information on Heinz is available at
www.heinz.com/news.
# # #
CONTACT: Media:
-----
Ted Smyth, 412-456-5780;
Debbie Foster, 412-456-5778;
Jack Kennedy, 412-456-5923;
OR Investors:
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Jack Runkel, 412-456-6034
5
H. J. HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Second Quarter Ended Six Months Ended
----------------------------------- -----------------------------------
October 29, 2003 October 30, 2002 October 29, 2003 October 30, 2002
FY2004 FY2003 FY2004 FY2003
----------- ----------- ----------- -----------
Sales $ 2,090,461 $ 2,099,170 $ 3,985,985 $ 3,938,484
Cost of products sold 1,309,243 1,348,191 2,497,691 2,514,826
----------- ----------- ----------- -----------
Gross profit 781,218 750,979 1,488,294 1,423,658
Selling, general and
administrative expenses 432,183 419,955 790,183 796,737
----------- ----------- ----------- -----------
Operating income 349,035 331,024 698,111 626,921
6,392
Interest income 4,548 6,392 10,313 12,615
Interest expense 54,292 54,602 106,529 106,455
Other expense, net (12,945) (21,797) (29,924) (34,982)
----------- ----------- ----------- -----------
Income from continuing operations before
income taxes and effect of change in
accounting principle 286,346 261,017 571,971 498,099
Provision for income taxes 94,859 92,480 193,659 175,190
----------- ----------- ----------- -----------
Income from continuing operations before
effect of change in accounting principle 191,487 168,537 378,312 322,909
Income from discontinued operations, net of tax -- 43,545 27,200 66,968
----------- ----------- ----------- -----------
Income before effect of change in
accounting principle 191,487 212,082 405,512 389,877
Effect of change in accounting principle -- -- -- (77,812)
----------- ----------- ----------- -----------
Net income $ 191,487 $ 212,082 $ 405,512 $ 312,065
=========== =========== =========== ===========
Income per common share - Diluted
Continuing operations $ 0.54 $ 0.48 $ 1.07 $ 0.91
Discontinued operations -- 0.12 0.08 0.19
Effect of change in accounting principle -- -- -- (0.22)
----------- ----------- ----------- -----------
Net Income $ 0.54 $ 0.60 $ 1.14 $ 0.88
=========== =========== =========== ===========
Average common shares
outstanding - diluted 354,258 353,438 354,258 353,438
=========== =========== =========== ===========
Income per common share - Basic
Continuing operations $ 0.54 $ 0.48 $ 1.08 $ 0.92
Discontinued operations -- 0.12 0.08 0.19
Effect of change in accounting principle -- -- -- (0.22)
----------- ----------- ----------- -----------
Net Income $ 0.54 $ 0.60 $ 1.15 $ 0.89
=========== =========== =========== ===========
Average common shares
outstanding - basic 351,805 351,121 351,805 351,121
=========== =========== =========== ===========
Cash dividends per share $ 0.2700 $ 0.4050 $ 0.5400 $ 0.8100
=========== =========== =========== ===========
Note: Fiscals 2004 and 2003 include special items.
(Totals may not add due to rounding)
6
H. J. HEINZ COMPANY AND SUBSIDIARIES
SEGMENT DATA
Second Quarter Ended Six Months Ended
----------------------------------- -----------------------------------
October 29, 2003 October 30, 2002 October 29, 2003 October 30, 2002
FY2004 FY2003 FY2004 FY2003
----------- ----------- ----------- -----------
Net external sales:
North American Consumer Products $ 521,882 $ 551,644 $ 972,660 $ 1,005,789
U.S. Foodservice 371,892 342,588 703,109 650,316
Europe 774,651 714,175 1,509,804 1,387,573
Asia/Pacific 334,769 270,152 624,776 507,392
Other Operating Entities 87,267 220,611 175,636 387,414
----------- ----------- ----------- -----------
Consolidated Totals $ 2,090,461 $ 2,099,170 $ 3,985,985 $ 3,938,484
=========== =========== =========== ===========
Intersegment revenues:
North American Consumer Products $ 14,903 $ 14,422 $ 28,980 $ 27,801
U.S. Foodservice 3,099 3,392 6,631 6,946
Europe 3,088 3,870 7,623 7,401
Asia/Pacific 903 813 1,577 1,728
Other Operating Entities 619 583 1,118 1,045
Non-Operating (22,612) (23,080) (45,929) (44,921)
----------- ----------- ----------- -----------
Consolidated Totals $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Operating income (loss):
North American Consumer Products $ 126,469 $ 123,650 $ 232,731 $ 225,278
U.S. Foodservice 57,450 55,741 106,650 96,689
Europe 144,667 134,213 315,983 273,992
Asia/Pacific 43,737 26,868 78,003 45,800
Other Operating Entities 8,392 31,255 19,630 52,715
Non-Operating (31,680) (40,703) (54,886) (67,553)
----------- ----------- ----------- -----------
Consolidated Totals $ 349,035 $ 331,024 $ 698,111 $ 626,921
=========== =========== =========== ===========
Operating income (loss) excluding special
items:
North American Consumer Products $ 126,469 $ 127,904 $ 234,227 $ 234,298
U.S. Foodservice 57,450 56,841 109,150 99,917
Europe 144,667 134,213 291,184 273,992
Asia/Pacific 43,737 26,868 78,003 45,800
Other Operating Entities 8,392 31,255 19,630 52,715
Non-Operating (31,680) (35,914) (53,428) (51,253)
----------- ----------- ----------- -----------
Consolidated Totals $ 349,035 $ 341,167 $ 678,766 $ 655,469
=========== =========== =========== ===========
The company's revenues are generated via the sale of products in the following categories:
Ketchup, Condiments and Sauces $ 751,555 $ 691,346 $ 1,493,850 $ 1,331,321
Frozen Foods 483,770 524,685 876,479 962,400
Convenience Meals 457,832 402,615 885,012 782,848
Infant Feeding 220,535 201,160 407,117 378,087
Other 176,769 279,364 323,527 483,828
----------- ----------- ----------- -----------
Total $ 2,090,461 $ 2,099,170 $ 3,985,985 $ 3,938,484
=========== =========== =========== ===========
The above amounts include the impact of acquisitions, divestitures (primarily
affecting the Other and Frozen Foods categories) and foreign exchange.
7
H.J. HEINZ COMPANY AND SUBSIDIARIES
SPECIAL ITEMS - SECOND QUARTER ENDED OCTOBER 30, 2002
The company reports its financial results in accordance with generally accepted
accounting principles ("GAAP"). However, management believes that certain
non-GAAP performance measures and ratios, used in managing the business, may
provide users of this financial information with additional meaningful
comparisons between current results and results in prior periods. Non-GAAP
financial measures should be viewed in addition to, and not as an alternative
for, the company's reported results prepared in accordance with GAAP. The
following table provides a reconciliation of the company's reported results from
continuing operations to the results excluding special items for the second
quarter ended October 30, 2002:
Second Quarter Ended October 30, 2002
--------------------------------------------------------------
Net Gross Operating Per
Sales Profit Income Income Share
-------- -------- -------- -------- --------
Reported results from continuing operations $2,099.2 $ 751.0 $ 331.0 $ 168.5 $ 0.48
Reorganization costs -- 1.9 10.1 6.9 0.02
-------- -------- -------- -------- --------
Results from continuing operations
excluding special items $2,099.2 $ 752.9 $ 341.2 $ 175.5 $ 0.50
======== ======== ======== ======== ========
(Note: Totals may not add due to rounding.)
8
SPECIAL ITEMS - SIX MONTHS ENDED OCTOBER 29, 2003 AND OCTOBER 30, 2002
The company reports its financial results in accordance with generally accepted
accounting principles ("GAAP"). However, management believes that certain
non-GAAP performance measures and ratios, used in managing the business, may
provide users of this financial information with additional meaningful
comparisons between current results and results in prior periods. Non-GAAP
financial measures should be viewed in addition to, and not as an alternative
for, the company's reported results prepared in accordance with GAAP. The
following table provides a reconciliation of the company's reported results from
continuing operations to the results excluding special items for the six months
ended October 29, 2003 and October 30, 2002:
Six Months Ended October 29, 2003
------------------------------------------------------------------
Net Gross Operating Per
Sales Profit Income Income Share
-------- -------- -------- -------- --------
Reported results from continuing operations $3,986.0 $1,488.3 $ 698.1 $ 378.3 $ 1.07
Reorganization costs -- 4.0 9.5 6.2 0.02
Gain on sale of the Northern European
bakery business -- -- (28.8) (13.3) (0.04)
-------- -------- -------- -------- --------
Results from continuing operations
excluding special items $3,986.0 $1,492.3 $ 678.8 $ 371.3 $ 1.05
======== ======== ======== ======== ========
Six Months Ended October 30, 2002
------------------------------------------------------------------
Net Gross Operating Per
Sales Profit Income Income* Share*
-------- -------- -------- -------- --------
Reported results from continuing operations $3,938.5 $1,423.7 $ 626.9 $ 322.9 $ 0.91
Reorganization costs -- 1.9 28.5 18.5 0.05
-------- -------- -------- -------- --------
Results from continuing operations
excluding special items $3,938.5 $1,425.6 $ 655.5 $ 341.4 $ 0.97
======== ======== ======== ======== ========
* Excludes the impact of cumulative effect of accounting change.
(Note: Totals may not add due to rounding.)