EXHIBIT 99
NEWS RELEASE
(HEINZ LOGO)
WORLD HEADQUARTERS
"THE GOOD FOOD COMPANY"
HEINZ REPORTS SECOND QUARTER RESULTS AND RECONFIRMS
FULL-YEAR EARNINGS GUIDANCE FOR FISCAL 2005
o EPS FROM CONTINUING OPERATIONS OF 56 CENTS VS. 54 CENTS IN THE
PRIOR YEAR, UP 3.7%
o SALES INCREASED 5.2%, WITH VOLUME UP 0.5% REFLECTING STRONG
GROWTH IN NORTH AMERICAN CONSUMER PRODUCTS
o CASH CONVERSION CYCLE REDUCED BY 8 DAYS VERSUS PRIOR YEAR
PITTSBURGH - November 23, 2004 - H.J. Heinz Company (NYSE: HNZ) today reported
net income of $199.0 million, or $0.56 per diluted share, for the Fiscal 2005
second quarter ended October 27, 2004, and $197.3 million in net income from
continuing operations or $0.56 EPS. This compares to $191.5 million, or $0.54
per share, for the second quarter of Fiscal 2004. Heinz's second quarter EPS
from continuing operations in Fiscal 2005 increased 3.7% over the prior year.
Commenting on the Company's performance, H.J. Heinz Company Chairman,
President and CEO William R. Johnson said: "During the second quarter, Heinz
continued to make progress as we built on our Four Imperatives of driving
profitable growth, removing clutter, squeezing out costs and measuring and
recognizing performance."
Heinz's positive earnings performance reflected strong second quarter
sales growth of 5.2%, driven by a combination of favorable foreign exchange
rates and a 0.5% increase in volume/mix. The volume/mix improvement was driven
mainly by strong volume growth of 3.4% in the North American Consumer Products
business, primarily in frozen brands such as Ore-Ida(R) frozen potatoes and
Delimex(R) snacks. Net pricing decreased sales 0.1%, as pricing improvements in
the North American Consumer Products and U.S. Foodservice segments were offset
by a $21.1 million charge for trade spending for the Italian infant nutrition
business. The charge relates to prior years and reflects an under-accrual
quantified as the Company was upgrading trade management processes and systems
in Italy. Pricing for the quarter was also unfavorably impacted by market
pressure in the Netherlands and the Tegel(R) poultry business in New Zealand.
Heinz's Gross Profit Margin was 36.4% in the quarter, a decrease of
1.0 percentage point over the year-ago period. The decrease in the Gross Profit
Margin was due mainly to unfavorable raw material and production costs in the
European seafood business, the Italian trade spending charge, increased
commodity and fuel costs, and market price pressures impacting the Tegel(R)
poultry business. Operating income decreased 1.6% from last year, primarily due
to the Gross Profit Margin decline offset by sales growth and favorable exchange
rates. Income from continuing operations grew 3.0%, mainly due to a lower
effective tax rate and reduced currency losses.
2
The Company's balance sheet and working capital management showed
continued improvement over the Fiscal 2004 second quarter, as management focused
successfully on inventory control and demand forecasting. Cash Conversion Cycle
improved 8 days, and net debt (total debt less cash and cash equivalents and the
value of interest rate swaps) was reduced by $312 million, or 7.9%, versus the
prior-year period. Operating free cash flow (cash from operations less capital
expenditures) was almost $150 million in the quarter.
(Comments on the second quarter and six months that follow refer to results
from continuing operations, excluding special items. See attached tables for
further details, including reconciliation of non-GAAP financial measures.
Management believes that the adjusted GAAP measures provide additional clarity
in understanding the trends of the business as they provide management with a
view of the business excluding special items.)
SECOND QUARTER SEGMENT HIGHLIGHTS
NORTH AMERICAN CONSUMER PRODUCTS
Sales of the North American Consumer Products segment increased 8.4%.
Volume increased 3.4% as a result of significant growth in frozen potatoes,
primarily in the Ore-Ida(R) brand, due to the introduction of Ore-Ida(R) Extra
Crispy Potatoes and new microwavable Easy Fries(TM). Strong growth in Delimex(R)
snacks also contributed to the volume increase, which was partially offset by
declines in Canadian juice sales. Pricing increased 3.7%, largely due to more
efficient trade spending on Smart Ones(R) frozen entrees, Ore-Ida(R) potatoes,
and Classico(R) pasta sauces. Acquisitions increased sales 2.1%, due to the
prior year acquisition of the Canadian operations of Unifine Richardson B.V.,
which manufactures and sells salad dressings, sauces, and dessert toppings. The
divestiture of Ethnic Gourmet Foods(R) and Rosetto(R) pasta reduced sales 1.6%.
Operating income increased 6.7%, driven by increases in sales volume
and net pricing, which were partially offset by unfavorable sales mix and higher
fuel and commodity costs.
HEINZ U.S. FOODSERVICE
Heinz's U.S. Foodservice business increased sales 2.1%, driven largely
by a 1.8% increase in net pricing that was initiated to offset fuel and
commodity cost pressures. Favorable volume in processed tomato products and
frozen desserts, partially offset by a decline in single-serve condiments,
resulted in volume growth of 0.3%. Heinz continued to leverage its foodservice
culinary expertise, as innovative, customized sauces and ready-made soups helped
earn significant new business with several national quick-serve-restaurant
chains.
Operating income increased 0.9%, primarily due to favorable pricing
that was partially offset by increased commodity, fuel, and transportation
costs.
3
EUROPE
Heinz Europe's sales increased 5.2%. Favorable exchange translation
rates increased sales by 9.1%. Volume decreased 0.6% due primarily to softness
in European seafood, which was partially offset by increases in Heinz(R) Ketchup
resulting from the successful introduction of the Top Down bottle, growth from
the newly introduced Weight Watchers(R) products in the frozen foods category,
increases in Heinz(R) ready-to-serve soups and the restage of the Italian infant
nutrition business. Lower pricing decreased sales 3.0%, as price increases in
Heinz(R) Ketchup and soups were more than offset by the charge for trade
spending for the Italian infant nutrition business and decreased pricing related
to European seafood and market price pressures in the Netherlands. Divestitures
reduced sales 0.4%.
Operating income decreased 13.3%, mainly due to lower pricing and
increased product costs in the European seafood business, and the charge for
Italian trade spending.
ASIA PACIFIC
Sales in Asia/Pacific increased 3.0%. Favorable exchange translation
rates increased sales by 5.0%. Volume decreased sales 1.2%, as strong volume in
frozen food products in the New Zealand business was more than offset by
declines from the discontinuation of an Indonesian energy drink as well as
declines in the Tegel(R) poultry business in New Zealand, and tuna and infant
feeding sales in Australia and China. Lower pricing reduced sales 0.7% primarily
due to market price pressures on Tegel(R) poultry.
Operating income decreased 2.0%, as the favorable impact of exchange
translation rates in Australia and New Zealand and improved sales mix in
Indonesia were offset by Tegel(R) poultry's lower pricing and increased consumer
marketing expense across the region.
YEAR TO DATE HIGHLIGHTS
Heinz reported income from continuing operations of $392.1 million in
the six months ended October 27, 2004, up 5.6% compared to income from
continuing operations of $371.3 million for the year-earlier period. Diluted
earnings per share from continuing operations were $1.11 for the period, a 5.7%
increase over $1.05 in the prior year.
Sales increased 5.4% for the six-month period, driven by volume
increases of 1.2%, which is within the Company's 1-2% annual volume target
range, and exchange translation rates of 4.2%. The favorable volume impact is
mainly due to strong increases in the North American Consumer Products and
Europe segments. These increases were partially offset by lower sales in Israel
following a product recall in the third quarter of Fiscal 2004. The Gross Profit
Margin was 36.6%, down 80 basis points versus the prior year, due primarily to
lower pricing and increased product costs in the European seafood business, the
charge for Italian trade spending, commodity cost increases, and market-price
pressures impacting the Tegel(R) poultry and Latin American businesses.
Operating income increased $4.3 million, or 0.6%.
4
Through the first half of the fiscal year, the Cash Conversion Cycle,
at 60 days, is 9 days better than the comparable period in the prior year. The
improvement primarily reflects reductions in days outstanding for both
receivables and inventories. Operating free cash flow for the six-month period
stands at almost $300 million, in line with our expectations.
LOOKING FORWARD
Looking forward to the balance of Fiscal 2005, the Company remains on
track with its full-year EPS target range of $2.32 - $2.42, with an expectation
toward the lower half of that range. Projected operating free cash flow for
Fiscal 2005 also remains on track with the Company's target range of $800
million to $1 billion, with an expectation toward the lower end of the range.
In addition to Heinz's corporate initiatives, Heinz is assisting The
Hain Celestial Group, Inc. (Nasdaq: HAIN) with certain cost savings programs
that Hain is pursuing with the intention of improving its shareholder value over
the next 12 months. Although Heinz continues to be optimistic about the
prospects for Hain, which operates in the fast-growing natural and organic
categories, if the market value of Hain stock remains at current levels, Heinz
may be required to write down its investment in Hain to market value prior to
the end of Fiscal 2005, in accordance with accounting rules. However, any such
potential write-down is not included in Heinz's earnings outlook for Fiscal
2005. Heinz currently owns approximately six million shares of Hain stock at an
average basis of approximately $30.00 per share as of October 27, 2004.
Recently, the Company and the holders of outstanding remarketable
securities due 2020 in the aggregate amount of $800 million agreed to change the
remarketing date from November 15 to December 1 beginning this year and to
change the maturity date of the securities to December 1, 2020 from November 15,
2020. The Company currently plans to remarket the securities on December 1,
2004. In the event that the securities are not remarketed for any reason, the
Company would repurchase the securities for the principal amount of $800 million
plus a premium of approximately $125 million, which would be reflected as a
charge in the financial statements for the third quarter of Fiscal 2005. Any
such potential charge is not included in Heinz's earnings outlook for Fiscal
2005.
# #
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 1-800-377-5282 (listen only). It will be hosted by William R.
Johnson, Chairman, President & CEO; Art Winkleblack, Executive Vice President
and Chief Financial Officer; and Jack Runkel, Vice President - Investor
Relations.
# #
5
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, which affect, among other things, customer preferences
and the pricing of products, production, energy and raw material costs, the need
for product recalls, 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, product mix, 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 (including the Remedia-related
claims in Israel and rights against third parties) 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 people-related costs, the
possibility of an impairment in Heinz's investments, 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 28, 2004, 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:
Jack Runkel, 412-456-6034.
6
H. J. HEINZ COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Second Quarter Ended Six Months Ended
------------------------------------ ------------------------------------
October 27, 2004 October 29, 2003 October 27, 2004 October 29, 2003
---------------- ---------------- ---------------- ----------------
FY2005 FY2004 FY2005 FY2004
---------------- ---------------- ---------------- ----------------
Sales $ 2,199,560 $ 2,090,461 $ 4,202,586 $ 3,985,985
Cost of products sold 1,399,546 1,309,243 2,663,819 2,497,691
---------------- ---------------- ---------------- ----------------
Gross profit 800,014 781,218 1,538,767 1,488,294
Selling, general and
administrative expenses 456,566 432,183 855,665 790,183
---------------- ---------------- ---------------- ----------------
Operating income 343,448 349,035 683,102 698,111
Interest income 5,983 4,548 12,644 10,313
Interest expense 56,600 54,292 109,946 106,529
Other income / (expense), net (2,777) (12,945) (9,160) (29,924)
---------------- ---------------- ---------------- ----------------
Income from continuing operations before
income taxes 290,054 286,346 576,640 571,971
Provision for income taxes 92,775 94,859 184,525 193,659
---------------- ---------------- ---------------- ----------------
Income from continuing operations 197,279 191,487 392,115 378,312
Income from discontinued operations, net of tax 1,686 -- 1,686 27,200
---------------- ---------------- ---------------- ----------------
Net income $ 198,965 $ 191,487 $ 393,801 $ 405,512
================ ================ ================ ================
Income per common share - Diluted
Continuing operations $ 0.56 $ 0.54 $ 1.11 $ 1.07
Discontinued operations -- -- -- 0.08
---------------- ---------------- ---------------- ----------------
Net Income $ 0.56 $ 0.54 $ 1.11 $ 1.14
================ ================ ================ ================
Average common shares
outstanding - diluted 354,145 354,258 354,145 354,258
================ ================ ================ ================
Income per common share - Basic
Continuing operations $ 0.56 $ 0.54 $ 1.12 $ 1.08
Discontinued operations -- -- -- 0.08
---------------- ---------------- ---------------- ----------------
Net Income $ 0.57 $ 0.54 $ 1.12 $ 1.15
================ ================ ================ ================
Average common shares
outstanding - basic 350,569 351,805 350,569 351,805
================ ================ ================ ================
Cash dividends per share $ 0.285 $ 0.27 $ 0.57 $ 0.54
================ ================ ================ ================
Note: Fiscal 2004 includes special items.
(Totals may not add due to rounding)
7
H. J. HEINZ COMPANY AND SUBSIDIARIES
SEGMENT DATA
Second Quarter Ended Six Months Ended
------------------------------------ ------------------------------------
October 27, 2004 October 29, 2003 October 27, 2004 October 29, 2003
FY2005 FY2004 FY2005 FY2004
---------------- ---------------- ---------------- ----------------
Net external sales:
North American Consumer Products $ 565,927 $ 521,882 $ 1,054,759 $ 972,660
U.S. Foodservice 379,832 371,892 723,700 703,109
Europe 814,771 774,651 1,603,496 1,509,804
Asia/Pacific 344,787 334,769 639,059 624,776
Other Operating Entities 94,243 87,267 181,572 175,636
---------------- ---------------- ---------------- ----------------
Consolidated Totals $ 2,199,560 $ 2,090,461 $ 4,202,586 $ 3,985,985
================ ================ ================ ================
Intersegment revenues:
North American Consumer Products $ 12,965 $ 14,903 $ 25,691 $ 28,980
U.S. Foodservice 5,339 3,099 9,581 6,631
Europe 4,494 3,088 9,166 7,623
Asia/Pacific 1,013 903 1,610 1,577
Other Operating Entities 368 619 758 1,118
Non-Operating (24,179) (22,612) (46,806) (45,929)
---------------- ---------------- ---------------- ----------------
Consolidated Totals $ -- $ -- $ -- $ --
================ ================ ================ ================
Operating income (loss):
North American Consumer Products $ 134,977 $ 126,469 $ 246,069 $ 232,731
U.S. Foodservice 57,964 57,450 112,304 106,650
Europe 125,480 144,667 279,571 315,983
Asia/Pacific 42,858 43,737 75,121 78,003
Other Operating Entities 8,162 8,392 22,488 19,630
Non-Operating (25,993) (31,680) (52,451) (54,886)
---------------- ---------------- ---------------- ----------------
Consolidated Totals $ 343,448 $ 349,035 $ 683,102 $ 698,111
================ ================ ================ ================
Operating income (loss) excluding special items:
North American Consumer Products $ 134,977 $ 126,469 $ 246,069 $ 234,227
U.S. Foodservice 57,964 57,450 112,304 109,150
Europe 125,480 144,667 279,571 291,184
Asia/Pacific 42,858 43,737 75,121 78,003
Other Operating Entities 8,162 8,392 22,488 19,630
Non-Operating (25,993) (31,680) (52,451) (53,428)
---------------- ---------------- ---------------- ----------------
Consolidated Totals $ 343,448 $ 349,035 $ 683,102 $ 678,766
================ ================ ================ ================
The company's revenues are generated via the sale of products in the following categories:
Ketchup, Condiments and Sauces $ 800,435 $ 751,555 $ 1,563,035 $ 1,493,850
Frozen Foods 543,050 483,770 1,004,590 876,479
Convenience Meals 480,431 457,832 931,300 885,012
Infant Feeding 202,437 220,535 381,388 407,117
Other 173,207 176,769 322,273 323,527
---------------- ---------------- ---------------- ----------------
Total $ 2,199,560 $ 2,090,461 $ 4,202,586 $ 3,985,985
================ ================ ================ ================
8
H.J. HEINZ COMPANY AND SUBSIDIARIES
SPECIAL ITEMS - SIX MONTHS ENDED OCTOBER 29, 2003
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:
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
Write-down of U.K. pizza crust assets -- 4.0 4.0 2.8 0.01
Reorganization costs -- -- 5.5 3.4 0.01
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
============ ============ ============ ============ ============
9
H.J. HEINZ COMPANY AND SUBSIDIARIES
NON-GAAP PERFORMANCE RATIOS
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 the calculation of those non-GAAP performance ratios
discussed in the company's press release dated November 23, 2004:
NET DEBT CALCULATION
(amounts in thousands) October 27, 2004 April 28, 2004 October 29, 2003
FY 2005 FY 2004 FY 2004
---------------- ---------------- ----------------
Short-term debt $ 20,119 $ 11,434 $ 20,609
Long-term debt, including current portion 5,123,656 4,962,996 4,975,130
---------------- ---------------- ----------------
Total debt 5,143,775 4,974,430 4,995,739
Less:
Value of interest rate swaps (217,041) (125,324) (176,294)
Cash and cash equivalents (1,267,694) (1,180,039) (848,696)
---------------- ---------------- ----------------
Net Debt $ 3,659,040 $ 3,669,067 $ 3,970,749
================ ================ ================
OPERATING FREE CASH FLOW CALCULATION
(amounts in thousands) Second Quarter Ended Six Months Ended
------------------------------------ ------------------------------------
October 27, 2004 October 29, 2003 October 27, 2004 October 29, 2003
FY 2005 FY 2004 FY 2005 FY 2004
---------------- ---------------- ---------------- ----------------
Cash provided by operating activities $ 193,382 $ 227,323 $ 379,562 $ 493,259
Capital expenditures (44,180) (45,240) (82,620) (74,837)
---------------- ---------------- ---------------- ----------------
Operating Free Cash Flow $ 149,202 $ 182,083 $ 296,942 $ 418,422
================ ================ ================ ================