Exhibit 99.1
Heinz's Superior Value & Growth Plan Off to a Strong Start as the Company
Delivers First Quarter Fiscal 2007 EPS of $0.58, up 23.4%
(Excluding Discontinued Operations and Special Items in the Prior Year)
PITTSBURGH--(BUSINESS WIRE)--Aug. 31, 2006--H. J. Heinz Company (NYSE:HNZ):
-- Sales up 8.4%;
-- Volume up 5.1% fueled by higher consumption, new product introductions
and increased innovation across all segments;
-- Operating income, excluding special items in the prior year, up 10.5%;
-- Heinz reported EPS from continuing operations of $0.58, up 45%, from
$0.40 in the prior year;
-- Company on Track to Deliver 10% plus EPS Growth for Full Year.
H. J. Heinz Company (NYSE:HNZ) today reported outstanding financial results
for its first quarter with strong sales and net income growth. The Company
reported net income of $194.1 million, or $0.58 per diluted share, for its first
quarter ended August 2, 2006. This compares to net income of $157.3 million, or
$0.45 per diluted share in the prior year, which included profit from the
discontinued European seafood and New Zealand poultry businesses along with
special items. Excluding discontinued operations and special items in the prior
year, Heinz's first quarter EPS in Fiscal 2007 increased 23.4% versus $0.47 per
diluted share in the prior year, and net income increased 18.6% from $163.7 in
the prior year. There were no special items in Fiscal 2007.
First-quarter sales increased 8.4%, to $2.06 billion from $1.90 billion,
with double-digit growth in sales of the Company's 10 core brands, led by Weight
Watchers(R)(a) Smart Ones(R) meals, Classico(R) pasta sauces, Plasmon(R) infant
nutrition products and ABC(R) soy and chili sauces. Sales were aided by net
pricing (+0.9%); acquisitions, net of divestitures (+1.4%); and foreign exchange
translation rates (+1.1%). Volume increased 5.1%, reflecting growth in all of
the Company's segments, driven by higher consumption, new product introductions
and increased innovation.
Commenting on the Company's performance, Heinz Chairman, President and CEO
William R. Johnson said: "Heinz delivered dynamic growth in sales, volume,
operating income and EPS in the first quarter, reflecting the success of the
Company's aggressive plan to drive sales of our core brands, reduce costs and
enhance shareholder value. Fiscal 2007 is off to a strong start and Heinz
remains on track to deliver 10% plus growth in earnings per share for the full
year."
(Comments on the first quarter that follow refer to adjusted gross profit
and adjusted operating income for Fiscal 2006, which exclude special items.
There were no special items in FY2007. 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 enable investors to use financial measures that
management uses in addition to GAAP measures to evaluate the day-to-day
operations of the business.)
Gross profit in the first quarter of 2007 of $772.4 million increased 9.6%
from adjusted gross profit in the first quarter of fiscal year 2006, and the
gross profit margin increased to 37.5% from the adjusted gross profit in 2006 of
37.1%. These increases were due to higher volume, increased pricing and higher
margin acquisitions, partially offset by substantially higher commodity costs.
Operating income of $319.6 million increased 10.5% from adjusted operating
income in the first quarter of 2006, largely due to increased volume, the higher
adjusted gross profit margin and the prior year targeted workforce reductions,
particularly in Europe and Asia. These increases were partially offset by a 22%
increase in marketing expense, higher selling and distribution costs resulting
from increased volume, higher professional fees in the Non-Operating segment and
higher accrued incentive compensation costs, including the expensing of stock
options.
The operating income increase of 10.5% combined with a lower effective tax
rate of 20.3%, resulted in the 23.4% EPS increase. During the first quarter, a
foreign subsidiary revalued certain of its assets, which is expected to reduce
fiscal 2007 tax expense by approximately $35 million of which approximately $25
million was recorded in the first quarter. The Company still anticipates an
effective tax rate for the full 2007 fiscal year of approximately 30%.
Heinz's working capital management showed continued improvement over the
prior year, as the Cash Conversion Cycle for the quarter improved nine days, to
47 days, reflecting improvements in the current year core operations and the
impact of prior year divestitures. For perspective the Company's Cash Conversion
Cycle was 92 days at the end of FY2002. The Company generated $33 million of
Operating Free Cash Flow (cash flow from operations plus proceeds from disposals
of property, plant and equipment less capital expenditures) in the first quarter
of Fiscal 2007.
The Company is pleased to report strong progress against most of the key
operating commitments made as part of its Superior Value & Growth Plan announced
on June 1, 2006 including a reduction in its total number of production
facilities. Year-to-date, the Company has divested six facilities, including
three in North America, one in Europe, one in Africa and one in Asia and has a
pending agreement on a seventh facility expected to be completed in the second
quarter.
FIRST QUARTER SEGMENT HIGHLIGHTS
NORTH AMERICAN CONSUMER PRODUCTS
Sales of the North American Consumer Products segment increased 13%. Volume
increased 4.3%, reflecting strong growth across the entire portfolio lead by
Weight Watchers(R)(a) Smart Ones(R) meals, Boston Market(R) meals(a),
Classico(R) pasta sauces, Delimex(R) frozen meals and T.G.I. Friday's(R) frozen
snacks(a). All of these brands set new volume records, which helped Consumer
Products extend its sales growth to nine consecutive quarters. Heinz U.S. retail
ketchup volume declined as anticipated due to reduced promotions as the Company
implements its strategy to trade consumers up to larger, more profitable sizes.
This strategy is working, with sales of larger size retail ketchup bottles up 50
percent in the quarter. Pricing expanded by 2.2%. The growth of the Classico(R)
brand was fueled by new flavors and a new marketing campaign. Weight
Watchers(R)(a) Smart Ones(R) continued momentum reflects substantial
improvements in product performance, on-trend new offerings and better
packaging. Delimex(R) is responding to new radio advertising in key markets, and
T.G.I. Friday's(R)(a) frozen snack distribution is up 16% behind new products
and improved graphics.
Adjusted operating income increased 13.9% due primarily to increased
volume, higher pricing and the favorable impact of acquisitions. These were
partially offset by increased commodity costs and research and development
costs, as well as increased marketing expenses, primarily related to increased
investment behind frozen snacks and Weight Watchers(R)(a) Smart Ones(R) frozen
entrees.
U.S. FOODSERVICE
Sales of the U.S. Foodservice segment increased 3.8%. Volume increased 5%,
mainly due to single serve condiments and Heinz(R) ketchup, as well as continued
expansion of frozen soup driven by new customers. Pricing reduced sales 0.4% and
divestitures, net of acquisitions, reduced sales 0.8%.
Adjusted operating income increased 6.3% primarily due to the Kabobs, Inc.
acquisition and increased volume, partially offset by increased incentive
compensation accruals.
EUROPE
Heinz Europe's sales increased 6.8%. Volume rose 2.2%, with gains in the
Plasmon(R) infant feeding business in Italy behind a successful TV campaign and
increased promotions supporting the 25th anniversary of the Oasis program.
Europe's volume growth also reflects increased sales of Heinz(R) ketchup,
resulting from new customers, including McDonald's. Increased marketing and
promotional support helped drive all time high ketchup market shares in Spain
and Germany and volume growth on Top Down Ketchup in France. In Poland, Heinz
achieved 22.2% volume growth, driven by increased marketing support behind the
Pudliszki ready meals restage, cooking sauces and ketchup. The acquisitions of
HP Foods and Petrosoyuz in Fiscal 2006 increased sales 7.0%. Pricing decreased
sales 0.5%. Divestitures reduced sales 4.8% and favorable exchange translation
rates increased sales by 3%.
Adjusted operating income increased 11.7% due to the favorable impact of
acquisitions, increased volume and reduced general and administrative expenses
("G&A"). These improvements were partially offset by increased raw material
costs and increased marketing expenses. The reduction in G&A is primarily a
result of the prior-year targeted workforce reductions including the elimination
of European headquarters.
ASIA PACIFIC
Sales in Asia/Pacific increased 12.2%. Volume increased significantly, up
13.4%, reflecting strong volume in Australia, New Zealand, Indonesia and China,
largely due to new product introductions and increased marketing. Higher
pricing, primarily in Indonesia, increased sales 1.3%. China benefited from
on-going strength in the Long Fong business which continues to expand behind
increased market penetration and the success of a new range of premium products.
Foreign exchange translation rates decreased sales by 2.6%.
Adjusted operating income increased 27.2% primarily due to strong volume
improvements, higher pricing and reduced G&A, resulting from targeted workforce
reductions including the elimination of Asia headquarters in the prior year.
These increases were partially offset by increased commodity costs and
unfavorable mix in Indonesia.
REST OF WORLD (ROW)
In Heinz's ROW segment, sales were consistent with the prior year as higher
volume and pricing were offset by prior year divestitures and unfavorable
foreign exchange. Volume increased 5.8% due to increased market share on
nutritional drinks in India and ketchup and baby food in Latin America. Higher
pricing increased sales by 7.1%, reflecting price increases on baby food and
reduced promotions on ketchup in Latin America. Sales were reduced by 10.5% due
to divestitures in Fiscal 2006. Foreign exchange translation rates reduced sales
by 2.3%. Adjusted operating income increased 42.1%, due mainly to increased
pricing and improved business mix.
MEETING WITH SECURITIES ANALYSTS - INTERNET BROADCASTS
Heinz will host a conference call with securities analysts today at 8:30
a.m. (Eastern Time). The call will be webcast live on www.heinz.com and archived
for playback beginning at 2 p.m. (ET).
The conference call is available live for the Media (listen only) at
1-800-955-1760. It will be hosted by William R. Johnson, Heinz Chairman,
President and CEO; Art Winkleblack, Executive Vice President and Chief Financial
Officer; and Jack Runkel, Vice President - Investor Relations.
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. Forward-looking statements are generally identified by the words
"will," "expects," "anticipates," "believes," "estimates" or similar expressions
and include our expectations as to future revenue growth, earnings, capital
expenditures and other spending, as well as anticipated reductions in spending.
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. Factors that could
cause actual results to differ from 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 ability to identify and anticipate and respond through innovation
to consumer trends,
-- the need for product recalls,
-- the ability to maintain favorable supplier relationships,
-- currency valuations and interest rate fluctuations,
-- change in credit ratings,
-- the ability to identify and complete and the timing, pricing and
success of acquisitions, joint ventures, divestitures and other
strategic initiatives,
-- approval of acquisitions and divestitures by competition authorities,
and satisfaction of other legal requirements,
-- the ability to successfully complete cost reduction programs,
-- the voting results on shareholder proposals, including the recent
nomination of nominees for election as directors of the Company,
-- the ability to limit disruptions to the business resulting from the
emphasis on three core categories and potential divestitures,
-- the ability to effectively integrate acquired businesses, new product
and packaging innovations,
-- product mix,
-- the effectiveness of advertising, marketing, and promotional programs,
-- the ability to maintain sales growth while reducing spending on
advertising, marketing and promotional programs,
-- supply chain efficiency,
-- cash flow initiatives,
-- risks inherent in litigation, including tax litigation, and
international operations, particularly the performance of business in
hyperinflationary environments,
-- changes in estimates in critical accounting judgments and other laws
and regulations, including tax laws,
-- the success of tax planning strategies,
-- 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 "Risk Factors" and "Cautionary Statement
Relevant to Forward-Looking Information" in the Company's Form 10-K
for the fiscal year ended May 3, 2006.
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, offering "Good Food Every Day" is one of
the world's leading marketers and producers of branded foods in ketchup,
condiments, sauces, meals, soups, seafood, snacks, and infant foods. Heinz
satisfies hungry consumers in every outlet, from supermarkets, to restaurants to
convenience stores and kiosks. 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 or close to $3 billion),
Ore-Ida(R) frozen potato products, Boston Market(R) and Weight Watchers(R)(a)
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.
(a) Weight Watchers on foods and beverages is the registered trademark of WW
Foods, LLC and is used under license; Boston Market is a registered trademark of
McDonald's Corporation and is used under license; T.G.I Friday's is a trademark
of T.G.I. Friday's of Minnesota, Inc. and is used under license.
H. J. Heinz Company and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except per Share Amounts)
First Quarter Ended
-----------------------------
August 2, 2006 July 27, 2005
FY2007 FY2006
-------------- --------------
Sales $ 2,059,920 $ 1,900,278
Cost of products sold 1,287,503 1,197,716
-------------- --------------
Gross profit 772,417 702,562
Selling, general and administrative
expenses 452,775 445,697
-------------- --------------
Operating income 319,642 256,865
Interest income 7,292 8,053
Interest expense 75,626 66,304
Other expense, net (7,711) (2,836)
-------------- --------------
Income from continuing operations before
income taxes 243,597 195,778
Provision for income taxes 49,496 55,605
-------------- --------------
Income from continuing operations 194,101 140,173
Income from discontinued operations, net
of tax - 17,101
-------------- --------------
Net income $ 194,101 $ 157,274
============= =============
Income per common share - Diluted
Continuing operations $ 0.58 $ 0.40
Discontinued operations - 0.05
-------------- --------------
Net Income $ 0.58 $ 0.45
============== ==============
Average common shares
outstanding - diluted 334,711 348,885
Income per common share - Basic
Continuing operations $ 0.59 $ 0.41
Discontinued operations - 0.05
-------------- --------------
Net Income $ 0.59 $ 0.45
============== ==============
Average common shares
outstanding - basic 331,584 345,735
Cash dividends per share $ 0.35 $ 0.30
============== ==============
Note: Fiscal 2006 includes special items.
(Totals may not add due to rounding)
H. J. Heinz Company and Subsidiaries
Segment Data
First Quarter Ended
-----------------------------
August 2, 2006 July 27, 2005
FY2007 FY2006
-------------- --------------
Net external sales:
North American Consumer Products $ 615,577 $ 544,960
U.S. Foodservice 366,613 353,211
Europe 685,862 641,899
Asia/Pacific 291,533 259,920
Rest of World 100,335 100,288
-------------- --------------
Consolidated Totals $ 2,059,920 $ 1,900,278
============== ==============
Intersegment revenues:
North American Consumer Products $ 12,829 $ 12,303
U.S. Foodservice 6,054 4,898
Europe 4,914 3,235
Asia/Pacific 935 774
Rest of World 219 263
Non-Operating (24,951) (21,473)
-------------- --------------
Consolidated Totals $ - $ -
============== ==============
Operating income (loss):
North American Consumer Products $ 143,214 $ 123,931
U.S. Foodservice 55,056 50,462
Europe 119,349 93,723
Asia/Pacific 31,047 18,689
Rest of World 11,839 6,367
Non-Operating (40,863) (36,307)
-------------- --------------
Consolidated Totals $ 319,642 $ 256,865
============== ==============
Operating income (loss) excluding special items:
North American Consumer Products $ 143,214 $ 125,767
U.S. Foodservice 55,056 51,810
Europe 119,349 106,891
Asia/Pacific 31,047 24,415
Rest of World 11,839 8,332
Non-Operating (40,863) (27,980)
-------------- --------------
Consolidated Totals $ 319,642 $ 289,235
============== ==============
The company's revenues are generated via the sale of products in the following
categories:
Ketchup and Sauces $ 900,975 $ 802,929
Meals and Snacks 853,943 813,101
Infant Feeding 213,697 194,378
Other 91,305 89,870
-------------- --------------
Total $ 2,059,920 $ 1,900,278
============== ==============
H. J. Heinz Company and Subsidiaries
Special Items - First Quarter Ended July 27, 2005
The Company reports its financial results in accordance with accounting
principles generally accepted in the United States of America ("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 first quarter ended July 27, 2005:
First Quarter Ended July 27, 2005
------------------------------------------
(amounts in millions) Net Gross Operating Per
Sales Profit Income Income Share
--------- ------- --------- ------- ------
Reported results from
continuing operations $1,900.3 $702.6 $ 256.9 $140.2 $0.40
Reorganization costs - 2.1 25.0 16.9 0.05
Strategic review costs - - 7.4 6.6 0.02
--------- ------- --------- ------- ------
Results from continuing
operations excluding
special items $1,900.3 $704.6 $ 289.2 $163.7 $0.47
========= ======= ========= ======= ======
(Note: Totals may not add due to rounding.)
H. J. Heinz Company and Subsidiaries
Non-GAAP Performance Ratios
The Company reports its financial results in accordance with accounting
principles generally accepted in the United States of America ("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 the non-GAAP performance
ratio discussed in the Company's press release dated August 31, 2006:
Operating Free Cash Flow Calculation
(amounts in thousands) First Quarter Ended
-----------------------------
August 2, 2006 July 27, 2005
FY 2007 FY 2006
-------------- --------------
Cash provided by operating activities $ 47,516 $ 165,916
Capital expenditures (38,927) (47,162)
Proceeds from disposals of property,
plant and equipment 24,402 1,807
-------------- --------------
Operating Free Cash Flow $ 32,991 $ 120,561
============== ==============
CONTACT: H. J. Heinz Company
Media:
Ted Smyth, 412-456-5780
Michael Mullen, 412-456-5751
Michael.mullen@us.hjheinz.com
or
Investors:
Jack Runkel, 412-456-6034