H.J. Heinz looks to strengthen U.S. business, focus more on emerging markets for its ketchup and sauces, infant nutrition products, CEO says
February 24, 2012
H.J. Heinz Company (NYSE:HNZ - News) delivered “excellent third-quarter results with growth of more than 7% in sales and 13% in earnings per share before special items” as the Company adapts “our proven strategy to drive sustainable growth and shareholder value in this rapidly changing global environment,” Chairman, President and CEO William R. Johnson said today.
Mr. Johnson reviewed the strong third-quarter results that Heinz reported last week and four key elements of the Company’s growth strategy in his presentation at the annual conference of the Consumer Analyst Group of New York (CAGNY) in Boca Raton, Florida.
“Heinz delivered its 27th consecutive quarter of organic sales growth (volume plus price) and the strongest growth in nearly three years, with every segment of our global portfolio contributing. I expect this growth streak to continue into the fourth quarter,” Mr. Johnson said. “Our third-quarter performance was fueled by excellent organic sales results from our trio of growth engines: Emerging Markets, the biggest driver with growth of 20%; Global Ketchup, which delivered very strong organic sales growth of 9%; and our Top 15 brands, which grew sales by 6%.” On a reported basis, Emerging Markets sales grew 39.7%, Global Ketchup sales rose 8.6%, Top 15 brands increased 10.6% and earnings per share grew 4.8%.
FISCAL 2012 OUTLOOK
Mr. Johnson today reaffirmed the Company’s Fiscal 2012 full-year reported EPS outlook of $3.32 to $3.34 from continuing operations, excluding special items. Included in this range is an expected benefit from foreign exchange of approximately $0.05. “Our guidance is based on our third-quarter results, expected returns from our continued investment in marketing, which parenthetically is up 10% year-to-date, and ongoing investments in new capabilities,” Mr. Johnson said. “Overall, we continue to perform well in a difficult environment.”
Mr. Johnson added: “We expect to deliver our Fiscal 2012 outlook and I remain confident in our plans for Fiscal 2013.” Heinz will provide further details on Fiscal 2013 at the Company’s Analyst Day on May 24 in New York.
GROWTH STRATEGY HIGHLIGHTS
Mr. Johnson highlighted four key elements of the Company’s growth strategy: Ketchup and Sauces, Emerging Markets, Strengthening the U.S. Business and Driving Productivity.
KETCHUP AND SAUCES
“We have a competitively advantaged Ketchup and Sauces core that is delivering strong growth in both Developed and Emerging Markets,” Mr. Johnson said. “This business is our foundation and we are intensely focused on leveraging our winning position to unlock future growth opportunities.”
Mr. Johnson added: “I see an enormous opportunity to leverage our global leadership in Ketchup and Sauces. With projected sales of well over $5 billion this year, Ketchup and Sauces is also our fastest growing business. Led by the iconic Heinz® brand, this core category has grown to almost half of our total sales and we have only scratched the surface of its potential.”
He said “the global retail market for sauces, dressings and condiments is nearly $110 billion and growing, with the greatest potential in Emerging Markets.”
“Heinz is well positioned to capitalize on this growth, with the iconic Heinz® brand and strong local brands like Quero® (tomato sauces and ketchup) in Brazil, Master® (soy sauce) in China, and ABC® (sauces) in Indonesia,” Mr. Johnson said.
He also announced that the Company will begin manufacturing Heinz® Ketchup in Brazil in Fiscal 2013 to support new distribution and growth in that key Emerging Market and across Latin America, where Heinz currently holds leading shares in several other countries in the region.
“We have a rapidly growing Emerging Markets business, focused around Ketchup and Sauces and Infant Nutrition, that continues to deliver disproportionate growth,” Mr. Johnson said. “With our increasing breadth and infrastructure in the most important Emerging Markets, we are well positioned to deliver significant value from both organic growth and future M&A activity.”
He also said “Heinz Emerging Markets are on track to generate more than 21% of our total sales this year, or around $2.5 billion. I expect our businesses in Brazil, China, Indonesia and Venezuela to each deliver at least $400 million in sales in Fiscal 2013.”
In addition to Ketchup and Sauces, “there is another sizeable opportunity in Emerging Markets – Infant Nutrition,” Mr. Johnson said. “It represents the intersection of two high-growth opportunities and Heinz is well positioned to capitalize on each.”
Heinz is number-three globally in baby food and number-six including formula.
“We have focused primarily on organic growth initiatives in Infant Nutrition but we will consider bolt-on acquisitions in Emerging Markets to accelerate growth, particularly in food. At the same time, I see no compelling need for Heinz to ‘bet the ranch’ to build on our solid position in this category,” Mr. Johnson said.
STRENGTHENING OUR U.S. BUSINESS
Mr. Johnson said: “We are taking aggressive action to strengthen our U.S. business in this changing environment, particularly in the challenging areas of Frozen and Foodservice. The iconic core brands in our U.S. portfolio will be the building blocks for future growth in this key market, supported by innovation and marketing that will be more responsive to consumer trends.”
He noted that the “U.S. team is building a portfolio of products that addresses the needs of consumers seeking value through accessible price points.”
These new products include a 10-ounce Heinz® Ketchup in a pouch with a suggested retail price of 99 cents and a one-pound package of Ore-Ida® fries with a suggested retail price of $1.99.
“We are driving productivity, attacking fixed costs and leveraging global scale to make Heinz even more competitive in the years to come,” Mr. Johnson said. “Heinz remains on track to deliver our goal of at least $1.3 billion in cost savings by 2015.”
SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS:
This press release and our other public pronouncements contain 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, dividend policy, and planned credit rating, 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, volume, earnings, or cash flow growth,
* general economic, political, and industry conditions, including those that could impact consumer spending,
* competitive conditions, which affect, among other things, customer preferences and the pricing of products, production, and energy costs,
* competition from lower-priced private label brands,
* increases in the cost and restrictions on the availability of raw materials, including agricultural commodities and packaging materials, the ability to increase product prices in response, and the impact on profitability,
* the ability to identify and anticipate and respond through innovation to consumer trends,
* the need for product recalls,
* the ability to maintain favorable supplier and customer relationships, and the financial viability of those suppliers and customers,
* currency valuations and devaluations and interest rate fluctuations,
* changes in credit ratings, leverage, and economic conditions and the impact of these factors on our cost of borrowing and access to capital markets,
* our ability to effectuate our strategy, including our continued evaluation of potential opportunities, such as strategic acquisitions, joint ventures, divestitures, and other initiatives, our ability to identify, finance, and complete these transactions and other initiatives, and our ability to realize anticipated benefits from them,
* the ability to successfully complete cost reduction programs and increase productivity,
* the ability to effectively integrate acquired businesses,
* new products, packaging innovations, and product mix,
* the effectiveness of advertising, marketing, and promotional programs,
* supply chain efficiency,
* cash flow initiatives,
* risks inherent in litigation, including tax litigation,
* the ability to further penetrate and grow and the risk of doing business in international markets, particularly our emerging markets; economic or political instability in those markets, strikes, nationalization, and the performance of business in hyperinflationary environments, in each case such as Venezuela; and the uncertain global macroeconomic environment and sovereign debt issues, particularly in Europe,
* changes in estimates in critical accounting judgments and changes in 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 potential adverse impact of natural disasters, such as flooding and crop failures, and the potential impact of climate change,
* the ability to implement new information systems and potential disruptions due to failures in information technology systems, and risks associated with social media,
* with regard to dividends, dividends must be declared by the Board of Directors and will be subject to certain legal requirements being met at the time of declaration, as well as our Board’s view of our anticipated cash needs, and
* other factors described in “Risk Factors” and “Cautionary Statement Relevant to Forward-Looking Information” in the Company’s Annual Report on Form 10-K for the fiscal year ended April 27, 2011 and reports on Forms 10-Q thereafter.
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 healthy, convenient and affordable foods specializing in ketchup, sauces, meals, soups, snacks and infant nutrition. Heinz provides superior quality, taste and nutrition for all eating occasions whether in the home, restaurants, the office or “on-the-go.” Heinz is a global family of leading branded products, including Heinz® Ketchup, sauces, soups, beans, pasta and infant foods (representing over one third of Heinz’s total sales), Ore-Ida® potato products, Weight Watchers® Smart Ones® entrees, T.G.I. Friday’s® meals & snacks, and Plasmon infant nutrition. Heinz is famous for its iconic brands on six continents, showcased by Heinz® Ketchup, The World’s Favorite Ketchup®.
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