Heinz earnings fell in second quarter due to spin off

Wednesday, November 26, 2003

The Associated Press

PITTSBURGH - H.J. Heinz Co. reported its second-quarter earnings fell nearly 10 percent from the same quarter last year, when the ketchup giant was still reporting results from businesses since spun off to Del Monte Corp.

Heinz said Tuesday it earned of $191.5 million, or 54 cents a share, in the three months ended Oct. 29 compared with $212.1 million, or 60 cents per share, last fiscal year.

Sales slipped to $2.09 billion for the quarter, down from $2.1 billion last year.

The profit for the second quarter of last fiscal year included $43.5 million, or 12 cents a share, in earnings from discontinued operations, like its former pet food brands and Starkist tuna.

If the Del Monte spinoffs are taken out of the mix, Heinz' earnings were up more than 13 percent from last year.

But the latest earnings were still a penny a share shy of analysts' expectations, according to Thomson First Call.

Its North American consumer group saw profits decrease 1.1 percent to $126.5 million, despite strong domestic sale of ketchup and Classico pasta sauces.

The company's foodservice, European and Asia-Pacific segments all reported strong growth.

"We are pleased with Heinz' results for our second quarter, and the company's performance continues to confirm our confidence in the target ranges we set for earnings per share, net sales and free cash flow in fiscal 2004," said chairman, president and chief executive William R. Johnson.

In a conference call with analysts, Johnson said the Pittsburgh-based company is on track to meet its goal of annual earnings of $2.15 to $2.25 per share -- and that earnings should continue to grow in each of this fiscal year's final two quarters. Analysts expected earnings of $2.20 a share for the year.

Investors responded favorably to the report, as Heinz shares were up 52 cents to close at $36.19 on the New York Stock Exchange (news - web sites).

But reviews from analysts were mixed.

"I'm not putting down the quarter, it was a solid quarter," said Christopher Growe of A.G. Edwards and Sons Inc. "But my additional thought is that the (earnings per share) growth came from foreign currency exchange rates and a lower tax rate. If you take the foreign exchange benefit away, Europe all of a sudden is flat."

Analysts also questioned whether the popularity of low-carbohydrate dieting is behind declining sales of Smart Ones frozen meals and Ore-Ida frozen potato business.

Heinz plans six new Smart Ones entrees pegged at low-carb dieters and a new product, Ore-Idea Extra Crispy french fries, later this year.

"Hopefully, this new (Ore-Ida) product will address those concerns. But private labels are

aggressive on pricing and there's been a consumer shift away from the (frozen potato)

products," Growe said. "I wouldn't count on this being a major growth vehicle for them in

the future."

Heinz officials pointed to successes in its U.S. foodservice sales -- up $29.3 million, or 8.6

percent -- and in its Asia Pacific division, which saw sales increase by nearly 24 percent,

up $64.6 million. The company also pointed to manufacturing cost improvements in New

Zealand and Australia, and the success of ABC-brand soy sauces and juices in the

fast-growing Indonesian market.

Heinz officials said they don't expect the company's profits will be hurt by ties to a kosher

baby formula linked to three infant deaths in Israel.

Heinz partly owns Remedia, an Israeli firm for which the soy-based formula was made

by Humana Milchunion of Germany. The formula caused problems because it had

one-tenth or less of Vitamin B1 it was supposed to have. The nutrient is vital for babies'


Remedia "is a very small business and we don't currently anticipate ... this will have a

material impact on our results," Johnson said.

For the first half of the fiscal year, Heinz earned $405.5 million, or $1.14 a share,

compared with $312.1 million, or 88 cents a share, a year ago. Sales were $3.99 billion

versus $3.94 billion a year ago.


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