Hightlights From HJ Heinz's (HNZ) Q3 Conference Call; Overall Growth Throughout World Markets


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February 24, 2009 2:21 PM EST

This morning, HJ Heinz (NYSE: HNZ) reported Q3 earnings of $0.76 per share, 12 cents better than estimates. Revenues were $2.41 billion, lower than the consensus of $2.55 billion. HNZ guided in-line for FY09 earnings. Investors felt positive about the financial report, and shares are up over 5%.

Highlights from Q3 conference call:


  • The key is that this was a solid quarter for Heinz and we remain on track for our full-year targets.
  • Overall the quarter included growth in organic sales of 2%, net income of 11%, EPS of 12% and operating free cash flow of a very strong 25%.
  • For the quarter, reported sales were down 7.5%, but after screening out the impact of currency we were up about 4%.
  • While Q3 organic sales were slower than recent quarters, we continued the string of 15 quarters of positive organic growth despite lapping almost 9% growth in Q3 last year.
  • Clearly, pricing has become a more important driver of our organic growth based on the unprecedented commodity cost inflation that we and the industry have experienced.
  • Our top 15 brands were up almost 2% for the quarter despite the timing impact of price increases on volume. Growth was driven by the Heinz brand, which was up 8% year-on-year. These recession
    resilient categories have responded well to our extensive innovation and marketing initiatives.
  • And finally, Ketchup is becoming a staple in more Latin American markets such as Mexico where we are rapidly gaining share in the world's ninth largest ketchup market.
  • Infant nutrition was another key growth driver for the quarter with organic sales up 7%.
  • Turning to the U.S., the overall grocery market had a difficult 12-week period and January was especially tough. Neilson reported total U.S. grocery unit sales across all center store categories down 3.6% for the 12-weeks ending January 24, widening to a 4.6% decline for the most recent four weeks.
  • While it's still early we are seeing a bit of rebound from this trend in February.
  • Our base off-the-shelf volume remains the healthiest in the category, but our less profitable promoted volume was down significantly in the quarter.
  • Retail take-away for Ore-Ida remained solid, but our shipments were down for the quarter.
  • Emerging markets represent 13% of Heinz total sales in Q3, up a point from Q3 last year and up two points from Q3 of FY '07. We've been growing in these markets for many years through good times and bad.
  • In the current economic environment, we will continue our focus on controlling costs, by prudent discretionary spending while prioritizing our efforts on initiatives that will drive long-term success of Heinz.
  • We faced an 11.4% decline for non-favorable foreign exchange, primarily in Europe, but the dollar has strengthened this year against virtually all markets.
  • We hedged our key currencies for this fiscal year and have offset much of the net income impact of these movements for all of FY '09. However, there are a number of other currencies that we did not hedge from a translation standpoint.
  • Finally, as we mentioned at CAGNY the top priority for us is to strengthen our balance sheet and continue growing our dividend.