Heinz 4th-Quarter Profit Falls

Pittsburgh, May 28 - The H. J. Heinz Company today reported record sales and profit for Fiscal 2009 with 10.3% growth in earnings per share and 9.2% growth in net income.

Organic sales increased 5.5%, led by strong performances in Emerging Markets, a key growth driver, and North American Consumer Products. The Company benefited from higher sales of Heinz® Ketchup, Classico® pasta sauces, Complan® nutritional beverages and other leading brands as the consumer trend of at-home eating accelerated in response to the global recession.

“Heinz delivered record sales and profit in Fiscal 2009 despite the difficult global environment,” said William R. Johnson, Chairman, President and CEO. “Heinz brands around the world performed well, benefitting from the growing trend of at-home dining.”

Fiscal 2009 Financial Results

Sales in Emerging Markets grew 8.8% on a reported basis and 15.7% on an organic basis, propelled by double-digit organic sales growth in India, Indonesia, Latin America, Poland and baby food in China. In Russia, the world’s second-largest ketchup market, Heinz has become the leader in the Ketchup, Condiments & Sauces category. In India, sales of Complan® have doubled over the past three years and are nearing $100 million.

“Emerging Markets are a key driver of long-term growth for Heinz and they remain on target to generate 20% of our total sales by 2013,” Mr. Johnson said.

Heinz achieved organic sales growth in North American Consumer Products, Asia/Pacific, Europe and Rest of World. Total sales in Fiscal 2009 grew to a record $10.15 billion from $10.07 billion the prior year. Sales grew on a constant currency basis by 7.4% in Fiscal 2009; however, reported sales were reduced by approximately $665 million due to unfavorable translation rates in international markets. In addition, the decline in restaurant traffic continued to impact the Company’s U.S. Foodservice business. About 60% of Heinz’s sales and the majority of the Company’s profit in Fiscal 2009 were generated outside the U.S.

Reported Operating Income declined 4.8% to $1.49 billion due to the negative impact of currency translation (7.7%) and transaction currency cross rates costs in the UK (2.8%). On a constant currency basis, operating income increased 5.7%. Below operating income, Heinz was able to offset almost 90% of the translation currency impact on operating income through currency translation hedging contracts. Fiscal 2009 also included a mark-to-market $20 million gain on the total return swap related to dealer remarketable securities, offsetting much of the additional cost of that debt in Fiscal 2009. Heinz also had a lower tax rate of 28.8%.

In the fiscal year ended April 29, 2009, earnings per share rose to $2.90, from $2.63 a year ago. Full-year net income increased to $923 million.

Heinz reported Operating Free Cash Flow of $880 million, after making an incremental $65 million discretionary pension payment.

Fiscal 2010 Outlook

“Heinz is well positioned for future growth, with strong category-leading brands and core businesses that continue to perform well in this changing environment,” Mr. Johnson said. “We expect to deliver solid EPS and sales growth on a constant currency basis in Fiscal 2010, however, our reported results will likely be affected by unprecedented currency volatility.”

On a constant currency basis:

• Heinz expects sales growth of 4 to 6%
• Heinz anticipates 6 to 8% growth in Operating Income
• Heinz projects EPS growth of 5 to 8%

On a reported basis:

• Based on recent average currency rates, EPS is expected to be in the range of $2.60 to $2.70 for the year.
• The Company is projecting Operating Free Cash Flow of $850 to $900 million.

Heinz will continue to execute the strategy that has generated excellent results over the last three years, with a planned 7 to 10% increase in brand-building marketing investments in Fiscal 2010 (on a constant currency basis) and a heightened emphasis on cost control and global productivity. Heinz has a target of $250 million in productivity savings in Fiscal 2010.

Heinz Increases Dividend

Following its strong performance in Fiscal 2009, Heinz today announced that it will increase its annualized common stock dividend in Fiscal 2010 by 2 cents, to $1.68 from $1.66. Heinz has increased the dividend by 56% since adjusting it for the Del Monte spinoff in December 2002.

Mr. Johnson said, “This dividend increase reflects the ongoing confidence of management and the Heinz Board of Directors in the future of Heinz. We have world-class brands, a proven plan that is delivering growth in our core businesses and Emerging Markets, excellent Cash Flow and one of the best teams in the industry.”

Fiscal 2009 Full-Year Segment Highlights

North American Consumer Products

Organic sales of the North American Consumer Products segment increased 6.4%, while reported sales rose 4.1%. New products such as Ore-Ida® Steam n’ MashTM potatoes and pricing drove the growth. Net prices grew 6.8% reflecting increases taken across the majority of the product portfolio to help offset higher commodity costs. Volume was relatively flat (-0.4%). Unfavorable Canadian exchange translation rates decreased sales 2.3%. Operating income increased 6.8% due to higher pricing and an improved operating margin.

Europe

Organic sales in Europe increased 6.1%, while reported sales declined 3.4% due to the impact of foreign currency translation. Net pricing increased 7.1%, driven by Heinz® Ketchup, beans and soup, broad-based increases in Heinz's Russian business, frozen products in the UK and Italian infant nutrition. Volume declined slightly, down 1% reflecting lower sales in the UK frozen business. Acquisitions, net of divestitures, increased sales 2.5%, primarily due to the acquisition of the Bénédicta® sauce business in France during the second quarter of this year and the Wyko® sauce business in the Netherlands at the end of Fiscal 2008. Unfavorable foreign exchange translation rates decreased sales by 12%.

Heinz Europe sales and profits reflect an almost 12% unfavorable impact this year from translation, and another 7% from UK cross currency transaction movements. As a result, operating income declined 11.9%; however, on a constant currency basis, operating income would have increased 7%.

Asia/Pacific

Heinz Asia/Pacific organic sales increased 4.7% and reported sales rose 1.7%. Pricing increased 6.1%, due primarily to increases in sardines and ABC® sauces and syrup in Indonesia and improved pricing across almost all categories in Australia and New Zealand. Volume decreased modestly, down 1.4%. Acquisitions increased sales 6.8%, due to the third-quarter acquisitions of Golden Circle Limited, a leading fruit and juice business in Australia, and La Bonne Cuisine, a chilled dip business in New Zealand. Unfavorable foreign exchange translation rates decreased sales by 9.8%. Operating income decreased 6.4%, due to a 15.3% impact of currency translation.

U.S. Foodservice

Sales of the U.S. Foodservice segment decreased 3.4%. Pricing increased sales 3.5%, largely due to increases on Heinz® Ketchup, portion control condiments, frozen soup and tomato products. Volume decreased by 6%, reflecting reduced restaurant traffic, Heinz’s decision to exit lower-margin products and customers, and increased competition on Heinz's non-branded products. Divestitures reduced sales 0.9%. Operating income decreased 23.8% due primarily to lower volume, limited pricing and higher commodity and manufacturing costs.

Rest of World

Sales for Rest of World increased 27.3%, with organic growth of 32.2%. Volume increased 4.6% driven by increases in Latin America and the Middle East. Higher pricing increased sales by 27.6%, largely due to inflation in Latin America and commodity-related price increases in South Africa and the Middle East. Foreign exchange translation rates decreased sales 5.2%. Operating income increased 15.2%.

Fiscal 2009 Fourth-Quarter Results

Heinz reported 5.2% organic sales growth for the fourth quarter ended April 29, 2009. Reported sales declined 5.6% due to the impact of currency (-13.9%). Net pricing increased sales by 7.5%, as price increases were taken across the Company’s portfolio to help offset increases in commodity costs. Volume decreased 2.3%, primarily due to a reduction in U.S. Foodservice volume related to declining restaurant sales, which more than offset strong volume growth in India and Continental Europe. Acquisitions, net of divestitures, increased sales by 3.1%. Heinz reported net income of $175 million. EPS of $0.55 came in at the high end of the Company’s expected range.

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, Boston Market® meals, T.G.I. Friday’s® snacks, and Plasmon infant nutrition.