Heinz Second Quarter EPS Rises 20% to $0.71, Sales Increase 13%

PITTSBURGH--(BUSINESS WIRE)--H. J. Heinz Company (NYSE:HNZ) today reported strong double-digit growth in second-quarter sales, operating profit and earnings per share and announced that it is on track to achieve record full-year sales in Fiscal 2008. Second-quarter results were fueled by the Company’s focus on innovation, accelerated growth in Europe and emerging markets, and a 26% increase in infant nutrition sales. Heinz spent 23% more on marketing in support of the Company’s consumer-driven innovation initiatives. As a result of its momentum, Heinz today raised the top end of its Fiscal 2008 range to $2.62 per share.

“Heinz is connecting well with consumers across the world through creative marketing and a full pipeline of innovation. This has contributed to our strong momentum, including the excellent sales and profit performance in the second quarter and our improved outlook for Fiscal 2008”

“Heinz is connecting well with consumers across the world through creative marketing and a full pipeline of innovation. This has contributed to our strong momentum, including the excellent sales and profit performance in the second quarter and our improved outlook for Fiscal 2008,” said Heinz Chairman, President and CEO William R. Johnson.

Mr. Johnson continued, “Based on our momentum, we expect to achieve Fiscal 2008 earnings per share growth of approximately 9-10%, while incrementally investing in marketing, global processes and systems, and managing continuing commodity inflation. Heinz is driving strong operating income and is managing commodity inflation with faster sales growth, strong net pricing, productivity gains, and currency tailwinds resulting from our unique international scale.”

In the second quarter, Heinz sales increased 13.0% to $2.52 billion, from $2.23 billion a year ago. Organic sales, which exclude the impact of foreign currency exchange rates and acquisitions/divestitures, grew 8.1%. Second-quarter net income rose 15% to $227 million or 71 cents per share, compared with income from continuing operations of $197 million, or 59 cents per share, a year ago.

Operating income in the second quarter rose 9.9% to $421 million despite the incremental marketing investments and the impact of higher commodity costs affecting the entire food industry. The strong growth in operating income reflected broad-based profit growth in Europe, Asia/Pacific, and North American Consumer Products, driven by strong volume, net price gains, the success of productivity initiatives and Heinz’s increased investments in marketing and R&D to drive innovation and growth, especially in its top 15 brands.

Second Quarter Highlights

• Sales of the Company’s top 15 brands grew 14%.
• Core categories -- Heinz’s consumer-validated innovation and marketing produced compelling sales growth in each of its core categories in the quarter. Ketchup and Sauces grew 9%, Meals and Snacks increased 14%, and Infant Nutrition posted an impressive increase in sales of 26%.
• Ketchup & Sauces -- Global ketchup sales were up 5% driven by strong performance in Europe. In the U.K., Heinz® Ketchup achieved its highest household penetration in over three years as new varieties such as Reduced Sugar & Salt, Organic Top Down, and Tomato Ketchup with a Twist brought new consumers into the category.
• Meals & Snacks -- Globally, soup sales increased 18% and beans rose 13%. Sales of Heinz soups in the U.K. rose 23.4% and achieved record value share following the launch of the new Taste of Home, Farmers’ Market, and Soups of the World ranges.
• Infant Nutrition -- Sales of Plasmon, Italy’s leading brand of infant nutrition products, rose 18.9%, reflecting increased innovation, higher volume on existing products, and increased net pricing.
• Emerging Markets -- Heinz’s emerging markets continued to excel, with sales up 24% in the quarter driven by new products and packaging improvements. In China, sales of Long Fong frozen dumplings, rice balls, appetizers, and hot pot soups increased more than 25%, and sales of Heinz infant nutrition products in China increased more than 40% following the successful relaunch of both Heinz infant cereals and jars.

Heinz managed commodity inflation with strong growth, price increases averaging 2.6% and continued productivity gains. Favorable foreign exchange offset a small portion of commodity cost increases in the quarter.

The tax rate for the quarter was 29.8% versus a rate of 34.8% in the prior year. Heinz expects its full-year tax rate to be around 31%, compared to last year’s full year rate of 29.6%.

SECOND-QUARTER SEGMENT HIGHLIGHTS

NORTH AMERICAN CONSUMER PRODUCTS

Sales of the North American Consumer Products segment increased 12.6%, with organic sales up 9.7%. Volume increased an impressive 6.7%, driven primarily by Smart Ones^® frozen entrees and desserts, Boston Market® frozen entrees and Classico® pasta sauces. Net price increases on Ore-Ida^® frozen potatoes, along with reduced promotions on Classico® pasta sauces, resulted in overall price gains of 3.0%. The prior year acquisition of Renee’s Gourmet Foods increased sales 0.9% and favorable Canadian exchange translation rates increased sales 1.9%.

Heinz will continue to deliver against its commitment to Health & Wellness with the December 3 launch of Smart Ones Fruit Inspirations™, the first line of frozen meals to contain a half-serving of fruit.

Operating income increased almost 7%, due to volume and pricing increases, which were partially offset by continued increases in commodity costs.

EUROPE

Heinz Europe posted very strong results in the quarter as sales increased 18.0%, with organic sales growth of 10.4%. Volume increased 9.1%, principally due to excellent performance on Heinz^® ketchup, soup, beans and salad cream, Italian infant nutrition, and Pudliszki^® branded products in Poland. Net pricing increased sales 1.3%. Divestitures reduced sales 1.6%, while favorable exchange translation rates increased sales by 9.2%.

Operating income increased 14.8%, driven largely by increased volume and price along with favorable foreign exchange rates. These increases were partially offset by increased commodity costs and incremental marketing investments.

ASIA/PACIFIC

Heinz Asia/Pacific also generated very strong results in the quarter as sales increased 16.8%. Organic sales growth was 6.1% reflecting strong results in India, China and Australia, related primarily to new product introductions. Volume rose 3.5% behind increased marketing to support new products. Pricing increased sales 2.6% and acquisitions, net of divestitures, increased sales 2.2%, primarily due to the first quarter acquisition of the Cottee’s® and Rose’s® premium branded jams, jellies and toppings business in Australia and New Zealand. Favorable exchange translation rates increased sales by 8.4%.

Operating income increased 21.8%, due to increased volume and pricing, favorable sales mix and favorable foreign exchange translation rates, partially offset by increased commodity costs and marketing expense.

U.S. FOODSERVICE

Sales of the U.S. Foodservice segment increased slightly behind a 2.1% improvement in net price largely related to commodity driven price increases and reduced promotional spending on Heinz Ketchup, tomato products and frozen soup. Volume decreased 1.7% reflecting decreases in tomato products and frozen appetizers, partially offset by increases in frozen desserts. Divestitures reduced sales 0.3%.

Operating income decreased 13.5%, as U.S. Foodservice was disproportionately hit by rising commodity costs, particularly dairy and oil. This performance is factored into the Company’s outlook for the full year.

REST OF WORLD

Sales for Rest of World increased 21.7% due to organic sales growth of 20.5%. Volume was up 6.7% due primarily to strong performances in the emerging markets, led by infant nutrition sales in Latin America. Higher pricing increased sales by 13.8%, due primarily to price increases and reduced promotions in Latin America. Favorable foreign exchange translation rates increased sales 1.3%. These strong commercial gains drove an increase in operating income of 23.4%.

YEAR-TO-DATE HIGHLIGHTS

Sales for the six months ended October 31, 2007 increased 11.2%, well above the long-term target growth rate of 4%. Organic sales increased 6.7%, with organic growth generated in all five business segments. Volume increased 4.0%, reflecting strong volume growth of 5.9% in Europe and sustained growth in North American Consumer Products, Australia, New Zealand, and the emerging markets. Net pricing increased sales by 2.7%, mainly in North America, as well as Heinz’s businesses in the U.K. and Latin America. Divestitures, net of acquisitions, decreased sales by 0.3%. Foreign exchange translation rates increased sales by 4.8%.

Operating income increased 12.1%, as strong volume, net price increases, and productivity improvements, were partially offset by continued increased commodity costs. For the first half of the year, SG&A excluding marketing is favorable by 110 basis points as a percentage of sales. On a year-to-date basis, the tax rate is consistent with last year at 28.3%. Income from continuing operations was $432 million compared to $392 million in the prior year, an increase of 10.4%. Diluted earnings per share from continuing operations was $1.34 in the current year compared to $1.17 in the prior year, up 14.5%, which also benefited from a 3.3% reduction in fully diluted shares outstanding. Net income was $432 million compared to $386 million, an increase of 12.1%.

MEETING WITH SECURITIES ANALYSTS – INTERNET BROADCASTS

Heinz will host an investor and analyst call today at 8:30 a.m. (Eastern Time). The call will be webcast live on www.heinz.com and will be archived for playback. The call is available live for Media (listen only) at 800-955-1760. Slides are now available for this call on www.heinz.com.

The conference call will be hosted by William R. Johnson – Chairman, President and Chief Executive Officer; Art Winkleblack – Executive Vice President and Chief Financial Officer; Ed McMenamin, Senior Vice President - Finance and Corporate Controller; and Margaret Nollen – 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, and energy costs,
• 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 relationships,
• currency valuations and interest rate fluctuations,
• changes in credit ratings and economic conditions and the impact of these factors on the cost of borrowing and access to capital markets,
• 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 and increase productivity,
• the ability to effectively integrate acquired businesses, new product and packaging innovations,
• product mix,
• the effectiveness of 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 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,
• the ability to implement new information systems, 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 2, 2007.

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”^TM is one of the world’s leading marketers and producers of healthy and convenient 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. Heinz is famous for its iconic brands on five continents, showcased by Heinz® ketchup, The World’s Favorite Ketchup®. Information on Heinz is available at www.heinz.com.

H. J. Heinz Company and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except per Share Amounts)
		Second Quarter Ended								Six Months Ended
		October 31, 2007				November 1, 2006				October 31, 2007				November 1, 2006
		FY2008				FY2007				FY2008				FY2007
Sales		$	2,523,379			$	2,232,225			$	4,771,664			$	4,292,145
Cost of products sold			1,591,577				1,385,627				3,001,462				2,673,130
Gross profit			931,802				846,598				1,770,202				1,619,015
Selling, general and administrative expenses
			510,806				463,613				982,552				916,388
Operating income			420,996				382,985				787,650				702,627
Interest income			10,482				7,103				23,363				14,395
Interest expense			97,482				80,172				188,712				155,798
Other expense, net			(10,778	)			(7,106	)			(19,368	)			(14,817	)
Income from continuing operations before income taxes			323,218				302,810				602,933				546,407
Provision for income taxes			96,181				105,379				170,602				154,875
Income from continuing operations			227,037				197,431				432,331				391,532
Loss from discontinued operations, net of tax			-				(5,856	)			-				(5,856	)
Net income		$	227,037			$	191,575			$	432,331			$	385,676
Income/(loss) per common share - Diluted
Continuing operations		$	0.71			$	0.59			$	1.34			$	1.17
Discontinued operations			-				(0.02	)			-				(0.02	)
Net Income		$	0.71			$	0.57			$	1.34			$	1.15
Average common shares outstanding - diluted
			321,903				334,617				323,790				334,767
Income/(loss) per common share - Basic
Continuing operations		$	0.72			$	0.60			$	1.36			$	1.18
Discontinued operations			-				(0.02	)			-				(0.02	)
Net Income		$	0.72			$	0.58			$	1.36			$	1.16
Average common shares outstanding - basic
			317,073				330,670				319,069				331,077
Cash dividends per share		$	0.38			$	0.35			$	0.76			$	0.70
(Totals may not add due to rounding)

H. J. Heinz Company and Subsidiaries
Segment Data
			Second Quarter Ended								Six Months Ended
			October 31, 2007				November 1, 2006				October 31, 2007				November 1, 2006
			FY2008				FY2007				FY2008				FY2007
Net external sales:
	North American Consumer Products		$	756,233			$	671,644			$	1,420,905			$	1,287,221
	Europe			872,446				739,428				1,638,463				1,425,290
	Asia/Pacific			395,846				338,999				767,191				654,845
	U.S. Foodservice			406,441				406,222				770,109				772,835
	Rest of World			92,413				75,932				174,996				151,954
	Consolidated Totals		$	2,523,379			$	2,232,225			$	4,771,664			$	4,292,145
Operating income (loss):
	North American Consumer Products		$	177,471			$	165,965			$	329,881			$	309,179
	Europe			159,987				139,386				298,382				258,735
	Asia/Pacific			55,755				45,761				107,006				79,929
	U.S. Foodservice			51,494				59,537				95,043				114,593
	Rest of World			12,809				10,384				22,960				19,102
	Non-Operating			(36,520	)			(38,048	)			(65,622	)			(78,911	)
	Consolidated Totals		$	420,996			$	382,985			$	787,650			$	702,627
The company's revenues are generated via the sale of products in the following categories:
	Ketchup and Sauces		$	999,421			$	915,149			$	1,971,263			$	1,816,124
	Meals and Snacks			1,147,943				1,009,344				2,092,765				1,863,287
	Infant Foods			268,875				213,202				507,825				426,899
	Other			107,140				94,530				199,811				185,835
	Total		$	2,523,379			$	2,232,225			$	4,771,664			$	4,292,145

H. J. Heinz Company and Subsidiaries
Sales Variances
The following table illustrates the components of the change in net sales versus the prior year for each of the five reported business segments.
			Second Quarter ended October 31, 2007
									Organic									Total
			Volume		+	Price		=	Sales Growth (a)		+	Foreign Exchange		+	Acquisitions/ Divestitures		=	Net Sales Change
Segment:
	North American Consumer Products		6.7	%		3.0	%		9.7	%		1.9	%		0.9	%		12.6	%
	Europe		9.1	%		1.3	%		10.4	%		9.2	%		(1.6	%)		18.0	%
	Asia/Pacific		3.5	%		2.6	%		6.1	%		8.4	%		2.2	%		16.8	%
	U.S. Foodservice		(1.7	%)		2.1	%		0.4	%		0.0	%		(0.3	%)		0.1	%
	Rest of World		6.7	%		13.8	%		20.5	%		1.3	%		(0.1	%)		21.7	%
	Consolidated Totals		5.5	%		2.6	%		8.1	%		5.0	%		0.0	%		13.0	%
			Six Months ended October 31, 2007
									Organic									Total
			Volume		+	Price		=	Sales Growth (a)		+	Foreign Exchange		+	Acquisitions/ Divestitures		=	Net Sales Change
Segment:
	North American Consumer Products		5.1	%		2.5	%		7.6	%		1.4	%		1.4	%		10.4	%
	Europe		5.9	%		2.3	%		8.2	%		8.6	%		(1.8	%)		15.0	%
	Asia/Pacific		4.8	%		1.9	%		6.7	%		9.7	%		0.8	%		17.2	%
	U.S. Foodservice		(2.2	%)		2.6	%		0.4	%		0.0	%		(0.8	%)		(0.4	%)
	Rest of World		6.5	%		11.6	%		18.1	%		0.5	%		(3.5	%)		15.2	%
	Consolidated Totals		4.0	%		2.7	%		6.7	%		4.8	%		(0.3	%)		11.2	%
(a) 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. Organic sales growth is a non-GAAP measure that excludes the impact of foreign currency exchange rates and acquisitions/divestitures. These tables provide the calculation of these non-GAAP performance ratios discussed in the Company's press release dated November 29, 2007.