H.J. Heinz second-quarter earnings rise slightly, boosted by gain
PITTSBURGH – H.J. Heinz Co., best known for its namesake ketchup brand, on Tuesday reported its second-quarter earnings edged up 2 percent thanks to a one-time gain, and said it is close to selling off several underperforming European businesses.The company, whose brands also include Ore-Ida frozen potatoes and Smart Ones meals, said quarterly profit totaled $203.8 million, or 60 cents per share, up from about $199 million, or 56 cents per share, a year earlier. The results included 9 cents per share from discontinued operations, related to resolved tax liabilities from businesses spun-off to Del Monte Foods Co.Heinz officials told analysts the company’s efforts to streamline and focus on its core brands are paying dividends despite continuing struggles to grow its some of its European businesses and the pressure of rising energy prices.”We’re generally pleased as we posted good results in sales, earnings and cash flow,” said William R. Johnson, president and chief executive officer. “We continue to gain momentum toward our goal of simplifying the company.”Shares of Heinz rose 86 cents, or 2.4 percent, to $35.92 in afternoon trading on the New York Stock Exchange.Earnings from continuing operations fell to $171.8 million, or 50 cents per share, from $197.3 million, or 56 cents per share. The company’s results exceeded analysts’ estimates for earnings of 54 cents per share on $2.3 billion in revenue, according to Thomson Financial.Excluding reorganization charges, expenses for strategic reviews and other costs, the company earned $212 million, or 62 cents per share, and remains on target to report $2.35 to $2.45 in earnings per share by the end of the fiscal year, Johnson said.The company is also poised to finish the year with $900 million to $1 billion in cash flow, Johnson said, which gives it more flexibility in dealing with rising costs and debt.Food companies are facing cost pressures, from commodities pricing to rising energy and packaging costs, said Robert J. Cummins, an analyst with Shields & Co.”They’ve coped with it pretty successfully,” he said. “That’s one of the attractions in the Heinz stocks and food stocks in general.”European sales grew more than 5 percent, buoyed by 9.7 percent sales increases at Heinz’s new acquisitions – Petrosoyuz and HP Foods. Overall, European volume dropped 2 percent. Heinz said the European numbers were hurt by frozen, seafood and vegetable businesses that the company is trying to sell.Heinz expects in December to close the sale of its Netherlands-based HAK vegetable business to NPM Capital, a Dutch private equity firm, for $65 million. Deals to sell the Starkist seafood business in Israel and the Tegel poultry unit in New Zealand are being finalized.Meanwhile, HP Foods and Nancy’s Specialty Foods, a maker of frozen appetizers, quiche and desserts, were both acquired in the first quarter and performed beyond expectations, Johnson said.HP Foods is still being operated as a freestanding business, however, because British regulators have yet to sign off on that acquisition. HP Foods has been integrated into Heinz’s operations elsewhere, but U.K. regulators aren’t expected to approve it until at least April, the company said.Heinz officials have assured analysts that the $820 million HP Foods deal will not dilute earnings, Cummins said.”While they did pay a high price for it, I do definitely feel it’s a positive move for them,” Cummins said. “They recognized themselves that Heinz got involved in too many far-flung businesses and are back to concentrating on their core.”Overall, Heinz revenue increased 6 percent to $2.34 billion from $2.2 billion last year, helped by those acquisitions, but mostly fueled by growth in North America, Australia and Indonesia.