H.J. Heinz Co. (HNZ) posted robust earnings of 84 cents per share for the third quarter of fiscal 2011. The result was above the Zacks Consensus Estimate of 81 cents and also ahead of 72 cents per share recorded in the year-ago quarter.
Profits were primarily driven by robust volume growth of 7.2% in emerging markets backed by strong performance of brands like Complan and Glucon-D nutritional beverages in India, ABC branded products in Indonesia, Heinz branded products in Russia, particularly Ketchup and Heinz infant nutrition products in China.
Quarterly Sales Details
During the quarter, total sales inched up 1.5% to $2.72 billion from $2.68 billion in the prior-year quarter. The increase was primarily due to a benefit of 1.2% from the takeover of Foodstar in China partially offset by a net foreign exchange translation impact of 1.4%.
Volume grew by 0.5% accompanied by organic sales growth of 1.7%. Total sales surpassed the Zacks Consensus Estimate of $2.71 billion.
Segment and Margin Details
On a reported basis, sales of the Europe, U.S. Foodservice and Rest of World segments declined. However, Asia/Pacific segment witnessed a strong growth of 16.8% year-over-year backed by strong performance of key brands in India, Indonesia and China.
North American Consumer Products reported a decent 3% growth over the prior year quarter primarily reflecting increased trade promotion. Sales at Rest of The World segment plunged by 14.5%, while sales of Europe and US Food Service segment dipped by 5.3% and 0.5% respectively.
Heinz’s gross profit grew by 2.3% year-over-year to $1028.29 million, while gross margin rose 37.8% from 37.5%. The improvement was mainly attributable to productivity gains, favorable sales mix and increased net pricing.
Selling, general and administrative expenses increased 3.7% due to costs associated with the Foodstar acquisition. Therefore, operating income grew marginally by 0.4% year-over-year to $438.0 million.
Cash Flow and Outlook
For the third quarter of fiscal 2011, Heinz generated $509.5 million of cash from operations, deployed $73.1 million towards capital expenditures and received $1.2 million from asset disposals, leading to a strong free cash flow of $437.5 million.
Moving forward, the company raised its full year 2011 guidance to the range of $3.04 to $3.10 from its previously announced range of $2.95 to $3.05. The outlook reflects the company’s plans to increase investments in Middle East and Latin America.
The Zacks Consensus Estimate is currently pegged at $3.09 per share, which represents a growth of 7.6% over earnings recorded in fiscal 2010. Heinz raised its guidance on operating free cash flow by 4.3% to $1.2 billion.
Heinz which competes with ConAgra Foods, Inc. (CAG) and Campbell Soup Co. (CPB) currently has a Zacks #3 Rank, implying a short-term Hold recommendation.
CONAGRA FOODS (CAG): Free Stock Analysis Report
CAMPBELL SOUP (CPB): Free Stock Analysis Report
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
Zacks Investment Research
