H.J. Heinz Company (HNZ) reported strong results for the fiscal third quarter of 2010 with earnings of 83 cents per share. Earnings were well above the Zacks Consensus Estimate of 64 cents, and were up 9.2% year over year.
Quarterly net sales increased 12.7% year over year to $2.68 billion, primarily attributable to a 6.9% favorable impact from foreign exchange translation and a 2.9% benefit from acquisitions. Volumes grew 1.2% year-over-year and pricing also contributed favorably to the top line by 1.8%. Organic sales, excluding the impact of foreign exchange, grew 3.0% during the quarter.
Revenues by Region
The North American Consumer Products segment reported a 7.0% increase in sales as volumes grew 2.8%. The increase was attributable to higher volume in the U.S. driven by new product introductions, increased investments in marketing and promotions and the timing impact of price increases taken in the prior year.
Europe experienced a 12.1% increase in sales, while volumes grew 3.0%. The growth was primarily due to increased marketing and promotional activities in the U.K.
Sales in the Asia/Pacific grew 41.1%. Unit volume grew 2.5% as new products; increased marketing and higher consumer demand drove significant growth, especially in Indonesia, China and India, while volume in Australia declined.
Foodservice segment sales contracted 3.0%, while volume declined 7.3%. The decline was attributable to softness in U.S. restaurant traffic, promotional timing and ongoing SKU eliminations.
Sales in Heinz’s operations in the rest of the world grew 17.1% and volume increased 1.6%. Increases in the Middle East and South Africa were partially offset by declines in Latin America.
Overall gross margins expanded 174 basis points (bps) to 37.5% versus 35.8% in the year-ago quarter. This was due to productivity improvements, along with higher net pricing and volume.
Other Pluses
The company reported a robust cash flow increase of 88% to $439 million. The improvement was primarily due to strong profit growth and the company’s strategic focus on cash.
Furthermore, during the quarter the company sold two businesses; Appetizers And, Inc., a frozen hors d’oeuvres business in the U.S. Foodservice segment, resulting in a $15 million pre-tax ($10 million after-tax) loss. The second was the private label frozen desserts business in the U.K., resulting in a $31 million pre-tax ($24 million after-tax) loss.
Based on the strong performance of the company in the third quarter, management reaffirmed its recently raised guidance. Annual earnings are expected in the range of $2.82 to $2.85 per share. Previous guidance was $2.72 to $2.82.
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