February 24, 2009 / 12:21 PM / 11 years ago

UPDATE 3-Heinz profit tops view, as currency hedges help

* Q3 EPS $0.69 ex. items vs Wall Street view $0.65

* Q3 revenue down 7.5 pct, hurt by strong dollar

* Stands by full-year view

* Shares up 5 pct (Adds company, analyst comments, byline)

By Brad Dorfman

CHICAGO, Feb 24 (Reuters) - H.J. Heinz Co HNZ.N posted a quarterly profit that topped expectations on Tuesday, helped by hedging its exposure to currencies like the euro and by consumer demand for its ketchup, soup and pasta sauces.

Shares rose 5 percent for Heinz, one of several packaged food makers that has benefited as recession-hit shoppers eat at home more often. The company’s namesake ketchup and its Classico sauces are getting a particular boost as consumers dress up less-expensive meals like pasta and hamburgers.

Ketchup sales rose 9 percent, excluding currency and other factors, as did Classico sales. A decision to hedge exposure to key currencies like the euro, British pound, New Zealand dollar and Australian dollar also helped, the company said on Tuesday.

Heinz’s earnings rose to $242.3 million, or 76 cents per share, for the third quarter ended Jan. 28 from $218.5 million, or 68 cents a share, a year earlier.

Excluding mark-to-market gains resulting from translation hedges on key currencies and from a total rate of return swap, Heinz earned 69 cents a share, beating the analysts’ average forecast of 65 cents, according to Reuters Estimates.

Still, Heinz’s North American sales fell 6 percent as price increases failed to offset volume declines in categories like frozen food, where intense promotions from Nestle AG’sNESN.VX Lean Cuisine brand cut into sales of Heinz’s Smart Ones.

Company sales were also hit as several retailers pared back inventories in the fourth quarter. On Monday, Campbell Soup Co(CPB.N) posted a deeper drop in quarterly sales because retailers cut back on items like condensed soup.[ID:nN23345004]

DESTOCKING A SHORT TERM TREND

But Heinz does not expect the “destocking,” including a move by consumers to use up what they have in their kitchen cabinets before buying more, to continue indefinitely.

“The consumer’s pantry can only go down to so low a level and retail inventories can only go down to so low a level,” Ed McMenamin, senior vice president-finance, said during a conference call with analysts.

Heinz’s total revenue fell 7.5 percent to $2.41 billion, hurt by the stronger dollar. Analysts on average had forecast $2.58 billion, according to Reuters Estimates.

Excluding currency fluctuations, acquisitions and divestitures, sales rose 2 percent, even though the company shipped fewer products.

“Although they had a negative hit from the volume, (higher) prices offset that,” Morningstar analyst Erin Swanson said.

Free cash flow rose 25 percent to $233 million. Heinz said it still expects earnings of $2.87 a share to $2.91 a share for the fiscal year, and organic sales growth of about 6 percent.

CEO William Johnson told analysts last week that the company could not yet forecast 2010 earnings because consumer trends, commodity prices and foreign currency rates were too volatile.

Heinz shares rose $1.75 to $33.72 on the New York Stock Exchange. (Additional reporting by Aarthi Sivaraman in New York; Editing by Lisa Von Ahn and Gerald E. McCormick)

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