Heinz Earmarks Up To $100 Million In Launch Support

by Karlene Lukovitz, May 30, 2008, 5:00 AM

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A dismal economy didn't stop H.J. Heinz Company from logging an exceptionally strong fiscal '08--nor is it standing in the way of an aggressive new growth plan that includes up to $100 million in marketing to support over 400 product launches over the next two years.

The consumer marketing giant's sales exceeded the $10 billion mark for the first time during the fiscal year that ended April 30, according to financials released Thursday. Sales grew by 12% to $10.1 billion, and earnings per share from continuing operations increased 11% to $2.63, from $2.38 in the previous fiscal.

Operating income jumped 8.5% to $1.57 billion, on increased volume (up 3.6%), pricing (up 3.3%) and productivity, plus favorable exchange rates. Full-year net income from continuing operations rose 7%, to $845 million.

The sales gains were driven by 14% growth in Heinz-branded products, 26% growth in Weight Watchers and Weight Watchers Smart Ones brands, and 25% growth in emerging markets.

Heinz cited its strong positioning and increasing focus within the health and wellness arena--which is growing twice as fast as packaged foods overall--as a major factor in its '08 performance, and a core driver of its growth going forward.

The company, which already had one of the strongest health/wellness portfolios in the business through its wide range of tomato sauces, baked beans, soups, low-cal meals and infant nutrition products, last year introduced more than 200 new products, added functional health/wellness benefits to many offerings, and reduced salt, sugar and fat in others.

In addition to product innovation, Heinz credited its ability to achieve volume and pricing gains to a 15% increase in marketing investment and 17% increase in consumer-focused R&D.

Chairman, President and CEO William R. Johnson also used the financial reporting platform to announce that Heinz has raised its sales and profit outlook for FY 2009 through 2010. The new plan calls for fiscal '09 earnings per share in the $2.83-to-$2.91 range (an increase of 8% to 11% over previous projections), and an annualized dividend of $1.66 per share (an increase of 9.2%). Heinz anticipates a dividend pay-out ratio of about 60% for fiscal 2010.

The growth is to be powered by a two-year "high-performance plan" that includes four key components:

• Growing the core portfolio. Heinz expects to drive 6%+ annual organic sales growth by supporting the 400+ product launches with massive investments in marketing and R&D--including investing an incremental $60 million to $100 million in marketing and targeting 15% of annual revenue from product launches in the prior 36 months.

• Accelerated growth in emerging markets. During fiscal '08, Heinz saw sales and operating income growth of 21% and 30%, respectively, in the Asia/Pacific region, driven by new-product launches and a 35% increase in marketing. In other regions outside North America and Europe, including Latin America and the Middle East, higher demand and pricing drove 18.7% sales growth and a 15.1% gain in operating income. Going forward, Heinz projects annual emerging-markets sales growth in the high teens, with these markets accounting for about 20% of total sales within five years. The growth is to be achieved through the company's strong manufacturing, distribution and sales infrastructure in China, India and other emerging markets, as well as investment in marketing, R&D and capacity expansion.

• Strengthening and leveraging global scale. Heinz plans to leverage its global supply chain to identify more cost-saving opportunities and further optimize its manufacturing and distribution infrastructure. The company expects to close down five to six factories, and gain $400 million in supply chain productivity, over the two years. In addition, hundreds of new, renewable energy and water conservation initiatives are planned as part of Heinz's recently announced sustainability goal of reducing its greenhouse gas emissions by 20% by 2015.

• Further enhancing the company's global talent base. Heinz is "pursuing numerous initiatives in retention, recruitment and career advancement to ensure that people remain a competitive advantage" for the company, according to the plan outline. Executives emphasized that the company's reward system balances short and long-term goals in sales, operating income, EPS and operating free cash flow, return on invested capital and total shareholder return.

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