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HJ Heinz CEO Discusses F2Q11 Results - Earnings Call Transcript

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In Brief...

HJ Heinz (HNZ) F2Q11 Earnings Call October 28, 2010 8:30 am ET. Joining me on today's call are Bill Johnson, chairman, president and CEO; Art Winkleblack, executive vice president and CFO; and Ed McMenamin, senior vice president, finance. Overall, emerging markets generated 15% of the company's total sales in the second quarter, and have generated over 16% through the first half of fiscal 2011. As the U.S. economy begins to improve, I expect sales at our U.S. food service business in the second half of this fiscal year to improve enough to be essentially flat with a year ago, which would be a very positive development after the prolonged downturn in restaurant traffic.. Meanwhile, emerging markets continue to be epicenters of dynamic growth, led by China, which passed Japan earlier this year to become the world's second largest economy. Heinz is raising its outlook for operating free cash flow by 15%, to $1.15 billion, reflecting strong cash generation in the first half of the year. In terms of organic sales, the increase was clearly led by emerging markets, which posted double-digit sales growth in the quarter, driven by China, India, and Russia, and pricing in Latin America. Net pricing increased sales by 0.6%, as pricing in the emerging markets, particularly Latin America and U.S. food service, were partially offset by year-over-year increases in trade promotions for North American consumer products, the U.K., and the Australian businesses. Reported EPS from continuing operations was $1.53, up 6.3% from prior year, and finally, including the $0.04 unfavorable impact from discontinued operations last year, the total company reported EPS was up $0.13.. I think in the second half of the year, from a U.S. standpoint, remember we're up against very difficult comps because of the growth we put behind the CVP program last year. The second thing you should be aware of is, and we made the statements about where deal spending is in the first and second quarter, but year for the year I would expect deal spending as a percentage of sales to be flat, which means in the second half of the year you're not going to see us aggressively chase volume like I think we may have done last year with the CVP program. Having said that, we have a lot of innovation in the second half of the year in the U.S., and my hope in the U.S. is in the second half of the year that we see some volume improvement on Ore Ida, because of recapturing the sweet potatoes that we didn't get in the second quarter. So I would think the second half in the U.S. will be not as good as the first half where we were up between 3-4% in volume. So China for us in the next couple or three or four years ought to be two times what it was, say, last year, if not more. A Food Star acquisition to us makes a big difference as we go into China, leverage our capabilities, leverage our distribution strength, leverage our reach, and then leverage our core competencies of condiments and sauces, and then take those strengths and competencies to the Food Star business.

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