H. J. Heinz Company today reported strong fourth quarter earnings, propelled by rising sales of ketchup, Heinz's acclaimed foodservice business, European quick serve meals and dynamic sales in Asia/Pacific.

"Heinz, with well-known brands such as Heinz ketchup, Ore-Ida french fries and StarKist tuna, is building global momentum,'' said William R. Johnson, Heinz President and Chief Executive Officer. "With our Fiscal 2000 results, Heinz has delivered an impressive 10.1% compound annual growth rate (CAGR) in EPS over the past four years. Based on our fourth quarter performance, our goal remains the achievement of 10% EPS growth for Fiscal 2001 with stronger performance expected in the second half of the year resulting from the contribution of new brands and Operation Excel savings. Over the past four years, we have significantly improved gross profit margins from 36.6% to
40.5%, improved operating margins from 14.1% to 18.2% and improved Return On Invested Capital from 21.0% to 30.6%, while still investing heavily in our brands.''

Fourth quarter Fiscal 2000 diluted earnings per share increased 5.0% to $0.63 per share from $0.60 per share last year. (Note: All earnings per share amounts are presented on an after-tax diluted basis.) Net income increased $7.0 million to $226.4 million from $219.4 million last year. These results exclude special items, which are described in the tables below. Excluding the impact of the Weight Watchers classroom business, which was sold in the second quarter, diluted earnings per share increased 12.5% and net income increased 9.8%. Including the special items, fourth quarter diluted earnings per share were $0.27 compared to a loss of ($0.25) per share last year, and net income was $97.3 million compared to a loss of ($91.3) million last year.

Sales for the fourth quarter increased $121.3 million or 4.9%. Volume increased 8.8% and acquisitions increased sales 6.5%. Sales were reduced by the impact of divestitures of 6.0%, foreign exchange translation rates of 2.6% and lower pricing of 1.8%.

The strong fourth quarter contributed to a 3.7% year-on-year sales increase, excluding the impact of Weight Watchers. With nearly half of Heinz sales outside the U.S., Heinz brands are now number-one and number-two in over 50 global markets.

Operating income for the fourth quarter increased 3.7%, excluding special items in both periods. Removing the impact of the Weight Watchers classroom business in the prior year, operating income increased 11.7%. Including special items, fourth quarter operating income increased to $224.3 million from a loss of ($2.5) million last year. 

The effective tax rate for the fourth quarter of Fiscal 2000 was 35.0% compared to 36.0% for the same period last year, excluding the impact of special items.

FOURTH QUARTER HIGHLIGHTS

Johnson noted that all of Heinz's segments performed well during the fourth quarter, with double-digit sales increases in North American Frozen, Europe and Asia Pacific.

North American Grocery & Foodservice

This segment had an excellent finish for the fiscal year, with fourth quarter sales increasing by 6.6%. Sales volume increased 7.0%, due to particularly strong performances by foodservice, ketchup and condiments. Acquisitions, net of divestitures, increased sales by 1.6% and a stronger Canadian dollar increased sales by 0.3%. The impact of lower pricing reduced sales by 2.3%.

Operating income increased 15.4%, excluding special items, due to the outstanding performance of Heinz U.S.A. and improvements in pet food. Including special items, operating income increased to $141.7 million from $80.9 million.

North American Frozen

Fourth quarter sales increased 12.7%, driven by volume increases of 12.8%, following the very successful launch of Boston Market Home Style Frozen Meals and the continued momentum of Smart Ones frozen entrees and Bagel Bites snacks. Boston Market frozen meals are on track to achieve $100 million in sales in its first full year of national distribution. Higher pricing increased sales 1.9%. The divestiture of several non-core product lines reduced sales by 2.0%.

Excluding special items, operating income decreased 6.9%, primarily the result of the previously announced national marketing campaign in support of Boston Market. Including special items, operating income decreased 0.7%.

Europe

Heinz Europe delivered sales growth of 16.6%, or 24.3% on a constant currency basis. Sales volume increased 11.3% due to the growth of the John West and Petit Navire tuna brands, the strength of both Heinz quick serve meals (soup, beans, pasta) in the UK and the infant food brands in Italy. This summer will see a Pokemon pasta shape launch in Heinz Europe, replicating the successful Heinz Canada launch last fall. Heinz Europe will also launch Heinz tomato soup in microwaveable format, together with other main soup flavors. Acquisitions, net of divestitures,
increased sales by 14.8%, primarily due to the acquisition of the high-growth brands of United Biscuit's European Frozen and Chilled Division. Unfavorable foreign exchange translation rates, primarily the Euro, reduced sales by 7.7% and lower pricing reduced sales by 1.8%. Excluding acquisitions and divestitures, sales were up 9.5% for the quarter, on a constant currency basis.

Excluding special items, operating income increased 14.6%, or 22.3%, on a constant currency basis. Including special items, operating income increased to $61.5 million this quarter from a loss of ($93.5) million last year.

Asia/Pacific

Fourth quarter sales for this $1.2 billion segment, which includes Australia and New Zealand, increased 11.0%, or 16.4% on a constant currency basis. Heinz now has number-one brand positions in fast-growing markets, such as India, Indonesia, China and the Philippines, with growth rates exceeding 20%. Acquisitions increased sales 9.7% and sales volume increased 8.3%. Unfavorable foreign exchange translation rates decreased sales 5.4% and lower pricing reduced sales 1.6%.

Excluding special items, operating income increased 11.2%, or 17.5% on a constant currency basis, due primarily to the acquisition of ABC Sauces in Indonesia. Including special items, operating income increased to $19.2 million this quarter from a loss of ($0.9) million last year. 

Global Businesses
Heinz's five fastest growing businesses accounting for 65% of global sales are:
-- Ketchup, Condiments & Sauces, with annual sales of $1.3 billion, (mostly under the Heinz brand) and three-year sales CAGR of 7.0%;
-- Foodservice with $1.6 billion in sales, and three-year CAGR of 7.8%;
-- Premium Frozen Food Brands with $1.0 billion in sales and three-year CAGR of 12.0%;
-- Tuna with $1.0 billion in sales and three-year CAGR of 5.3%;
-- Quick-serve meals with $1.2 billion in sales and three-year CAGR of 5.3%

The Heinz label is one of the most powerful and global brands in the food industry, with sales approaching $3 billion this year.

INNOVATIONS

The list of innovations this year is greater than at any time in Heinz's recent history: 

-- Heinz Ketchup - A new trap cap is being introduced by Heinz U.S.A. and supported by prize-winning advertising directed at the global teen market. In the U.S., the company's foodservice division introduced the "forever full" plastic ketchup bottle.

-- Frozen Foods - Boston Market Frozen Home Style Meals continue to win accolades from consumers for exceptional taste and freshness. Six new items are being introduced (cornbread, pot roast, cinnamon apples, broccoli and cheese, beef sirloin with noodles and Swedish meatballs).
The new stand up resealable packaging (SURP) for Ore-Ida products will ship nationally this month. Smart Ones will roll out a line of low- calorie rice or pasta-based "bowls." Our Frozen Foods category is now accelerating the transfer of innovation and speed-to-market across North America, Europe and Asia Pacific.

-- Tuna - In a first-of-its-kind breakthrough, StarKist is launching nationally, three new varieties of tuna in a flexible pouch. This product has achieved record results in test scores due to superior
product performance on taste and texture, and unique "no-drain" convenience. (See news release issued June 15, 2000)

-- Infant Foods - Heinz Italy's "Project Rinascimento" is launching a new line of organic infant foods under the label Bio Dieterba and new packaging for the highly popular Plasmon baby biscuits which have a 61% market share.

Heinz has signed an agreement to buy BeechNut in the U.S. and intends to bring much needed innovation and growth to this category.

The launch of a line of jarred Heinz baby foods for China, the world's largest market, is served by a new factory in Qingdao.

-- UK Salad Cream - Fresh packaging and compelling advertising have reenergized this British favorite and introduced it to a new generation of British consumers.

-- Organic - The company introduced organic baby food, ketchup and beans in Sweden, Denmark and Italy.

-- Gravy - Three new premium varieties of gravy are to be sold under the Boston Market brand in supermarkets.

-- Pet Food - Summer will see the launch of new 9-Lives vitamin-enhanced pet food and new hairball treatments in both wet and dry cat food. Consumers have identified hairballs as the leading ailment for their cats.

Acquisitions in Fiscal 2000

During the past year, Heinz made many acquisitions to boost its presence in faster-growing businesses and global markets: 

-- Joint venture with the leading ketchup brand in the Philippines, led by the popular UFC label. With a combined market share of 85%, this business produces more than 110 million bottles per year for this nation of 76 million people.

-- Yoshida food products in the U.S.A., with leading brands of Asian sauces growing at more than 6% annually.

-- The UB Frozen and Chilled Food brands in Europe, where frozen foods are growing 5-10% per year. Leading brands include: Linda McCartney vegetarian/meat-free meals (with global growth opportunities), McVitie's desserts, San Marco pizzas and Hula Hoops potato products.

-- Quality Chef, one of America's leading foodservice providers of frozen heat-and-serve soups, entrees and sauces, boosting Heinz's fast- growing restaurant and eating-out revenues to $1.6 billion worldwide.

-- Strategic investment in the Hain Food Group (now Hain Celestial Group) to form an alliance for the global production and marketing of natural and organic foods, a $20 billion category in the U.S. growing at 15 to 18% annually.

-- Acquisition of Remedia, the leading brand of infant cereals and biscuits in Israel.

-- Acquisition of Thermo-Pac in the U.S. and Serv-A-Portion in Europe, leading producers of foodservice products, such as single-serve packets for jams, jellies, fruit, sauces, condiments and cheese. Heinz markets over 12 billion single-serve packets every year around the world.

Fourth Quarter Special Items

Operation Excel, the Heinz restructuring program, is delivering on its savings and efficiency goals. Excel has transformed operations to support a parallel country and category focus that better serves the needs of global retailers and foodservice customers and accelerated innovation.

The fourth quarter results include net Operation Excel restructuring charges of $114.2 million pre-tax ($0.20 per share) and implementation costs of $85.3 million pre-tax ($0.16 per share). These Operation Excel restructuring charges include costs for the closure of a pet treat facility, the consolidation of European jarred baby food production in Italy, the sale of the Bloomsburg, Pennsylvania frozen food facility, and the consolidation of administrative functions in North America, Europe and the Asia/Pacific region. Last year's fourth quarter results included Operation Excel
restructuring charges and implementation costs of $411.1 million pre-tax ($0.84 per share).

Fiscal 2000 Results

Sales increased 1.2% to $9.41 billion from $9.30 billion. Volume increased 3.8% and acquisitions increased sales 4.7%. Sales were reduced by the impact of divestitures of 4.4%, primarily as a result of the sale of the Weight Watchers classroom business, pricing of 1.7% and foreign exchange translation rates of 1.2%.

Diluted earnings per share for the year increased 7.1% to $2.57 per share from $2.40 per share last year, and net income increased 4.9% to $925.3 million from $882.4 million, excluding special items which are described in the tables below. Removing the impact of the Weight Watchers classroom business in both years, diluted earnings per share increased 9.6% and net income increased 7.1%. Including these items, diluted earnings per share for the year was $2.47 per share compared to $1.29 per share last year, and net income was $890.6 million compared to $474.3 million last year.

Operating income for Fiscal 2000 increased 3.5%, excluding special items. Additionally, removing the impact of the Weight Watchers classroom business in both years, operating income increased 6.6%. Including these items, operating income increased to $1.73 billion from $1.11 billion last year.

The effective tax rate for Fiscal 2000 was 39.2% compared to 43.2% last year. Excluding special items, the effective tax rate for Fiscal 2000 was 35.0% compared to 36.0% last year.

ABOUT HEINZ: 

With sales over US$9 billion, H. J. Heinz Company is one of the world's leading marketers of branded foods to supermarkets and away-from- home eating establishments. Its 50 companies operate in some 200 countries, offering more than 57 hundred varieties. Among the company's famous brands are Heinz, StarKist, Ore-Ida, 9-Lives, Weight Watchers, Wattie's, Plasmon, Farley's, Smart Ones, The Budget Gourmet, Linda McCartney, San Marco, Go Ahead!, Bagel Bites, John West, Petit Navire, Boston Market, Skippy, Kibbles 'n Bits, Pounce, Wagwells, Nature's Recipe, Orlando, ABC, Olivine and Pudliszki. Information on Heinz is available at http://www.heinz.com. 

Company news release
P2002