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Heinz CEO: No Buyout Talks, But Rumors Point to Progress

Heinz ketchup.
Keith Srakocic
Heinz ketchup.

H.J. Heinz Chairman and Chief Executive William Johnson told CNBC that the company has not held talks to sell itself, but he thinks recent market speculation about a potential deal is a reflection of the progress the company has made over the past year.

"No, we haven't really had any conversations with anyone," Johnson said, when asked about recent rumors that Heinz could be the target of a private-equity buyout, during an interview on CNBC's "Power Lunch."

"I think those rumors are a reflection of how well we're doing and how attractive we've become, not only to consumers, but to shareholders as well," Johnson said.

Earlier Thursday, Heinz posted an 8% increase in quarterly profits. The Pittsburgh ketchup maker also increased its dividend and raised its fiscal-year forecast.

Last year, Heinz unveiled a cost-cutting plan aimed at improving profit margins, which had been under pressure from rising raw material costs and product development investments.

At the time, Heinz management was being criticized by activist investor Nelson Peltz, who said the company had not moved fast enough to protect its profits from rising costs and increased competition. Peltz waged a proxy battle last summer, and eventually won two seats on the board.

Helped By Investments

Heinz's latest earnings reflected the progress it's made implementing its plans.

Net income for the fourth quarter ended May 2 rose to $181 million, or 55 cents a share, from from $167.9 million, or 50 cents a share, a year earlier.

The results were in-line with the average analyst estimate from Thomson Financial.

The company, whose products include Ore-Ida potatoes and Smart Ones frozen meals as well as its namesake ketchup, said sales rose 0.6% to $2.41 billion from $2.4 billion a year ago.

However, sales were up 4.4% for the company's top 15 brands, which account for 70% of total revenue.

The company, whose shares were higher Thursday, attributed the improved sales to a 44% increase in overall marketing spending during the quarter, especially in its North American retail business.

After overhauling its U.S. and European portfolios over the past several years in a series of restructuring programs, Heinz has ramped up spending on marketing and new product development in order to help generate sales. The company has also been able to raise prices and has sharply cut back on promotional sales discounts.

The latest quarter had one less week than the year-earlier period, resulting in a 7% impact on sales.

"Between very aggressive cost control and some pricing opportunities in markets where we have innovated very well, we’re seeing a lot of margin improvement and feel pretty good about our future," Johnson said, on CNBC.

"I think you have to be aggressive and assiduous in attacking costs because given the commodity prices we’re seeing now and the amount of inflation, if you’re not, that can really set you back pretty significantly," Johnson said.

Outlook

Heinz said it raised its fiscal 2008 earnings outlook to a range of $2.54 to $2.60 per share. Analysts on average have forecast $2.57.

The company sees sales increasing 4% from $9 billion reported for 2007.

Much of the growth in 2008 will come from Heinz's North American, Australian and New Zealand businesses. The company also expects to surpass $1 billion in sales in its emerging markets businesses, driven by double-digit growth in China, India and Indonesia.

Although emerging markets represent only 10% of Heinz's sales, the company expects them to show fiscal 2008 sales growth of more than 30%, Chief Executive William Johnson said on a conference call.

Heinz is also looking at acquisition opportunities in those regions to drive further growth, he said.

The company increased its annual common stock dividend by 8.6% to $1.52 per share annually on the expectation of higher net income. It set a quarterly dividend of 38 cents.

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