HJ Heinz Company Earnings Call INSIGHTS: Emerging Markets, Spending Marketing

On Wednesday, HJ Heinz Company (NYSE:HNZ) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Emerging Markets

Christopher Growe – Stifel Nicolaus & Company: I just wanted to ask a couple of quick questions; the first one just relates to emerging markets; you had obviously a very solid growth again in this quarter. I am curious if you have seen any slowdown in some of the markets like China where we keep hearing about a slowdown. Certainly it’s been more focus on industrials sort of companies but I am curious we’ve seen that kind of linger into the consumer world.

A Closer Look: HJ Heinz Earnings Cheat Sheet>>

Art Winkleblack – EVP and CFO: Chris, as you saw we posted 19% organic growth in our emerging markets and I think even if you take out some of the one-time decisions like the extra month in Brazil and think it was still about 15% organic growth. So we feel very good about where emerging markets are going. I think to your point a lot of the discussion of slowdown in China, I guess they have slowed down their GDP growth rate of about 8% at this point which most countries would love to have, but I think it’s more on the industrial side. Frankly the exploding middle-class in these emerging markets are just coming into their own in terms of ability to afford packaged food and so I think we’re very, very well positioned and we feel very good about the ongoing trajectory of what we think the growth rates will be of our kind of products.

Ed McMenamin – SVP, Finance: Russia and Brazil had outstanding results this quarter and we continue to see them grow.

Christopher Growe – Stifel Nicolaus & Company: I have just one quick follow-up, if I could, just to be clear on the revenue guidance for the year. Does that – you’re calling for at least 4% organic revenue growth guidance does that include the T.G.I. Friday’s exit. I guess Boston market is lingering here in the first quarter and then also you had two less shipping days last year, are those comparison factors? Are those embedded in that 4% guidance?

Art Winkleblack – EVP and CFO: Yeah, that’s all rolled in, Chris.

Christopher Growe – Stifel Nicolaus & Company: All rolled in, okay, so just to make sure of that. Okay. Thank you for your help.

Meg Nollen – SVP, IR and Global Program Management Officer: Right, so really if you strip those away, it’s significantly higher than 4%.

Ed McMenamin – SVP, Finance: Yes.

Spending Marketing

David Palmer – UBS: A quick housekeeping question. I didn’t pick up on the front. The marketing reinvestment of $120 million, is that front-weighted for the year?

Art Winkleblack – EVP and CFO: Is what?

Meg Nollen – SVP, IR and Global Program Management Officer: Is it front-weighted?

Art Winkleblack – EVP and CFO: Let me clarify that. The $120 million, David, if you recall from Analyst Day, about $70 million of that was marketing and the rest in other investments within the business and the marketing really is going to – as I try to allude to, will ramp up through the remaining quarters. So marketing spending was up on a constant currency basis in Q1, but it will be up very significantly in Q2 and then in the remainder of the year. Basically, timed with the timing of our programs, the ideas and ready for the initiatives. So we are feeling good about the trajectory and the plans for going forward.

Meg Nollen – SVP, IR and Global Program Management Officer: You are going to see Heinz spending marketing like you have never seen us before and we are very excited about the launches and the brand support that is coming out, in fact we are going to show you a lot of that at the upcoming Back-To-School Conference, so get ready it’s – Heinz is on the Olympics, we’ve done a number of things so very exciting.

Art Winkleblack – EVP and CFO: So we fully expect to spend at least that $17 million of incremental marketing that we talked about in May.

Christopher Growe – Stifel Nicolaus & Company: The Europe division, you mentioned that conditions were tough there. Are conditions in your opinion in terms of the consumer getting worst there and are you expecting even budgeting for increasingly difficult consumer environment through the fiscal year in that region?

Art Winkleblack – EVP and CFO: Maybe it’s kind of interesting how Europe is sort of A Tale of Two Cities for us, if you go to either end of the continent, we are performing extremely well. So Russia in the east in particularly had a great quarter. We feel really good about the momentum in Russia both from a top line and a gross margin standpoint and the U.K. business continues to be a fortress for us given the strength of our brand equities there and power of the innovation and execution within the business. So at both ends of the continent we feel very good about things. To your point it’s a tough market in the middle of the continent. Continental Europe and Italy, consumer confidence is low, unemployment is high and so it’s a challenging market there and I think we continue to evolve our product and our packaging to meet that environment. I am really pleased that we got a good strong head start on driving European agenda with – what we’re doing with Keystone, what we are doing with the supply chain consolidation…

Meg Nollen – SVP, IR and Global Program Management Officer: Innovation center.

Art Winkleblack – EVP and CFO: …and the innovation center, so lots of things going on to address it. So, I am not so sure that we expect things in the middle of the continent to get too much worst, but we are sure not expecting it to get better anytime soon.

Christopher Growe – Stifel Nicolaus & Company: And the profit growth that was high single digits organic the story there is largely the productivity and restructuring from last year (indiscernible) or is that – a significant portion of that still that promotion efficiency efforts that you have been ongoing?

Art Winkleblack – EVP and CFO: I think it is all of the above. We are certainly getting restructuring benefits that we had expected, so that’s a good thing. We are continuing to drive productivity initiatives this year, particularly value engineering. Strong organic top line growth in some of our markets is certainly helping out as well. And again with regard to Europe, in particular, it is driven at both ends of the continent.