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Heinz Q3 Adj. Profit Tops View, But Revenues Miss

2/21/2013 9:27 PM ET

Ketchup king H.J. Heinz Co. (HNZ: Quote), which is being taken private by Berkshire Hathaway and 3G Capital, reported Thursday a profit for the third quarter that declined from last year, reflecting higher loss from discontinued operations.

However, profit from continuing operations increased 7 percent from last year as higher volume and pricing, as well as double-digit sales growth in emerging markets more than offsetting higher commodity costs. Adjusted earnings per share from continuing operations topped analysts' expectations, while quarterly revenues missed their estimates.

Heinz agreed last week to be taken private by an investment consortium comprised of billionaire investor Warren Buffett's Berkshire Hathaway, Inc. (BRKA, BRKB) and New York-based investment fund 3G Capital for $72.50 per share in cash in a deal valued at about $28 billion, including assumed debt. The deal is deemed as the largest ever in the food industry, and is expected to close in the third calendar quarter of 2013.

The Pittsburgh, Pennsylvania-based maker of Heinz ketchup, Weight Watchers meals and Ore-Ida French fries reported net income of $269.55 million or $0.83 per share for the third quarter, lower than $284.7 million or $0.88 per share in the prior-year quarter.

The company plans to divest Shanghai LongFong Foods, a frozen food business in China, and reclassified it as a discontinued operation.

Income from continuing operations grew to $308.21 million or $0.96 per share from $288.28 million or $0.90 per share in the year-ago quarter.

Excluding special items, adjusted net income for the quarter was $320.30 million or $0.99 per share, compared to $310.93 million or $0.96 per share last year.

On average, 15 analysts polled by Thomson Reuters expected the company to report earnings of $0.90 per share for the third quarter. Analysts' estimates typically exclude special items.

Total sales for the quarter grew 2.0 percent to $2.93 billion from $2.87 billion in the same quarter last year, but missed twelve Wall Street analysts' consensus estimate of $2.99 billion.

Organic sales grew 2.3 percent from last year. Net pricing increased 2.0 percent, and volume edged up 0.3 percent.

Organic sales for emerging markets grew 17.6 percent, led by Latin America, Indonesia and China, and represented 23 percent of total company sales. Global ketchup organic sales increased 4.2 percent, led by strong growth in Russia, Latin America and Canada.

Global organic sales of the company's top 15 brands were up 2.6 percent, and generated more than 70 percent of the company's total sales.

Gross margin for the quarter improved 170 basis points to 37.7 percent, despite higher commodity costs, largely due to higher pricing and productivity improvements.

HNZ closed Thursday's regular trading session at $72.19, up $0.05 or 0.07% on a volume of 7.34 million shares, sharply higher than the three-month average volume of 3.50 million shares. In the past 52-week period, the stock has been trading in a range of $51.91 to $72.61.

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by RTT Staff Writer

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