Tue Aug 24, 2004
By Emily Kaiser

CHICAGO (Reuters) - Ketchup maker H.J. Heinz Co. (HNZ.N: Quote, Profile, Research) on Tuesday said quarterly profit rose 7.8 percent, excluding a year-earlier tax benefit, as demand for new products such as Ore-Ida Extra Crispy fries boosted sales.

The Pittsburgh-based company, whose stock rose 2 percent in early trading, said its expanded line of low-carbohydrate frozen foods revived some sales that were lost as carb-shunning diets like Atkins gained popularity.

Heinz earned $194.8 million, or 55 cents per share, in the fiscal first quarter ended July 28, up from $179.8 million, or 51 cents per share, a year earlier, excluding the tax benefit.

The earnings were in line with the average estimate among analysts polled by Reuters Estimates.

Including the tax gain and other one-time items, year-earlier earnings totaled $214.0 million, or 60 cents per share. The tax benefit was related to the spin-off of the company's tuna, pet food and baby food divisions to Del Monte Foods Co. (DLM.N: Quote, Profile, Research) in December 2002.

First-quarter sales rose to $2 billion from $1.9 billion a year earlier, helped by demand for new products including Ore-Ida Extra Crispy and Easy Fries.

The food company said its first-quarter earnings were in line with its full-year targets of $2.32 to $2.42 in earnings per share and $800 million to $1 billion in free cash flow.

Heinz said its North American consumer products segment recorded an 8.4 percent sales increase in the quarter thanks to new french fry lines and a wider selection of low-carb items.

"There was a fall-off in the (frozen potato) category when the low-carb Atkins diet craze began," Chief Financial Officer Art Winkleblack said on a conference call. The company's new low-carb offerings "effectively addressed the issue without overreacting and reworking our entire line," he said.

Operating income in the North American segment rose 3.1 percent, driven by higher sales volume and lower marketing costs. Higher commodity and fuel costs cut into profits, however.

In Europe, sales rose 7.3 percent, helped by a weak dollar and strong demand in Britain and Italy. Operating income rose 5.2 percent.

The company said it introduced a low-salt, low-sugar version of its popular Heinz Baked Beans in Britain, where beans on toast is a popular meal. Heinz said sales had slipped recently because of health concerns, so the company was touting beans as "virtually fat-free, high in fiber and protein, and packed with vitamins and minerals."

In the Asia-Pacific region, sales rose 1.5 percent thanks to the weak dollar, but poor demand in Japan dragged down results. Operating income fell 5.8 percent, largely because of price cuts in New Zealand.

Heinz shares rose 80 cents to $37.40 in early New York Stock Exchange trade.

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