H. J. Heinz Company (NYSE:HNZ) yesterday announced third-quarter core earnings of $227.4 million, or $0.65 per diluted share, on sales of $2.27 billion for the period ending January 31, 2001, versus $0.63 per share in the year-earlier quarter, in line with its March 5 outlook. Reported net income was $270.5 million, or $0.77 per share versus $171.1 million, or $0.47 per share, last year. (Note: Core earnings exclude special items, as set out in the attached table.) Sales for the third quarter improved 3.7% on a constant currency basis and declined 1.1% on a reported basis, compared with the same period last year.

The company today also unveiled major initiatives to streamline its tuna and pet food supply chain and to reduce global overhead. This includes an aggressive effort to centralize Heinz’s supply chain in Europe. These initiatives will save an estimated $25 million next year and an estimated $60 million a year beginning in Fiscal 2004. The initiatives include the closure of tuna operations in Puerto Rico, the consolidation of North American canned pet food production to Bloomsburg, Pennsylvania and asset sales. The company announced that it will take an estimated $300 million pre-tax charge in the fourth quarter of Fiscal 2001 for these initiatives. (These are preliminary estimates; numbers will be updated following the end of the fourth quarter.)

Commenting on today’s announcements, Heinz’s Chairman, President and Chief Executive Officer William R. Johnson said: “Heinz is taking aggressive action to improve earnings, to drive innovation in our leading brands and to increase the efficiency of our tuna and pet food operations. Our goal is to make all of our global businesses as competitive as possible as Heinz aims to achieve stronger sales and profit growth. With the particular exceptions of weakness in tuna pricing and the effect of currency, Heinz’s underlying earnings were generally strong, fueled by rapid growth in our leading businesses, including Heinz ketchup, foodservice products and Heinz Frozen Food.”

Heinz confirmed its March 5 outlook for Fiscal 2001 that on a constant currency basis and excluding the impact of U.S. tuna pricing, underlying Fiscal 2001 sales and earnings are expected to be up approximately 4-5% and 9-10%, respectively.

Third Quarter Results

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Also, the company confirmed its March 5 revised earnings outlook, reporting core earnings of $227.4 million or $0.65 per diluted share. Including an Italian tax benefit of $0.27 per share and excluding Operation Excel restructuring costs, EPS was $0.92. Reported net income (including the Italian tax benefit and restructuring cost of $0.14) was $270.5 million or $0.77 per share compared with net income of $171.1 million or $0.47 per share in last year’s third quarter.

Heinz’s sales for the third quarter, driven largely by acquisitions, improved 3.7%, excluding the impact of foreign currency exchange rates. Reported third quarter sales declined 1.1% to $2.27 billion from $2.29 billion, reflecting the unfavorable impact of foreign currency.

Core operating income increased 3.3%, excluding the impact of foreign exchange rates. Including the $18.2 million adverse impact of currency, core operating income decreased to $413.6 million from $418.1 million last year. Reported operating income for the third quarter was $340.2 million compared to $336.6 million last year.

Core net income increased to $227.4 million from $227.2 million last year and reported net income was $270.5 million compared to $171.1 million last year. Included in Q3 FY01 net income (other income/expense) were gains from foreign currency hedge contracts, which largely offset the adverse impact of foreign currency translation on operating income.

The underlying tax rate for core earnings was 35% in the third quarters of both Fiscal 2000 and Fiscal 2001. The effective tax rate on reported earnings for the third quarter this year was 2.1%, which includes the benefit of the Italian tax gain of $93.2 million.

Third Quarter Highlights

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Mr. Johnson noted some examples of recent successes:

• Innovation is driving consumption in U.S. ketchup, as EZ Squirt and creative Super Bowl merchandising boosted ketchup consumption 21% over the most recent twelve weeks;
  
• U.S. foodservice has increased net sales by 12% year-to-date;
  
• Sales in North American frozen foods are up 11% year-to-date; and
  
• In China and Indonesia sales are up 33% and 14%, respectively, this year.

Catalysts for Growth

---

At that meeting, Mr. Johnson is expected to outline five catalysts for growth that will define Heinz’s performance in Fiscal 2002 and beyond:

1. Continued growth from strong core businesses focused on providing food solutions for consumers;
   
2. Expanding global markets;
   
3. Innovation;
   
4. Portfolio optimization; and
   
5. Improved financial performance, including an improved balance sheet, greater supply chain efficiency and aggressive operating cost reduction.

New Supply Chain and Overhead Initiatives

---

Specifically referring to the supply chain catalyst listed above, Heinz announced these new initiatives today:

• To increase asset utilization, tuna operations will be closed in Puerto Rico at the end of April and production will be absorbed into facilities already supplying Heinz. In addition, a fleet of eight fishing boats and related equipment will be divested;
  
• Also, at the end of April, Heinz will consolidate all North American canned pet food operations into its manufacturing Center of Excellence in Bloomsburg, Pennsylvania. The company’s Terminal Island, California facility will cease canned pet food operations and assume a redefined role, retaining approximately 200 jobs for processing fish, labeling certain StarKist products, and providing distribution and R&D functions; and
  
• Finally, Heinz will streamline its organization worldwide to reduce its overhead costs.

The net employment impact of these initiatives will be a reduction of approximately 1,900 jobs, primarily in Puerto Rico and Terminal Island. Affected employees will receive severance and benefits packages and outplacement services. “This difficult — but necessary — decision does not reflect the quality or performance of our employees. However, Heinz must address global economic realities that are pressuring all food companies and our pet food and tuna businesses in particular,” Mr. Johnson said.

THIRD QUARTER GLOBAL RESULTS

North American Frozen

---

Another excellent performance by North American Frozen Food saw third-quarter sales increase 13.0% to $256.5 million, as volume rose 11.5%, due primarily to the continuing popularity of Bagel Bites snacks, Smart Ones frozen entrees, and Boston Market HomeStyle Meals.

“Heinz Frozen Food is seeing a 35% increase in sales for Bagel Bites snacks, which are being promoted by X-Games champion Tony Hawk. In addition, we are rolling out 13 new Hot Bites snack items under the Ore-Ida brand,” Mr. Johnson noted.

Core operating income for this segment increased 4.8%, behind a 17% increase in marketing expenditures.

North American Grocery and Foodservice

---

Most of Heinz’s North American businesses had a strong quarter with sales increasing 4.7%, excluding tuna and pet food. Ketchup, condiments and sauces grew sales by 9.2%, buoyed by the popularity of EZ Squirt green and red ketchup, our foodservice ketchup business and an excellent quarter in the portion-control business. Overall, foodservice sales rose a solid 10%. However, reported sales for the entire North American business were down 2.1% to $1.01 billion, reflecting primarily weaker tuna pricing and lower volume for canned pet food. Excluding tuna and pet food, core operating income increased 7.6%.

StarKist Tuna in a Pouch has achieved a 10% share of brand consumption since its introduction last fall. Pounce Purr-fection indulgent cat treats experienced a strong launch and quickly gained a 5.2% national share in just one month, solidifying Heinz’s leadership in the fast-growing cat snack segment, where the company holds a 48% share.

Europe

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Driven by acquisitions, sales in Europe increased 10.8% in local currency and were up 0.3% including the translation effect of the strong U.S. dollar. This performance also reflects competitive pricing and trade destocking in Heinz’s European infant foods business. Core operating income for this segment increased 16.0% on a constant currency basis and 5.6% after adjusting for currency.

Two weeks ago, Heinz announced the acquisition of CSM Food Division of CSM Nederland NV. CSM Food Division is the second-largest food company in the Netherlands, with number-one and number-two brands providing new capabilities in dry soups, sauces and pasta and competitive scale in Northern Europe.

“Our retail sales for frozen ready meals in the U.K. are up nearly 60%, driven by existing volume and acquisitions, and Heinz’s share of the beans and soup markets there are back to more than 55%,” Mr. Johnson said. “Heinz is addressing its infant foods issues in Europe, as we reported on March 5, with an emphasis on meeting the unique needs and concerns of European parents. For example, we are introducing a full range of organic infant foods in the U.K.”

Asia/Pacific

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Sales in Asia/Pacific declined 10.6%, reflecting the negative impact of the strength of the U.S. dollar and, as reported on March 5, reduced sales in Australia and New Zealand (including Japan which is sourced out of New Zealand). Heinz businesses in Indonesia and China continue to perform well, with strong sales and new product offerings. Core operating income for this segment decreased 11.6% on a constant currency basis and decreased 23.6% after adjusting for currency.

“Australia and New Zealand are historically important markets for Heinz,” Mr. Johnson said. “The company has just completed an extensive restructuring. We have developed a new manufacturing matrix in the Pacific and have closed five factories. We are now providing Japanese customers with products made in two expanded plants in New Zealand. With these actions now behind us, we are placing renewed focus on sales and marketing innovations.”

Third Quarter Special Items

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The third quarter results include Operation Excel implementation costs of $73.5 million pre-tax (or $0.14 per share) and a benefit of $93.2 million (or $0.27 per share) from tax planning and new tax legislation in Italy enacted in the third quarter. Last year’s third-quarter results included restructuring charges and implementation costs of $81.6 million pre-tax (or $0.15 per share).

The following tables provide a comparison of the company’s reported results and the core results for the third quarters of Fiscal 2001 and Fiscal 2000.

(Dollars in millions except

 per share amounts)         Third Quarter Ended January 31, 2001

                   —————————————————

                                Gross  Operating  Net

                    Net sales   Profit   Income  Income  Per Share

                   ———- ——– ——– ——– ———-

Reported results $ 2,269.6 $ 884.1 $ 340.2 $ 270.5 $ 0.77
Operation
Excel Costs — 43.2 73.5 50.1 0.14
Italian tax
benefit — — — (93.2) (0.27)

———- ——– ——– ——— ———
Core results $ 2,269.6 $ 927.4 $ 413.6 $ 227.4 $ 0.65
———- ——– ——– ——— ———
———- ——– ——– ——— ———

Third Quarter Ended January 26, 2000
—————————————————
Gross Operating Net
Net sales Profit Income Income Per Share
———- ——– ——– ——– ———-

Reported results $ 2,294.6 $ 902.8 $ 336.6 $ 171.1 $ 0.47
Operation
Excel Costs — 20.7 81.6 56.0 0.15

———- ——– ——– ——— ———

Core results $ 2,294.6 $ 923.5 $ 418.1 $ 227.2 $ 0.63
———- ——– ——– ——— ———
———- ——– ——– ——— ———

(Note: Totals may not add due to rounding.)

Nine-Month Results

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Reported sales for the nine months decreased 1.5% to $6.72 billion from $6.82 billion last year. On a constant currency basis, sales for the nine months increased 2.8%.

Core diluted earnings per share for the nine months increased 7.4% to $2.02 per share from $1.88 per share last year, and core net income increased $27.6 million to $706.9 million from $679.3 million. Reported earnings per share was $1.88 compared to $2.19 last year (which included the gain on the sale of the Weight Watchers classroom business), and reported net income was $661.2 million compared to $793.3 million last year.

The following tables provide a comparison of the company’s reported results and the core results excluding special items for the first nine months of Fiscal 2001 and Fiscal 2000. All of the following special items have been previously disclosed except for additional Operation Excel costs and the benefit from tax planning and new tax legislation in Italy, which occurred in the third quarter of Fiscal 2001.

(Dollars in millions

 except per share amounts)    Nine Months Ended January 31, 2001

                    ————————————————–

                                 Gross   Operating    Net

                     Net sales   Profit   Income    Income  Per Share

                    ———- ——— ——— ——– ———-

Reported results     $ 6,719.6 $ 2,689.6 $ 1,105.2 $  661.2  $  1.88

  Operation Excel

   Costs                —         108.2     206.9    135.3     0.39

  Italian tax

   benefit              —        —        —        (93.2)   (0.27)

  Equity Loss on

   Investment in

   The Hain

   Celestial Group      —        —        —          3.5     0.01

                     ——— ——— ——— ——–  ——-

Core results         $ 6,719.6 $ 2,797.9 $ 1,312.2 $  706.9  $  2.02

                     ——— ——— ——— ——–  ——-

                     ——— ——— ——— ——–  ——-

Nine Months Ended January 26, 2000
————————————————-
Gross Operating Net
Net sales Profit Income Income Per Share
———- ——— ———- ——– ———

Reported results $ 6,819.7 $ 2,671.9 $ 1,508.8 $ 793.3 $ 2.19
Operation Excel
Costs — 62.0 193.3 138.3 0.38
Ecuador expenses — 20.0 20.0 20.0 0.05
Gain on U.K
building sale — — — (11.8) (0.03)
Foundation
contribution — — 30.0 18.9 0.05
Impact of Weight
Watchers
classroom
business (175.3) (93.0) (44.7) (19.6) (0.05)
Gain on sale of
Weight Watchers
classroom
business — — (464.6) (259.7) (0.72)
———- ——— ———- ——– ———
Core results $ 6,644.4 $ 2,660.9 $ 1,242.7 $ 679.3 $ 1.88
———- ——— ———- ——– ———
———- ——— ———- ——– ———

(Note: Totals may not add due to rounding.)

Core operating income for the nine months increased 5.6% to $1.31 billion from $1.24 billion last year. Reported operating income was $1.11 billion compared to $1.51 billion last year. The effective tax rate on core earnings for the nine months was 35.0% compared to 34.8% last year.

This news release contains forward-looking statements regarding the company’s future performance. These forward-looking statements are based on management’s views and assumptions, and involve risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These include, but are not limited to, sales, earnings and volume growth, competitive conditions, production costs, currency valuations, global economic and industry conditions, tuna prices, achieving cost savings and working capital and debt reduction programs, success of acquisitions, divestitures, innovations, and supply chain and overhead initiatives and other factors described in “Cautionary Statement Relevant to Forward-Looking Information” in the company’s Form 10-K for the fiscal year ended May 3, 2000, as updated from time to time by the company in its subsequent filings with the Securities and Exchange Commission.

ABOUT HEINZ: With sales over US$9 billion, H. J. Heinz Company is one of the world’s leading marketers of branded foods to consumers everywhere, whether in supermarkets, restaurants or on the go. Its 50 companies operate in some 200 countries, with more than 20 power brands, including the Heinz® brand with nearly US$3 billion in annual sales. Among the company’s famous brands are Heinz®, StarKist®, Ore-Ida®, 9-Lives®, Wattie’s®, Plasmon®, Farley’s®, Smart Ones®, Bagel Bites®, John West®, Petit Navire®, Kibbles `n Bits®, Pounce®, Pup-Peroni®, Orlando®, ABC®, Olivine®, Juran® and Pudliszki®. Heinz also uses the famous brands Weight Watchers®, Boston Market® and Linda McCartney® under license. Information on Heinz is available at http://www.heinz.com.

                 H. J. Heinz Company and Subsidiaries

                   Consolidated Statements of Income

               (In Thousands, Except per Share Amounts)

Third Quarter Ended Nine Months Ended
———————— ————————-
January 31, January 26, January 31, January 26,
2001 2000 2001 2000
FY 2001 FY 2000 FY 2001 FY 2000
———————— ————————-

Sales $ 2,269,642 $ 2,294,637 $ 6,719,612 $ 6,819,728
Cost of products
sold 1,385,506 1,391,887 4,029,970 4,147,788

———– ———– ———– ———–
Gross profit 884,136 902,750 2,689,642 2,671,940

Selling, general
and administrative
expenses 543,976 566,176 1,584,437 1,627,803
Gain on sale of
Weight Watchers — — — 464,617

———– ———– ———– ———–
Operating income 340,160 336,574 1,105,205 1,508,754

Interest income 6,916 8,598 18,215 16,767
Interest expense 86,395 61,594 249,515 188,377
Other (income)/
expenses, net (15,758) 15,665 (1,045) 22,366

———– ———– ———– ———–
Income before
income taxes 276,439 267,913 874,950 1,314,778

Provision for
income taxes 5,919 96,801 213,770 521,500

———– ———– ———– ———–
Net income $ 270,520 $ 171,112 $ 661,180 $ 793,278
=========== =========== =========== ===========

Net income per
share – diluted $ 0.77 $ 0.47 $ 1.88 $ 2.19
=========== =========== =========== ===========

Average common
shares
outstanding –
diluted 350,761 361,741 350,761 361,741
=========== =========== =========== ===========

Net income per
share – basic $ 0.78 $ 0.48 $ 1.90 $ 2.22
=========== =========== =========== ===========

Average common
shares
outstanding –
basic 347,444 356,690 347,444 356,690
=========== =========== =========== ===========

Cash dividends per
share $ 0.3925 $ 0.3675 $ 1.1525 $ 1.0775
=========== =========== =========== ===========

Note: Both Fiscal 2001 and Fiscal 2000 include restructuring related
items and other non-recurring items.

H.J. Heinz Company and Subsidiaries
Segment Data

(In Thousands)

Third Quarter Ended Nine Months Ended
————————- ————————
January 31, January 26, January 31, January 26,
2001 2000 2001 2000
FY2001 FY2000 FY2001 FY2000
———– ———– ———– ———–

Net external sales:
North American
Grocery &
Foodservice $ 1,011,299 $ 1,032,721 $ 2,983,207 $ 3,027,501
North American
Frozen 256,505 227,086 772,291 694,595
Europe 652,412 650,234 1,914,550 1,807,664
Asia/Pacific 272,567 305,022 806,864 885,875
Other Operating
Entities 76,859 79,574 242,700 404,093
———– ———– ———– ———–
Consolidated
Totals $ 2,269,642 $ 2,294,637 $ 6,719,612 $ 6,819,728
=========== =========== =========== ===========

Operating income
(loss):
North American
Grocery &
Foodservice $ 195,460 $ 184,832 $ 590,311 $ 552,777
North American
Frozen 36,353 37,305 133,341 113,319
Europe 107,742 90,388 332,891 302,755
Asia/Pacific 22,336 39,997 81,386 104,929
Other Operating
Entities 6,878 6,742 36,862 531,149
Non-Operating (28,609) (22,690) (69,586) (96,175)
———– ———– ———– ———–
Consolidated
Totals $ 340,160 $ 336,574 $ 1,105,205 $ 1,508,754
=========== =========== =========== ===========

Core operating
income (loss):
North American
Grocery &
Foodservice $ 225,722 $ 223,047 $ 691,061 $ 661,818
North American
Frozen 44,778 42,745 150,505 134,545
Europe 127,541 120,751 390,660 362,160
Asia/Pacific 35,578 46,543 117,966 127,546
Other Operating
Entities 7,239 7,150 26,160 22,191
Non-Operating (27,218) (22,101) (64,199) (65,586)
———– ———– ———– ———–
Consolidated
Totals $ 413,640 $ 418,135 $ 1,312,153 $ 1,242,674
=========== =========== =========== ===========

Core operating income (loss) excludes special items and the impact of
the Weight Watchers classroom business.

The company’s revenues are generated via the sale of products in the
following categories:

Third Quarter Ended Nine Months Ended
———————— ———————–
January 31, January 26, January 31, January 26,
2001 2000 2001 2000
FY2001 FY2000 FY2001 FY2000
———- ———- ———- ———–

Ketchup, Condiments
and Sauces $ 596,762 $ 577,838 $1,822,350 $1,770,007
Frozen Foods 474,738 383,482 1,385,481 1,042,536
Tuna 228,079 237,459 720,701 771,600
Soups, Beans and
Pasta Meals 313,784 331,106 873,316 877,536
Infant/Nutritional
Foods 230,434 244,046 662,912 716,826
Pet Products 287,630 326,801 851,780 930,674
Other 138,215 193,905 403,072 710,549
———- ———- ———- ———-
Total $2,269,642 $2,294,637 $6,719,612 $6,819,728
========== ========== ========== ==========

H.J. Heinz Company and Subsidiaries
Sales Variance Data

Third Quarter Ended January 31, 2001
—————————————————–

Volume Price Foreign Acquisition/ Total
Exchange Divestiture
——- —— ——– ———– ——–

North American
Grocery &
Foodservice (1.6%) (1.9%) (0.1%) 1.5% (2.1%)
North American
Frozen 11.5% 1.5% — — 13.0%
Europe (1.0%) 2.3% (10.5%) 9.5% 0.3%
Asia/Pacific 0.9% (1.2%) (12.5%) 2.2% (10.6%)
Other
Operating
Entities (2.1%) 0.7% (3.2%) 1.2% (3.4%)
Consolidated
Totals 0.2% (0.2%) (4.8%) 3.7% (1.1%)

Nine Months Ended January 31, 2001
—————————————————–

Volume Price Foreign Acquisition/ Total
Exchange Divestiture
——- —— ——– ———– ——–

North American
Grocery &
Foodservice (0.9%) (2.0%) (0.1%) 1.5% (1.5%)
North American
Frozen 8.6% 2.6% — — 11.2%
Europe 1.2% 0.3% (10.8%) 15.2% 5.9%
Asia/Pacific 0.6% (0.7%) (9.9%) 1.1% (8.9%)
Other
Operating
Entities 3.6% 1.4% (1.4%) (43.5%) (39.9%)
Consolidated
Totals 1.1% (0.6%) (4.3%) 2.3% (1.5%)