Heinz Profit Climbed 12% Ahead of Buffett, Lemann Deal

HJ Heinz Co., the world’s largest ketchup maker, said fiscal fourth-quarter profit climbed 12 percent ahead of the company’s takeover by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) and Jorge Paulo Lemann’s 3G Capital.

Net income rose to $195.9 million in the three months ended April 28, Pittsburgh-based Heinz said today in a regulatory filing. That compares with $175.3 million in the same period last year, when the company recorded costs tied to factory closures and job cuts.

Berkshire and 3G completed the Heinz deal in June for $28.8 billion including debt financing. The new owners may first focus on paying down debt then use the ketchup maker as a platform for acquisitions and expansion in emerging markets, Jack Russo, a St. Louis-based analyst at Edward Jones & Co. who covered the food company until it stopped trading, said in a phone interview before the filing.

“The two key attributes of this company were leading brands and the fact that they had exposure in markets like Russia and Brazil and China,” he said. “That’s what attracted Warren Buffett and 3G.”

Annual profit was $1.01 billion compared with $923.2 million a year earlier. Organic sales growth in the global ketchup segment, a measure that excludes currency fluctuations, was 4.6 percent for the year, as results improved in Russia, Brazil and the U.S., Heinz said. In emerging markets, overall organic sales jumped 17 percent.

3G’s Management

Buffett, 82, has said that he agreed to the deal in part because of 3G’s management ability. Lemann’s firm will oversee operations and in April named former Burger King Worldwide Inc. (BKW) CEO Bernardo Hees, 43, to run Heinz. He succeeded William Johnson, 64, who led the food maker for 15 years and pushed through a turnaround plan after investors including Nelson Peltz agitated for change.

Hees has already begun to shake up management at the company. On June 20, Heinz said that 11 executives, including North America CEO David Moran, were leaving. Eleven other managers were named to a new senior leadership team.

The changes recall actions that 3G took at Burger King after buying the company in October 2010. Within two months of completing the deal, the hamburger chain said it was cutting 413 jobs at North American and Latin American operations, including positions at headquarters in Miami.

Burger King’s employee count fell about 12 percent to 34,248 from mid-2010 through 2011, according to regulatory filings. Lemann’s firm sold part of its stake in the chain last year in an initial public offering.

Berkshire and 3G each paid about $4 billion for half the common equity in Heinz’s new holding company. Buffett also spent $8 billion for preferred shares that pay a 9 percent dividend and give Omaha, Nebraska-based Berkshire warrants to buy an additional 5 percent stake for a “nominal sum.”

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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