Hillshire Brands Reports Third Quarter Results

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Hillshire Brands Reports Third Quarter Results

Expects Full Year EPS to Be at High End of Guidance Range

CHICAGO--(BUSINESS WIRE)-- The Hillshire Brands Company (NYS: HSH) today reported earnings for the third quarter and first nine months of fiscal 2013.

  • On-track executing first year of three-year plan
  • Net sales fell slightly, driven by a decline in the Foodservice/Other segment
  • Adjusted1 operating income declined 12.9% on planned increases in MAP and SG&A; reported operating income increased 18.8%
  • Adjusted diluted EPS of $0.35 better than anticipated and down 14.6%; reported diluted EPS of $0.34 up 47.8%
  • Fiscal 2013 adjusted diluted EPS expected to be at high end of previous guidance range of $1.60-$1.70

CEO Perspective

"We continue to make progress in executing our three-year plan, making strides in brand building, innovation and rigorous cost management," said Sean Connolly, president and chief executive officer, The Hillshire Brands Company.

"We saw a strong response where we increased our advertising investment in the quarter. We also continued to build out our innovation pipeline. On the cost side, we have now identified opportunities to exceed the $100 million savings target we announced at our investor day in June. These initiatives will provide additional support for our growth strategy and further strengthen our confidence that we will deliver our mid-term targets.

"Our efforts to stabilize challenged businesses also progressed, but clearly our work here is not done. Overall, we are pleased with our efforts to date. In fact, we now expect full year EPS to be at the high end of our previous guidance," added Connolly.

Discussion of Third Quarter Continuing Operations Results

Net sales declined slightly, driven by a decline in the Foodservice/Other segment. MAP investment increased to 4.2% of revenue versus 3.4% in the prior year's third quarter. Operating income was also impacted by planned increases in SG&A as transition service agreements expired and the company approached targeted staffing levels.

 
1The term "adjusted diluted EPS" and other financial measures identified as "adjusted" are explained and reconciled to comparable GAAP measures at the end of this release.
 
 

Key Financial Data, Continuing Operations

$ in millions, except per share

       
Third QuarterFirst Nine Months
2013  2012  % Change2013  2012  % Change
Adjusted Net Sales$924$932(1.0)%$2,958$2,9201.3%
Reported Net Sales924935(1.3)%2,9582,975(0.6)%
Adj. Operating Income7283(12.9)%30024124.6%
Rep. Operating Income655418.8%248101NM
Adj. Diluted EPS$0.35$0.41(14.6)%$1.46$1.1428.1%
Rep. Diluted EPS$0.34$0.2347.8%$1.21$0.36NM
 

Retail

Net sales and volume in the Retail segment were flat compared to the prior year's third quarter. Investments in innovation offset gains in pricing and mix.

Progress in the meat-centric food portfolio continued as both volume and sales grew. Jimmy Dean continued its strong performance behind increased MAP spending which drove growth in breakfast sandwiches and bowls. Ball Park grew as increased MAP spending behind Flame Grilled Patties drove sales. The company's artisanal brands, Aidells and Gallo, continued to grow behind new product launches. Hillshire Farm lunchmeatdeclined, as anticipated, as the company pulled back on MAP and merchandising support to accommodate the supply chain transition to the new lunchmeat package. This transition to the new packaging was more challenging than expected. The company will be implementing solutions to address these challenges in the fourth quarter.

Frozen bakery sales declined in the quarter as a result of planned product discontinuations of low margin SKUs and pricing actions.

Adjusted operating segment income decreased by 3.3% behind planned increases in SG&A and increased investment behind brand building and innovation.

Foodservice/Other

Adjusted net sales declined 3.9% and reported net sales declined 5.0% from the prior year's third quarter. Increased volumes, driven by commodity turkey sales, were offset by unfavorable mix and lower pricing.

While the segment had pockets of growth in the quarter, including volume growth in its convenience store and upscale dessert businesses, macroeconomic pressure on our foodservice customers and continued weak industry trends remain a challenge.

Adjusted and reported operating segment income declined by 41.5% and 47.3%, respectively. The decreases are primarily the result of lower net sales.

Corporate

Excluding significant items, $13 million of corporate expenses is $1 million higher than the third quarter of fiscal 2012.

Guidance and Outlook

The company expects fiscal 2013 adjusted diluted EPS to be at the high end of the previous guidance range of $1.60 - $1.70. This guidance takes into account the expected sales impact and one-time expenses to resolve the previously discussed challenges with the Hillshire Farm lunchmeat package transition.

New Cost Savings Initiatives

At the June 2012 Investor Day presentation, the company announced that it expected to deliver $100 million of savings between fiscal 2013 and fiscal 2015 in support of mid-term targets. At that time, initiatives to deliver $65 million of savings had been identified and are on-track to be realized.

The company has now identified initiatives to deliver the remaining $35 million of cost savings as well as approximately $45 million of additional savings through fiscal 2016. One-time cash investments of $80 to $100 million between fiscal 2013 and fiscal 2016 are expected to deliver ongoing savings of $80 million annually. Non-cash charges may also be taken as the company implements the initiatives.

These initiatives will unlock efficiencies in revenue management, supply chain, and support processes to fuel the company's growth agenda. Additionally, the initiatives will strengthen capabilities that will further position the company for sustained growth and profitability.

Webcast

The Hillshire Brands Company's review of its results for the third quarter and first nine months of fiscal 2013 will be broadcast live via the Internet today at 9:30 a.m. CDT. The live webcast, together with the slides reviewed during the webcast, can be accessed in the Investor Relations section on www.hillshirebrands.com. For people who are unable to listen to the webcast live, a recording will be available on the website at 2:00 p.m. CDT on the day of the webcast until November 1, 2013.

About The Hillshire Brands Company

The Hillshire Brands Company (NYS: HSH) is a leader in meat-centric food solutions for the retail and foodservice markets. The company generates approximately $4 billion in annual sales and has approximately 9,500 employees. Hillshire Brands' portfolio includes iconic brands such as Jimmy Dean, Ball Park, Hillshire Farm, State Fair,Sara Lee frozen bakery and Chef Pierre pies, as well as artisanal brands Aidells and GalloSalame. For more information on the company, please visit www.hillshirebrands.com.

Forward-Looking Statements

This release contains forward-looking statements regarding Hillshire Brands' business prospects and future financial results and metrics, including statements contained under the heading "CEO Perspective" and "Guidance and Outlook". Forward-looking statements are typically preceded by terms such as "will," "anticipates," "intends," "expects," "likely" or "believes" and other similar terms. These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events and are inherently uncertain.

Investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements, and the company wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Hillshire Brands' actual results to differ from such forward-looking statements are those described under Item 1A, Risk Factors, in Hillshire Brands' most recent Annual Report on Form 10-K, as well as factors relating to:

  • Hillshire Brands' spin-off of its international coffee and tea business in June 2012, including (i) Hillshire Brands' ability to generate the anticipated benefits from the spin-off; (ii) the transition of leadership to a new senior management team and the departure of key personnel with historical knowledge; and (iii) potential tax liabilities and other indemnification obligations;
  • The consumer marketplace, such as (i) intense competition, including advertising, promotional and price competition; (ii) changes in consumer behavior due to economic conditions, such as a shift in consumer demand toward private label; (iii) fluctuations in raw material costs, Hillshire Brands' ability to increase or maintain product prices in response to cost fluctuations and the impact on profitability; (iv) the impact of various food safety issues and regulations on sales and profitability of Hillshire Brands' products; and (v) inherent risks in the marketplace associated with product innovations, including uncertainties related to execution and trade and consumer acceptance;
  • Hillshire Brands' relationship with its customers, such as (i) a significant change in Hillshire Brands' business with any of its major customers, such as Wal-Mart, its largest customer; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment; and
  • Other factors, such as (i) Hillshire Brands' ability to generate margin improvement through cost reduction and productivity improvement initiatives; (ii) Hillshire Brands' credit ratings, the impact of Hillshire Brands' capital plans on such credit ratings and the impact these ratings and changes in these ratings may have on Hillshire Brands' cost to borrow funds and access to capital/debt markets; and (iii) the settlement of a number of ongoing reviews of Hillshire Brands' income tax filing positions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Hillshire Brands transacts or has transacted business.
 
 
Consolidated Statements of Income

For the Quarter and Nine Months ended March 30, 2013 and March 31, 2012 (in millions, except per share data—unaudited)

     
Quarter endedNine Months ended
March 30, March 31,March 30, March 31,
2013201220132012
Continuing Operations
Net sales$924 $935 $2,958 $2,975 
Cost of sales6526752,0602,144
Selling, general and administrative expenses205202642646
Net charges for exit activities, asset and business dispositions14770
Impairment charges1  1 14 
Operating income6554248101
Interest expense13223567
Interest income(2)(2)(5)(4)
Income from continuing operations before income taxes543421838
Income tax expense (benefit)12 7 69 (4)
Income from continuing operations42 27 149 42 
Discontinued operations
Income (loss) from discontinued operations, net of tax expense (benefit) of $(5), $(29), $(7) and $2842813(195)
Gain (loss) on sale of discontinued operations, net of tax expense of $13, $29, $14 and $36747 (58)49 402 
Net income (loss) from discontinued operations51 (30)62 207 
Net income (loss)93(3)211249
Less: Income from noncontrolling interests, net of tax
Discontinued operations   3 
Net income (loss) attributable to Hillshire Brands$93 $(3)$211 $246 
Amounts attributable to Hillshire Brands:
Net income from continuing operations$42$27$149$42
Net income (loss) from discontinued operations51(30)62204
Earnings per share of common stock
Basic
Income from continuing operations$0.34$0.23$1.22$0.36
Net income (loss)$0.76$(0.02)$1.72$2.08
Average shares outstanding123119123118
Diluted
Income from continuing operations$0.34$0.23$1.21$0.36
Net income (loss)$0.75$(0.02)$1.72$2.07
Average shares outstanding124119123119
Cash dividends declared per share of common stock$0.125$0.575$0.375$1.150
 
 

Financial Summary—As Adjusted(1)

For the Quarter and Nine Months ended March 30, 2013 and March 31, 2012 (in millions, except per share data—unaudited)

     
Quarter endedNine Months ended

March 30,
2013

 

March 31,
2012

 %

Change

March 30,
2013

 

March 31,
2012

 %

Change

Continuing operations:
Adjusted net sales:
Retail$692$691%$2,188$2,1501.8%
Foodservice/Other232241(3.9)770776(0.8)
Intersegment    (6) 
Total adjusted net sales$924 $932 (1.0)%$2,958 $2,920 1.3%
Adjusted operating income/(loss)
Retail$76$79(3.3)%$272$22819.7%
Foodservice/Other9 16 (41.5)62 65 (3.1)
Adjusted operating segment income8595(9.8)%33429314.6%
General corporate expenses(12)(12)
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