Hillshire Brands Delivers Strong Second Quarter

Hillshire Brands Delivers Strong Second Quarter

Full Year EPS Guidance Raised to $1.60-$1.70

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

Second Quarter Highlights (continuing operations)

  • Adjusted1 diluted EPS increased $0.14 to $0.62; reported diluted EPS increased $0.38 to $0.47
  • Adjusted and reported net sales increased by 2.5% and 0.7%, respectively, to $1.06 billion
  • Adjusted operating income increased $26 million to $127 million; reported operating income increased $76 million to $99 million
  • Full year 2013 guidance raised - new adjusted diluted EPS range of $1.60-$1.70

CEO Perspective

"Our business is continuing to perform well and I am very pleased with the progress we're making," said Sean Connolly, president and chief executive officer, The Hillshire Brands Company. "Our investment in MAP is strengthening our core brands, our innovation pipeline is becoming more robust, and we remain highly focused on managing costs. We also clearly benefited from favorable input costs, an area that we expect to become more challenging in calendar year 2013. Based on our strong first half results, and taking into account our outlook for the rest of the year, we are raising full year EPS guidance."

Key Financial Data, Continuing Operations
$ in millions, except per share
 Second Quarter First Half
2013 2012 % Change2013 2012 % Change
Adjusted Net Sales$1,060$1,0352.5%$2,034$1,9882.3%
Reported Net Sales1,0601,0530.7%2,0342,040(0.3)%
Adj. Operating Income12710125.8%22815844.2%
Rep. Operating Income9923NM18347NM
Adj. Diluted EPS0.620.4829.2%1.100.7448.6%
Rep. Diluted EPS0.470.09NM0.870.13NM

Discussion of Second Quarter Continuing Operations Results

For the second consecutive quarter, Hillshire Brands posted increases in adjusted net sales and adjusted operating income versus the prior year quarter. The business has responded well to increased MAP investment and has also benefitted from deflationary input costs.


Net sales in the Retail segment increased 2.2% over the prior year quarter behind higher volumes and favorable mix. Strong performance in Jimmy Dean sandwiches, Aidells, and Hillshire Farm lunchmeat fueled the volume gains in the quarter. Hillshire Farm seasonal items also performed well. Additionally, Hillshire Farm lunchmeat's packaging improvements and product quality enhancements are on track to roll out in the third quarter.

Adjusted operating segment income increased by 23.2% and reported operating segment income increased by 31.5%. Lower input costs were a significant contributor to the increased profit. Higher sales also contributed to earnings growth. In line with the company's growth strategy, MAP investment for the quarter was meaningfully increased from the prior year.


The Foodservice/Other segment reported solid results, with increased net sales of 2.8% behind volume gains in both commodity meats and Foodservice meats. In Foodservice bakery, volumes declined but showed signs of stabilization.

Adjusted operating segment income increased by 8.5% and reported operating segment income decreased by 4.1%. The increase in adjusted operating segment income resulted from higher volume and lower commodity input costs. These gains were partially offset by negative mix from high commodity meat sales and higher bakery production costs.


Excluding significant items, corporate expenses of $13 million decreased $4million versus the second quarter of fiscal 2012 on lower headcount and the benefit of cost saving initiatives. These reductions were partially offset by commodity mark-to-market losses of $4 million for the quarter versus $3 million in gains in the previous year.

Guidance and Outlook

After two quarters of strong business results, Hillshire Brands updated its fiscal 2013 guidance for adjusted diluted EPS to $1.60 - $1.70, with slightly positive sales growth for the year. This guidance range reflects the first half results and the company's strategy to continue to invest in brand building and capabilities. Additionally, the company expects commodity input costs to become more challenging as calendar year 2013 progresses.

Webcast and Form 10-Q

The Hillshire Brands Company's review of its results for the second quarter and first half of fiscal 2013 will be broadcast live via the Internet today at 9:30 a.m. CST. 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. CST on the day of the webcast until July 31, 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 about 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.

1 The 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.




Financial Summary - As Adjusted (1)

For the Quarter and Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
Quarter endedSix Months ended
Dec. 29,Dec. 31,


Dec. 29,Dec. 31,


Continuing operations:
Adjusted net sales:
Intersegment -  (2)  -  (6) 
Total adjusted net sales$1,060 $1,035 2.5%$2,034 $1,988 2.3%
Adjusted operating income/(loss)
Foodservice/Other 28  27 8.5  53  49 9.6 
Adjusted operating segment income14011819.9%24919826.4%
General corporate expenses(8)(19)(20)(37)
Mark-to-market derivatives gains/(losses)(4)31(1)
Amortization of trademarks & intangibles (1) (1)  (2) (2) 
Total adjusted operating income$127 $101 25.8%$228 $158 44.2%
Adjusted income from continuing operations$76 $56 33.6%$136 $87 54.9%
Adjusted net income$79 $178 (55.7)% $141 $304 (53.7)%
Adjusted net Income attributable to Hillshire Brands:
Continuing operations$76$5633.6%$136$8754.9%
Discontinued operations$3$121(97.7)%$5$214(97.5)%
Adjusted diluted earnings per share:
Income from continuing operations$0.62 $0.48 29.2%$1.10 $0.74 48.6%
Net income$0.64 $1.49 (57.0)% $1.15 $2.54 (54.7)%
Adjusted operating margin:
Total Hillshire Brands12.0%9.8%2.2%11.2%8.0%3.2%
(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release



Financial Summary - As Reported

For the Quarter and Six Months ended Dec. 29, 2012 and Dec. 31, 2011 (in millions, except per share data - unaudited)
Quarter endedSix Months ended
Dec. 29,Dec. 31,


Dec. 29,Dec. 31,


Continuing operations:<
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