Hillshire Brands Reports Full Year Earnings above Guidance Range; Raises Dividend and Announces Plan
Hillshire Brands Reports Full Year Earnings above Guidance Range;
Raises Dividend and Announces Plans to Repurchase Shares
- Fiscal Year 2013 adjusted1 diluted EPS of $1.72; reported diluted EPS of $1.49
- Full-year net sales increased slightly, in line with guidance, with both operating segments showing growth
- Adjusted operating income increased $40 million in the fiscal year; reported operating income increased $221 million
- Fiscal 2014 adjusted diluted EPS expected to be flat to down mid-single digits
- Dividend will increase 40% to $0.70 per share on an annualized basis
- Company targeting repurchases of approximately $200 million of stock over the next two fiscal years
"In this pivotal transition year, we are pleased with the progress we made on our plans to deliver strong and sustainable shareholder returns. This affirms our confidence in the underlying business and enables us to return more cash to shareholders," said Sean Connolly, president and chief executive officer of The Hillshire Brands Company.
"Our strategy of strengthening our core brands through increased MAP and innovation worked well as our strong businesses became stronger and we made progress on our challenged businesses. We also achieved our fiscal 2013 savings targets and identified additional efficiency initiatives. We recognize our work is not done, and we will continue our efforts to strengthen our portfolio," added Connolly.
"As we look to fiscal 2014, we expect performance to gain momentum through the year. First half results will reflect lapping of fiscal 2013 favorability, near-term inflation, and competitive dynamics. Second half performance will be fueled by a robust innovation slate and the benefit of our cost savings programs. As we exit fiscal 2014, our company will be significantly stronger versus where we started, delivering solid growth and well-positioned for fiscal 2015."
Discussion of Continuing Operations Results
In the fourth quarter, net sales of $962 million were down 2.1% versus the prior year's fourth quarter. Consistent with the company's expectations, adjusted operating income decreased 23.2% to $63 million. The lower operating income was driven by the sales decline and planned investments in brand building and innovation. Reported operating income increased to $49 million from a loss in the prior year. Adjusted earnings per share decreased 16.1% to $0.26, and reported earnings per share increased to $0.28 from a loss of $0.52 in the prior year.
For fiscal year 2013, adjusted and reported net sales of $3,920 million were up 0.4% and down 1.0%, respectively, versus the prior year. Adjusted operating income increased 12.5% to $363 million, as the benefits of lower input costs and efficiencies were partially reinvested in MAP. Reported operating income increased 290.7% to $297 million. Adjusted earnings per share increased 18.6% to $1.72, and reported earnings per share increased to $1.49 from a loss in the prior year.
|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.|
Retail net sales declined 3.8% in the fourth quarter versus the prior year. Operating segment income declined 32.3% from the prior year's comparable quarter. This lower operating income was driven by the sales decline and planned investments in brand building and innovation.
Jimmy Dean, which has performed well all year, had another strong quarter, growing both volume and sales behind increased MAP and innovation. Breakfast sandwiches continued their strong growth driven, in particular, by Jimmy Dean Delights. The Ball Park brand also had a good quarter, growing share in hot dogs and delivering continued growth in flame grilled patties. Additionally, Aidells continued to grow behind successful new product launches, including multiple varieties of chicken meatballs.
However, sales gains were more than offset bya material change in inventory levels at a large retail customer during the quarter, the anticipated softness in Hillshire Farm lunchmeat, and pricing investments in certain categories.
During the quarter, the company successfully addressed the Hillshire Farm manufacturing issue related to the new lunchmeat package. Customer service is now back to normal levels and promotional activities have resumed.
For the full year, Retail segment sales were up 0.3% versus the prior year with Jimmy Dean,Ball Park, Aidells, and Gallo all showing positive growth behind increased MAP spend.Operating segment income for the year increased 5.5% over the prior year driven by input cost favorability.
Net sales increased 2.7% from the prior year's fourth quarter. Although the macro environment remains challenging, core foodservice sales grew in the quarter behind double-digit increases in convenience stores and high-end desserts. Commodity turkey sales also contributed to the increase in the quarter. Operating segment income decreased 13.5% behind higher SG&A and MAP.
For the full year, the Foodservice/Other segment net sales were up 0.1% and operating segment income was down 5.0% versus the prior fiscal year.
For the full fiscal year, general corporate expense was $41 million, excluding significant items, reflecting non-repeating favorability in compensation-related and other expenses throughout the year.
Fiscal 2014 Outlook
The company expects sales to increase slightly in fiscal year 2014, building momentum in the back half of the year. This reflects a robust second-half innovation slate offset by near-term competitive dynamics. Additionally, reduced commodity meat sales are expected to impact the company's net sales growth rate by approximately one percentage point.
Adjusted diluted EPS is expected to be flat to down mid-single digits. This outlook takes into account that fiscal year 2013 EPS was favorably impacted by one-time, non-repeating benefits, as well as expected inflationary input costs in fiscal year 2014.
The company anticipates an effective tax rate of 35%, net interest expense of approximately $40 million, and corporate expenses of approximately $60 million, excluding significant items.
The company is increasing its dividend to an annualized rate of $0.70 per share, a 40% increase. The company's board of directors has declared a regular quarterly dividend of $0.175 per share on the company's common stock, payable on October 7, 2013. The dividend is payable to stockholders of record as of the close of business on September 3, 2013.
The company is targeting repurchases of approximately $200 million of stock over the next two fiscal years.
The Hillshire Brands Company's review of its results for the fourth quarter and full fiscal year 2013 will be broadcast live via the Internet today at 8:30 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 February 6, 2014.
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.
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," "Fiscal 2014 Outlook," and "Capital Allocation." 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 Twelve Months ended June 29, 2013 and June 30, 2012 (in millions, except per share data—unaudited)
|Twelve Months ended|
|June 29, 2013||June 30, 2012||June 29, 2013||June 30, 2012|
|Cost of sales||698||713||2,758||2,857|
|Selling, general and administrative expenses||213||284||855||930|
|Net charges for exit activities, asset and business dispositions||2||11||9||81|
|Debt extinguishment costs||—||39||—||39|
|Income (loss) from continuing operations before income taxes||38||(73||)||256||(35||)|
|Income tax expense (benefit)||3||(11||)||72||(15||)|
|Income (loss) from continuing operations||35||(62||)||184||(20||)|
|Income from discontinued operations net of tax expense (benefit) of $(1), $(631), $(8), and $(603)||2||658||15||463|
|Gain on sale of discontinued operations, net of tax expense of $1, nil, $15, and $367||4||3||53||405|
|Net income from discontinued operations||6||661||68||868|
|Less: Income from noncontrolling interests, net of tax|
|Net income attributable to Hillshire Brands||$||41||$||599||$||252||$||845|
|Amounts attributable to Hillshire Brands|
|Net income (loss) from continuing operations||$||35||$||(62||)||$||184||$||(20||)|
|Net income from discontinued operations||6||661||68||865|
|Earnings per share of common stock|
|Income (loss) from continuing operations||$||0.29||$||(0.52||)||$||1.50||$||(0.16||)|
|Average shares outstanding||123||119||123||119|
|Income (loss) from continuing operations||$||0.28||$||(0.52||)||$||1.49||$||(0.16||)|
|Average shares outstanding||125||119||123||119|
|Cash dividends declared per share of common stock||$||0.125||$||—||$||0.50||$||1.15|
Financial Summary—As Adjusted(1)
For the Quarter and Twelve Months ended June 29, 2013 and June 30, 2012 (in millions, except per share data—unaudited)
|Quarter ended||Twelve Months ended|
|June 29,||June 30,||%||June 29,||June 30,||%|
|Adjusted net sales:|
|Total adjusted net sales||$||962||$||983||(2.1||)%||$||3,920||$||3,903||0.4||%|
|Adjusted operating income (loss)|
|Operating segment income||70||99||(29.6||)%||404||392||3.4||%|
|General corporate expenses||(4||)||(15||)||(36||)||(64||)|
|Mark-to-market derivatives gains (losses)||(2||)||(1||)||(1||)||(1||)|
|Amortization of trademarks & intangibles||(1||)||(1||)||(4||)||(4||)|
|Total adjusted operating income||$||63||$||82||(23.2||)%||$||363||$||323||12.5||%|
|Adjusted income from continuing operations||$||33||$||38||(12.8||)%||$||212||$||173||22.3||%|
|Adjusted net income||$||35||$||151||(77.2||)%||$||223||$||574||(61.1||)%|
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