February 3, 2014

Hillshire Brands posts 2.1% rise in net sales in Q2

 

 

 

The Hillshire Brands Company reported a 2.1% rise in its second quarter net sales to US$1.1 billion, an increase of 16.9% in operating income to US$116 million and its fiscal 2014 adjusted diluted earnings per share (EPS) now expected to be near the high end of the previous range.

 

"I'm pleased to report a strong second quarter," said Sean Connolly, president and chief executive officer of The Hillshire Brands Company. "Despite significant input cost inflation, both sales and profit exceeded our expectations. This reflects the strong on-going progress our team is making to build our brands and improve our cost efficiencies. We are now well into the second year of our plan and achieving our goal of delivering strong and sustainable shareholder returns."

 

Net sales of US$1.1 billion were up 2.1% versus the prior year's second quarter as positive price/mix in both Retail and Foodservice/Other segments more than offset volume declines resulting largely from pricing actions. Planned declines in commodity turkey sales also contributed to the volume declines in the Foodservice/Other segment. Adjusted operating income of US$139 million increased 9.0% over the prior year as pricing actions, lower minimum advertised price (MAP), cost efficiencies/favourability, and timing of Selling, General and Administrative Expenses (SG&A) and corporate expenses more than offset significant input cost inflation. Reported operating income was US$116 million, up 16.9% from the prior year's second quarter.

 

Retail net sales were up 2.7% in the quarter versus the prior year as favourable price/mix more than offset lower volumes resulting largely from pricing actions. Operating segment income increased 2.8% versus the prior year's 23.2% increase as increased sales, lower MAP, cost efficiencies/favourability, and timing of SG&A expenses more than offset higher input costs.

 

MAP was down US$9 million in the quarter, reflecting a shift on certain businesses from advertising to merchandising support, aligning the timing of MAP investment with second-half innovation launches, and increased efficiency.

 

Net sales showed a slight increase of 0.3% from the prior year's comparable quarter as favourable price/mix offset volume declines. Excluding commodity meat sales, net sales increased 0.7%. Operating segment income increased 10.9% versus the prior year's 8.5% increase as the segment maintained a rigorous approach to cost management.

The business saw strong performance in desserts, where double-layer Luxe Layer pies are exceeding expectations and Bistro branded desserts sales are up double digits. The business also launched new innovation in the C-store channel, including a Jimmy Dean convenience breakfast sausage that is performing well. Overall, however, the macroeconomic environment remains challenging and the outlook for the segment remains modest.

 

Excluding significant items, corporate expenses for the quarter totalled US$7 million behind cost favourability, timing of expenses, and US$3 million of favourable mark-to-market gains.

 

During the second quarter, the company repurchased 633,000 common shares for approximately US$20 million. On a year-to-date basis, the company has repurchased 933,000 common shares for approximately US$30 million.

 

The company's fiscal 2014 adjusted diluted EPS is now expected to be near the high end of the previously provided range as first-half over-delivery is partially offset by expense timing, investments, and higher than expected second-half inflation. Net sales are still expected to grow slightly as back-half innovation and higher than previously planned MAP investments help offset anticipated volume softness as consumers adapt to higher price points. As second-half input cost inflation is now expected to be significantly higher, the company expects second-half gross margin to be relatively consistent with the first half.

 

Corporate expenses are now expected to be between US$50-US$55 million, excluding significant items and mark-to-market adjustments. The company also expects an effective tax rate of 35-36% and continues to expect net interest expense of approximately US$40 million.

 

The Hillshire Brands Company is a leader in branded, convenient foods. The company generated approximately US$4 billion in annual sales in fiscal 2013, has more than 9,000 employees, and is based in Chicago, Illinois.