TIDMHSH
The Hillshire Brands Company (NYSE: HSH) today reported results
for its first quarter of fiscal year 2014.
-- Net sales increased 1% to $984 million over the prior year's first
quarter
-- Adjusted1 operating income of $76 million, down 24.4%
versus the prior year's 76.5% increase, reflecting significant
input
cost inflation in the quarter and unusually low SG&A in the
prior
year. Reported operating income was down 35.2%
-- Adjusted diluted EPS of $0.35 down 28.6% versus the prior year's 88.5%
increase; reported diluted EPS of $0.23 down 42.5%
CEO Perspective
"I'm pleased to report a solid start to the year," said Sean
Connolly, president and chief executive officer of The Hillshire
Brands Company. "Although input cost inflation has been
significantly higher than anticipated, we continue to make good
progress with our brand-building efforts. In particular, I'm
encouraged by the overall strong consumption trends we've
seen."
"As we've moved into the second quarter, we've begun to take
additional pricing actions. While this will pressure volumes as
consumers adapt to higher price points, we still expect sales
trends to improve in the second half behind a robust innovation
slate. We also still expect gross margins to improve in the second
half, fueled by both our pricing actions and our cost efficiency
programs. Accordingly, our full year guidance remains unchanged at
this time."
Discussion of Continuing Operations Results
Net sales of $984 million were up 1% versus the prior year's
first quarter, as positive pricing and mix in the Foodservice/Other
segment more than offset a modest decline in Retail sales. Adjusted
operating income of $76 million was down by 24.4% over the prior
year, mainly driven by significantly higher input costsas well as
low SG&A, excluding MAP, in the prior year. Reported operating
income was $55 million, down 35.2% from the prior year's first
quarter.
Retail
Retail net sales showed a slight decline of 0.7% in the first
quarter versus a strong prior year comparable. Favorable mix was
more than offset by lower volumes and lower pricing, reflecting
higher above-the-line marketing investment.
Operating segment income declined by 27.8% versus a 45.5%
increase in last year's comparable quarter, primarily driven by
higher input costs. MAP spend was lower than in the prior year's
first quarter, which reflects a modest marketing mix shift to more
trade spend and slotting. SG&A costs, excluding MAP, increased
versus an unusually low prior year comparable number.
Jimmy Dean grew volume and sales behind double-digit growth in
breakfast sandwiches and grew share in the fast-expanding frozen
protein breakfast category. Ball Park increased sales in the low
single-digits with solid performance in hot dogs during the key
grilling season and continued strong growth in flame-grilled
patties. Aidells continued to be a strong performer for the
company, driven in part by the new meatball innovations
outperforming expectations.
Consistent with our expectations, effective promotional programs
on Hillshire Farm lunchmeat re-engaged consumers, resulting in
strong volume growth trends exiting the quarter.
Foodservice/Other
Net sales increased 5.7% from the prior year's first quarter
versus a relatively easy comparable. The increase was driven by
pass-through pricing to cover higher input cost inflation, as well
as favorable mix and higher volumes. Excluding commodity meat
sales, net sales increased 5.2%.
While the Foodservice/Other segment performed well in the
quarter, the macroeconomic environment is expected to remain
challenging, and the outlook for the segment remains modest.
Operating segment income was relatively flat to prior year as
increased pricing fully offset higher input costs.
Corporate
Excluding significant items, corporate expenses for the quarter
totaled $9 million. This includes $2 million of favorable
mark-to-market gains.
Capital Allocation
During the first quarter, the company repurchased 300,000 common
shares for approximately $10 million.
Consistent with its strategy to acquire on-trend brands, the
company completed the previously-announced acquisition of the
Golden Island jerky brand during the quarter.
Outlook
The company's fiscal 2014 guidance remains unchanged at this
time. For the full year, sales are expected to increase slightly as
back-half innovation helps offset expected softness associated with
consumers adapting to higher price points. Adjusted diluted EPS is
expected to be flat to down mid-single digits as inflationary input
costs are partially offset by pricing and cost savings programs.
The company expects an effective tax rate of 35%, net interest
expense of $40 million, and corporate expenses of approximately $60
million, excluding significant items.
The company continues to forecast material input cost inflation
through the remainder of the first half of fiscal 2014. The company
now expects this trend to continue throughout the second half of
the year. Despite this expectation, the company still anticipates
margins will improve in the second half behind pricing actions and
continued progress on cost initiatives.
Webcast
The Hillshire Brands Company's review of its first quarter
fiscal year 2014 results 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 May
1, 2014.
1 The term "adjusted operating income" and other financial
measures identified as "adjusted" are explained and reconciled to
comparable GAAP measures at the end of this release.
About The Hillshire Brands Company
The Hillshire Brands Company (NYSE: 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 9,000 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, GalloSalame and Golden Island
jerky. 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 "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:
-- 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;
-- Hillshire Brands' spin-off of its international coffee and tea
business in June 2012, including potential tax liabilities and
other
indemnification obligations; 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.
Income Statement
Summary:
Reported to
Adjusted
For the Three
Months
ended
September 28,
2013
and September 29,
2012
(in millions,
except per
share
data--unaudited)
Three Months ended
September 28, 2013 September 29, 2012
Reported SignificantItems Adjusted(1) Reported SignificantItems Adjusted(1)
Continuing
Operations:
Retail $ 714 $ 714 $ 719 $ 719
Foodservice/Other 270 270 255 255
Net sales 984 984 974 974
% change from 1.0 % 1.0 %
prior year
Cost of Sales 719 3 716 680 3 677
Gross Profit 265 (3 ) 268 294 (3 ) 297
Gross Margin 27.0 % 27.3 % 30.2 % 30.5 %
SG&A
MAP 40 -- 40 46 -- 46
SG&A (excluding 167 15 152 167 17 150
MAP)
Net charges 3 3 -- (3 ) (3 ) --
(gain) for
exit activities,
asset and
business
dispositions
Total operating 55 (21 ) 76 84 (17 ) 101
income
% change from (35.2 )% (24.4 )%
prior year
Operating Margin 5.6 % 7.8 % 8.7 % 10.4 %
Net interest 11 -- 11 9 -- 9
expense
Income tax 15 (7 ) 22 26 (6 ) 32
expense
(benefit)
Net income $ 29 $ (14 ) $ 43 $ 49 $ (11 ) $ 60
% change from (40.3 )% (27.0 )%
prior year
Net Margin 3.0 % 4.4 % 5.0 % 6.1 %
Reconciliation
from
operating segment
income
to operating
income:
Retail $ 60 $ 60 $ 84 $ 84
Foodservice/Other 25 25 25 25
Operating segment 85 85 109 109
income
General corporate (25 ) (15 ) (10 ) (31 ) (19 ) (12 )
expenses
Mark-to-market 2 -- 2 5 -- 5
derivative
gains/(losses)
Amortization (1 ) -- (1 ) (1 ) -- (1 )
of
trademarks/intangibles
Significant (6 ) (6 ) -- 2 2 --
items -
business segments
Total operating $ 55 $ (21 ) $ 76 $ 84 $ (17 ) $ 101
income
Average Shares
Outstanding
Basic 123 123 122 122
Diluted 125 125 123 123
Earnings per
share
Basic $ 0.24 $ (0.11 ) $ 0.35 $ 0.40 $ (0.09 ) $ 0.49
% change from (40.0 )% (28.6 )%
prior year
Diluted $ 0.23 $ (0.12 ) $ 0.35 $ 0.40 $ (0.09 ) $ 0.49
% change from (42.5 )% (28.6 )%
prior year
(1) Represents a non-GAAP financial measure. See detailed
explanation of these and other non-GAAP measures at end of this
release.
Net Sales Bridge
For the Three Months ended September 28,
2013 (unaudited)
The following table illustrates
the components of
the change in net sales
versus the prior year:
First Three Months ended Retail Foodservice/ Total
September 28, 2013 Other Company
Volume (0.6 )% 0.3 % (0.3 )%
Price/Mix (0.2 ) 5.4 1.2
Organic sales change (0.8 ) 5.7 0.9
Acquisitions 0.1 -- 0.1
Total Net Sales Change (0.7 )% 5.7 % 1.0 %
See detailed explanation of this and other non-GAAP measures in
this release.
Condensed Consolidated
Balance Sheet Data
At September 28, 2013 and June 29,
2013 (in millions--unaudited)
September 28, 2013 June 29, 2013
Assets
Cash and equivalents $ 176 $ 400
Short term investments 193 --
Trade accounts receivable, 223 219
less allowances
Inventories 327 313
Current deferred income taxes 73 71
Income tax receivable 4 18
Other current assets 88 85
Total current assets 1,084 1,106
Property, net of accumulated 809 818
depreciation
of $1,205 and $1,185, respectively
Trademarks and other identifiable 136 121
intangibles
Goodwill 371 348
Deferred income taxes 16 20
Other noncurrent assets 23 21
$ 2,439 $ 2,434
Liabilities and Equity
Accounts payable $ 304 $ 295
Accrued liabilities 349 357
Current maturities of long-term debt 111 19
Total current liabilities 764 671
Long-term debt 840 932
Pension obligation 116 119
Other liabilities 228 228
Equity
Hillshire Brands common 491 484
stockholders' equity
$ 2,439 $ 2,434
Consolidated Statements
of Cash Flows
For the Three Months ended
September 28, 2013 and
September 29, 2012 (in
millions--unaudited)
Three Months ended
September 28, 2013 September 29, 2012
Operating activities -
Net income $ 29 $ 53
Adjustments to reconcile
net income to
net cash from operating
activities:
Depreciation 33 39
Amortization 4 4
Net gain on business -- (9 )
dispositions
Pension contributions, (2 ) (3 )
net of income/expense
Increase (decrease) in (4 ) 8
deferred income taxes
Other 7 --
Changes in current assets
and liabilities,
net of businesses
acquired and sold:
Trade accounts receivable (3 ) 13
Inventories (13 ) (40 )
Other current assets (2 ) 10
Accounts payable 1 (55 )
Accrued liabilities (9 ) (31 )
Accrued taxes 18 16
Net cash from operating 59 5
activities
Investing activities--
Purchases of property (23 ) (35 )
and equipment
Purchases of software and (2 ) (1 )
other intangibles
Acquisition of businesses (35 ) --
Dispositions of businesses -- 16
and investments
Cash from (used (3 ) 5
in) derivative
transactions
Cash used to invest in (193 ) --
short-term investments
Sales of assets -- 1
Net cash used in investing (256 ) (14 )
activities
Financing activities--
Issuances of common stock 2 27
Purchase of common stock (10 ) --
Repayments of other debt (4 ) --
and derivatives
Payments of dividends (15 ) --
Net cash from (used in) (27 ) 27
financing activities
(Decrease) / Increase in (224 ) 18
cash and equivalents
Cash and equivalents 400 235
at beginning of year
Cash and equivalents $ 176 $ 253
at end of period
Supplemental cash flow data:
Cash paid for restructuring $ 21 $ 27
actions
Cash contributions 1 2
to pension plans
Cash paid for income taxes -- 4
Significant
Items
Three Months
ended
September
28, 2013 and
September
29,
2012 (in
millions,
except
per
share
data--unaudited)
Quarter Ended September 28, 2013 Quarter Ended September 29, 2012
(In millions Pretax Net Diluted Pretax Net Diluted
except Impact Income (Loss) EPS Impact Income (Loss) EPS
per share Attributable to Impact (1) Attributable to Impact (1)
data) Hillshire Brands(2) Hillshire Brands(2)
Continuing
Operations:
Restructuring
actions:
Severance/ $ (3 ) $ (2 ) $ (0.02 ) $ -- $ -- $ --
retention
costs
Lease -- -- -- (3 ) (2 ) (0.01 )
& contractual
obligation
exit costs
Consulting/advisory (14 ) (9 ) (0.07 ) (8 ) (5 ) (0.04 )
& other costs
Income from -- -- -- 5 3 0.03
asset
dispositions
Accelerated (5 ) (3 ) (0.03 ) (11 ) (7 ) (0.06 )
depreciation
Total (22 ) (14 ) (0.11 ) (17 ) (11 ) (0.08 )
restructuring
actions
Reimbursed 2 1 0.01 -- -- --
claim
proceeds
Acquisition (1 ) (1 ) (0.01 ) -- -- --
advisory
& other costs
Impact (21 ) (14 ) (0.12 ) (17 ) (11 ) (0.09 )
of significant
items on
income
(loss) from
continuing
operations
Discontinued
operations:
Consulting, -- -- -- (1 ) -- (0.01 )
advisory
& other costs
Gain on the -- -- -- 3 2 0.02
sale
of
discontinued
operations
Impact -- -- -- 2 2 0.01
of significant
items on
income
from
discontinued
operations
Impact $ (21 ) $ (14 ) $ (0.12 ) $ (15 ) $ (9 ) $ (0.08 )
of significant
items
on net income
(loss)
attributable
to
Hillshire
Brands
Impact
of significant
items
on income from
continuing
operations
before
income taxes
Cost of sales $ (3 ) $ (3 )
Selling, (15 ) (17 )
general
and
administrative
expenses
Exit and (3 ) 3
business
dispositions
Total $ (21 ) $ (17 )
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.
(2) Taxes computed at applicable statutory rates.
Explanation of Non-GAAP Financial Measures
Management measures and reports Hillshire Brands' financial
results in accordance with U.S. generally accepted accounting
principles ("GAAP"). In this release, Hillshire Brands highlights
certain items that have significantly impacted the company's
financial results and uses several non-GAAP financial measures to
help investors understand the financial impact of these significant
items. Other companies may calculate these non-GAAP financial
measures differently than Hillshire Brands.
"Significant items" are income or charges (and related tax
impact) that management believes have had or are likely to have a
significant impact on the earnings of the applicable business
segment or on the total company for the period in which the item is
recognized, are not indicative of the company's core operating
results and affect the comparability of underlying results from
period to period. Significant items may include, but are not
limited to: charges for exit activities; consulting and advisory
costs; lease and contractual obligation exit costs; impairment
charges; tax charges on deemed repatriated earnings; tax costs and
benefits resulting from the disposition of a business; impact of
tax law changes; gains on the sale of discontinued operations;
changes in tax valuation allowances; and favorable or unfavorable
resolution of open tax matters based on the finalization of tax
authority examinations or the expiration of statutes of
limitations. Management highlights significant items to provide
greater transparency into the underlying sales or profit trends of
Hillshire Brands or the applicable business segment or discontinued
operations and to enable more meaningful comparability between
financial results from period to period. Additionally, Hillshire
Brands believes that investors desire to understand the impact of
these factors to better project and assess the longer term trends
and future financial performance of the company.
This release contains certain non-GAAP financial measures that
exclude from a financial measure computed in accordance with GAAP
the impact of the significant items and the impact of dispositions.
Management believes that these non-GAAP financial measures reflect
an additional way of viewing aspects of Hillshire Brands' business
that, when viewed together with Hillshire Brands' financial results
computed in accordance with GAAP, provide a more complete
understanding of factors and trends affecting Hillshire Brands'
historical financial performance and projected future operating
results, greater transparency of underlying profit trends and
greater comparability of results across periods. These non-GAAP
financial measures are not intended to be a substitute for the
comparable GAAP measures and should be read only in conjunction
with our consolidated financial statements prepared in accordance
with GAAP.
In addition, investors frequently have requested information
from management regarding the impact of significant items.
Management believes, based on feedback it has received during
earnings calls and discussions with investors, that these non-GAAP
measures enhance investors' ability to assess Hillshire Brands'
historical and projected future financial performance. Management
also uses certain of these non-GAAP financial measures, in
conjunction with the GAAP financial measures, to understand, manage
and evaluate our businesses and in planning for and forecasting
financial results for future periods. Certain of these measures are
also used in determining achievement of compensation under our
annual incentive plan. Many of the significant items will recur in
future periods; however, the amount and frequency of each
significant item varies from period to period.
The following is an explanation of the non-GAAP financial
measures presented in this release.
"Adjusted Diluted EPS" excludes from diluted EPS for continuing
operations the per share impact of significant items.
"Adjusted Net Income" excludes from net income the impact of
significant items related to both continuing and discontinued
operations recognized in the fiscal period presented. It does not
exclude the impact of businesses that have been exited or divested
and does not exclude the impact of businesses acquired after the
start of the fiscal period presented. Results for businesses
acquired are included from the date of acquisition onward.
"Adjusted Net Sales" for continuing operations for all segments
combined or for an indicated business segment excludes from net
sales as reported the impact of businesses that have been exited or
divested for all periods presented but does not exclude the impact
of businesses acquired after the start of the fiscal period
presented. Results for businesses acquired are included from the
date of acquisition onward.
"Adjusted Operating Income" for continuing operations excludes
from operating income the impact of significant items. It also
excludes the results of businesses that have been exited or
divested for all periods presented but does not exclude the impact
of businesses acquired after the start of the fiscal period
presented. Results for businesses acquired are included from the
date of acquisition onward.
"Operating Segment Margin" for continuing operations or an
indicated business segment equals operating segment income for a
business segment divided by adjusted net sales for that business
segment.
"Operating Segment Income" for all business segments combined or
for an indicated business segment excludes from the applicable
operating segment income measure the impact of significant items
recognized by that portion of the business during the fiscal period
presented and excludes the results of businesses that have been
exited or divested for all periods presented but does not exclude
the impact of businesses acquired after the start of the fiscal
period presented. Results for businesses acquired are included from
the date of acquisition onward.
"Adjusted Income from Continuing Operations" excludes from
income from continuing operations the impact of significant items
related to continuing operations recognized in the fiscal period
presented. It does not exclude the impact of businesses that have
been exited or divested and does not exclude the impact of
businesses acquired after the start of the fiscal period presented.
Results for businesses acquired are included from the date of
acquisition onward.
The Hillshire Brands CompanyMedia: Jon Harris,
1.312.614.8661Analysts: Melissa Napier, 1.312.614.8739
This information is provided by Business Wire
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