Hillshire Brands Co Hillshire Brands Reports Full Year Earnings above Guidance Range; Raises Dividend and Announces Plans to ...

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Hillshire Brd	LSE:HSH	London	Ordinary Share		COM STK USD0.01

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

 
TIDMHSH

The Hillshire Brands Company (NYSE: HSH) today reported earnings for the fourth quarter and full fiscal year 2013.

 
 
    -- 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

CEO Perspective

"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

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.

Foodservice/Other

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.

Corporate

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.

Capital Allocation

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.

Webcast

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 (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 9,500 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," "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) 
                  Quarter ended                     Twelve Months ended 
                  June 29, 2013    June 30, 2012    June 29, 2013    June 30, 2012 
Continuing 
Operations 
Net sales         $ 962            $ 983            $ 3,920          $ 3,958 
Cost of           698              713              2,758            2,857 
sales 
Selling,          213              284              855              930 
general 
and 
administrative 
expenses 
Net               2                11               9                81 
charges 
for exit 
activities, 
asset and 
business 
dispositions 
Impairment        --                --                1                14 
charges 
Operating         49               (25     )        297              76 
income 
Interest          13               10               48               77 
expense 
Interest          (2      )        (1      )        (7      )        (5      ) 
income 
Debt              --                39               --                39 
extinguishment 
costs 
Income            38               (73     )        256              (35     ) 
(loss) 
from 
continuing 
operations 
before 
income 
taxes 
Income tax        3                (11     )        72               (15     ) 
expense 
(benefit) 
Income            35               (62     )        184              (20     ) 
(loss) 
from 
continuing 
operations 
Discontinued 
Operations 
Income            2                658              15               463 
from 
discontinued 
operations 
net of tax 
expense 
(benefit) 
of 
$(1), 
$(631), 
$(8), and 
$(603) 
Gain on           4                3                53               405 
sale 
of 
discontinued 
operations, 
net 
of 
tax expense 
of $1, 
nil, $15, 
and $367 
Net income        6                661              68               868 
from 
discontinued 
operations 
Net income        41               599              252              848 
Less: 
Income 
from 
noncontrolling 
interests, 
net of tax 
Discontinued      --                --                --                3 
operations 
Net               $ 41             $ 599            $ 252            $ 845 
income 
attributable 
to 
Hillshire 
Brands 
Amounts 
attributable 
to 
Hillshire 
Brands 
Net income        $ 35             $ (62   )        $ 184            $ (20   ) 
(loss) 
from 
continuing 
operations 
Net income        6                661              68               865 
from 
discontinued 
operations 
Earnings 
per 
share 
of common 
stock 
Basic 
Income            $ 0.29           $ (0.52 )        $ 1.50           $ (0.16 ) 
(loss) 
from 
continuing 
operations 
Net income        $ 0.33           $ 5.02           $ 2.05           $ 7.13 
Average           123              119              123              119 
shares 
outstanding 
Diluted 
Income            $ 0.28           $ (0.52 )        $ 1.49           $ (0.16 ) 
(loss) 
from 
continuing 
operations 
Net income        $ 0.33           $ 5.02           $ 2.04           $ 7.13 
Average           125              119              123              119 
shares 
outstanding 
Cash              $ 0.125          $ --              $ 0.50           $ 1.15 
dividends 
declared 
per 
share of 
common 
stock 
 
 
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,    % 
                    2013        2012        Change      2013        2012        Change 
Continuing 
operations: 
Adjusted net 
sales: 
Retail              $ 706       $ 734       (3.8  )%    $ 2,894     $ 2,884     0.3   % 
Foodservice/Other   256         249         2.7         1,026       1,025       0.1 
Intersegment        --           --                       --           (6      ) 
Total               $ 962       $ 983       (2.1  )%    $ 3,920     $ 3,903     0.4   % 
adjusted 
net sales 
Adjusted 
operating 
income 
(loss) 
Retail              $ 57        $ 85        (32.3 )%    $ 329       $ 313       5.5   % 
Foodservice/Other   13          14          (13.5 )     75          79          (5.0  ) 
Operating           70          99          (29.6 )%    404         392         3.4   % 
segment 
income 
General             (4     )    (15    )                (36     )   (64     ) 
corporate 
expenses 
Mark-to-market      (2     )    (1     )                (1      )   (1      ) 
derivatives 
gains 
(losses) 
Amortization        (1     )    (1     )                (4      )   (4      ) 
of 
trademarks 
& 
intangibles 
Total               $ 63        $ 82        (23.2 )%    $ 363       $ 323       12.5  % 
adjusted 
operating 
income 
Adjusted            $ 33        $ 38        (12.8 )%    $ 212       $ 173       22.3  % 
income 
from 
continuing 
operations 
Adjusted net        $ 35        $ 151       (77.2 )%    $ 223       $ 574       (61.1 )% 
income 
Continuing          $ 33        $ 38        (12.8 )%    $ 212       $ 173       22.3  % 
operations 
Discontinued        $ 2         $ 113       (98.5 )%    $ 11        $ 398       (97.2 )% 
operations 
Adjusted net        $ 35        $ 151       (77.2 )%    $ 223       $ 571       (60.9 )% 
income 
attributable 
to Hillshire 
Brands 
Adjusted 
diluted 
earnings 
per share: 
Income from         $ 0.26      $ 0.31      (16.1 )%    $ 1.72      $ 1.45      18.6  % 
continuing 
operations 
Net income          $ 0.28      $ 1.26      (77.8 )%    $ 1.81      $ 4.77      (62.1 )% 
Adjusted 
operating 
margin: 
Retail              8.2    %    11.6   %    (3.4) ppt   11.4    %   10.8    %   0.6 ppt 
Foodservice/Other   4.8         5.7         (0.9) ppt   7.3         7.7         (0.4) ppt 
Total               6.6    %    8.4    %    (1.8) ppt   9.3     %   8.3     %   1.0 ppt 
Hillshire 
Brands