Hillshire Brands Delivers Strong Second Quarter

The Hillshire Brands Co. reported earnings for the second quarter and first half of fiscal year 2013. The adjusted diluted earnings per share (EPS) increased $0.14 to $0.62, while the company's diluted EPS increased $0.38 to $0.47. The adjusted and reported net sales increased by 2.5 percent and 0.7 percent, respectively, to $1.06 billion. The company's adjusted operating income increased $26 million to $127 million and reported operating income increased $76 million to $99 million. The full year 2013 guidance raised to a new adjusted diluted EPS range of $1.60-$1.70.

“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 Co., in a prepared statement. “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.”

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.

Retail

Net sales in the Retail segment increased 2.2 percent 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 percent and reported operating segment income increased by 31.5 percent. 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.

Foodservice/Other

The Foodservice/Other segment reported solid results, with increased net sales of 2.8 percent 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 percent and reported operating segment income decreased by 4.1 percent. 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.

Corporate

Excluding significant items, corporate expenses of $13 million decreased $4 million 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.

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