The Hillshire Brands Company reported fourth quarter and full year fiscal 2012 results from continuing operations and provided guidance for fiscal 2013. Due to matters described below, the company limited its release to operating segment financial results.
In association with the June 28, 2012 spin-off of the company’s international coffee & tea business into an independent public company named D.E Master Blenders 1753, N.V., Hillshire Brands has classified historical results of the spun-off businesses as discontinued operations. On August 1, 2012, D.E Master Blenders announced that it had discovered accounting irregularities involving previously reported financial results for its Brazilian operations and will be restating previously issued financial statements. Hillshire Brands also reported that it will restate previously issued financial statements to reflect the impact of these accounting irregularities on discontinued operations. While the restatement will impact the reported results of the discontinued operations of Hillshire Brands, it is not expected to have any meaningful impact on the results of operating segment income from continuing operations. The restatement is not expected to impact Hillshire Brands’ fiscal 2013 results.
Hillshire Brands reported a 3.3% increase in adjusted net sales to $1.02 billion and reported net sales of $1.02 billion, which were flat to the prior year. Adjusted operating segment income decreased 3.1% to $100 million; reported operating segment income decreased 0.4% to $76 million. For the full year, there was a 4.0% increase in adjusted net sales to $4.04 billion and a 1.9% increase in reported net sales to $4.09 billion. Adjusted operating segment income decreased 4.7% to $396 million, while reported operating segment income decreased 9.0% to $351 million.
“Our team delivered solid results in the face of a difficult operating environment,” said Sean Connolly, CEO of Hillshire Brands. “We are just beginning to see the impact of our plan to strengthen our core business and expand into adjacencies. Our volumes have stabilized and performance across our key brands has improved. With our senior leadership team now largely in place, our entire organization is focused on driving growth and innovation while continuing to manage costs.”
He added, “As we’ve said previously, Fiscal 2013 will be a transition year as we continue to drive execution of our three year plan. We are committed to taking the necessary actions to deliver strong and sustainable shareholder returns. Looking forward, the launch of our new advertising beginning in the first quarter, followed by the introduction of new and improved products and packaging later in the year are important steps in supporting our objectives.”
Net sales in the retail segment increased 5.0% in the quarter. Organic sales growth was 1.7%, driven by pricing and favorable mix. Total volume increased 0.8% in the quarter. Organic volume for the quarter declined approximately 1%, partially driven by the timing of Easter (Q3 in fiscal 2012, Q4 in fiscal 2011). Sales of Ball Park’s new Flame Grilled Patties have exceeded expectations and the increased MAP spend in the quarter helped Ball Park Hot Dogs turn in a strong performance over Memorial Day and leading into the Fourth of July. On the Jimmy Dean business, the Meat Lover’s Bowl that was launched in the third quarter continued to show strong sales and high distribution. Aidells had another strong quarter with double digit growth.
Adjusted operating segment income increased by 3.7%; primarily driven by positive pricing to commodities and the inclusion of a full quarter of Aidells performance. The benefit of pricing and acquisitions was partially offset by higher distribution expense.
For the full year, Retail adjusted net sales increased 4.5%. Organic sales growth was 0.7%, driven primarily by pricing which was offset by lower volume and discounts to move aged inventory. Adjusted operating segment income decreased 0.6% in fiscal 2012 as improvements in SG&A, positive pricing to commodities and the inclusion of a full year of Aidells performance were offset by lower volumes and higher distribution costs.
In fiscal year 2013, sales are expected to be roughly in line with fiscal 2012 on a dollar basis. Adjusted EPS is expected to be between $1.40 and $1.55.
Management’s outlook for fiscal 2013 assumes modest commodity deflation. Adjusted operating segment income is expected to be flat to modestly down as a result of investments behind higher brand support and innovation. The benefits of significant cost reductions do not fully offset inflation and certain increases in SG&A. As previously communicated, the company also anticipates an effective tax rate of 35%, net interest expense of between $35-$40 million, and corporate expenses of approximately $70 million, excluding significant items and mark-to-market impacts related to commodity hedges.
Source: Hillshire Brands Co.