The Hillshire Brands Co. reported earnings for the third quarter and first nine months of fiscal 2013. Net sales fell slightly, driven by a decline in the Foodservice/Other segment. Adjusted operating income declined 12.9% on planned increases in MAP and SG&A, and reported operating income increased 18.8%.
"We continue to make progress in executing our three-year plan, making strides in brand building, innovation and rigorous cost management," said Sean Connolly, president and chief executive officer, The Hillshire Brands Company.
"We saw a strong response where we increased our advertising investment in the quarter. We also continued to build out our innovation pipeline. On the cost side, we have now identified opportunities to exceed the $100 million savings target we announced at our investor day in June. These initiatives will provide additional support for our growth strategy and further strengthen our confidence that we will deliver our mid-term targets.
"Our efforts to stabilize challenged businesses also progressed, but clearly our work here is not done. Overall, we are pleased with our efforts to date. In fact, we now expect full year EPS to be at the high end of our previous guidance," added Connolly.
Net sales declined slightly, driven by a decline in the Foodservice/Other segment. MAP investment increased to 4.2% of revenue versus 3.4% in the prior year's third quarter. Operating income was also impacted by planned increases in SG&A as transition service agreements expired and the company approached targeted staffing levels.
Net sales and volume in the Retail segment were flat compared to the prior year's third quarter. Investments in innovation offset gains in pricing and mix.
Progress in the meat-centric food portfolio continued as both volume and sales grew. Jimmy Dean continued its strong performance behind increased MAP spending which drove growth in breakfast sandwiches and bowls. Ball Park grew as increased MAP spending behind Flame Grilled Patties drove sales. The company's artisanal brands, Aidells and Gallo, continued to grow behind new product launches. Hillshire Farm lunchmeat declined, as anticipated, as the company pulled back on MAP and merchandising support to accommodate the supply chain transition to the new lunchmeat package. This transition to the new packaging was more challenging than expected. The company will be implementing solutions to address these challenges in the fourth quarter.
Frozen bakery sales declined in the quarter as a result of planned product discontinuations of low margin SKUs and pricing actions.
Adjusted operating segment income decreased by 3.3% behind planned increases in SG&A and increased investment behind brand building and innovation.
Adjusted net sales declined 3.9% and reported net sales declined 5.0% from the prior year's third quarter. Increased volumes, driven by commodity turkey sales, were offset by unfavorable mix and lower pricing.
While the segment had pockets of growth in the quarter, including volume growth in its convenience store and upscale dessert businesses, macroeconomic pressure on our foodservice customers and continued weak industry trends remain a challenge.
Adjusted and reported operating segment income declined by 41.5% and 47.3%, respectively. The decreases are primarily the result of lower net sales.
Source: The Hillshire Brands Co.