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Slight Increase in Sales for Hillshire Brands

09 August 2013

US - Hillshire Brands, the spin off from Sara Lee, has reported a slight increase in full-year net sales, in line with guidance, with both operating segments showing growth.

Over the year, the company has reported adjusted diluted EPS of $1.72 and reported diluted EPS of $1.49.

Adjusted operating income increased by $40 million in the financial year and the company reported an operating income increase of $221 million

Adjusted diluted EPS in the 2014 financial year is expected to be flat .

The company said it is targeting repurchases of approximately $200 million of stock over the next two fiscal years.

“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 Mr 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 favourability, near-term inflation, and competitive dynamics. Second half performance will be fuelled 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.”

In the fourth quarter, net sales of $962 million were down 2.1 per cent versus the prior year's fourth quarter.

Consistent with the company's expectations, adjusted operating income decreased 23.2 per cent 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 per cent 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 per cent and down one per cent, respectively, compared to the previous year.

Adjusted operating income increased 12.5 per cent to $363 million, as the benefits of lower input costs and efficiencies were partially reinvested in MAP. Reported operating income increased 290.7 per cent to $297 million. Adjusted earnings per share increased 18.6 per cent to $1.72, and reported earnings per share increased to $1.49 from a loss in the previous year.

Retail net sales declined by 3.8 per cent in the fourth quarter versus the prior year. Operating segment income declined 32.3 per cent 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 by a 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 per cent 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 per cent over the prior year driven by input cost favourability.

Net sales for food service increased 2.7 per cent 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 per cent behind higher SG&A and MAP.

For the full year, the Foodservice/Other segment net sales were up 0.1 per cent and operating segment income was down 5.0 per cent versus the prior fiscal year.

For the full fiscal year, general corporate expense was $41 million, excluding significant items, reflecting nonrepeating favourability in compensation-related and other expenses throughout the year.

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 favourably 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 per cent, net interest expense of approximately $40 million, and corporate expenses of approximately $60 million, excluding significant items.

TheMeatSite News Desk

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