Hillshire's EPS Beats, Rev In Line - Analyst Blog

By Zacks | November 02, 2012 AAA

Hillshire Brands Company (HSH), formerly Sara Lee Corporation, reported adjusted earnings of 51 cents per diluted share in the first quarter of 2013, comprehensively beating the Zacks Consensus Estimate of 32 cents by 59.4%. Earnings also grew by 19 cents from the prior-year quarter's earnings attributable to strong top-line growth.

Hillshire Brands Company came into existence in June 2012, after Sara Lee Corporation spinned off its international coffee and tea business into a separate publicly traded company. After the spin off, Sara Lee Corporation changed its name to Hillshire Brands Company.

Revenue & Margin

Adjusted net sales grew 2.0% from the prior-year quarter to $1.01 billion in the first quarter of 2013 on the back of 3.2% volume growth and the strong performance of the retail segment. The company results were in line with the Zacks Consensus Estimate.

Consolidated adjusted operating income grew 76.3% to $105 million in the first quarter of 2013, driven by strong top-line growth and lower expenses. Operating margin grew 440 basis points to 10.4%.

Segment Discussion

Hillshire's Retail segment net sales of $719 million grew 3.0% from the prior-year quarter, driven by volume growth of 2.3%. The brand building strategy of the company resulted in strong performance of the processed food products under the brands Jimmy Dean, Ball Park and Aidells. The segment's operating income of $84 million grew 45.5%, driven by declining commodity costs and cost control initiatives undertaken by the company.

Hillshire's Foodservice/Other segment net sales of $255 million declined 1.6% from the prior-year quarter, due to declining demand for dessert, unfavorable sales mix and low pricing. Volume grew 5.3% in the quarter. The segment's adjusted operating income of $25 million grew 10.9%, on account of lower expenses.

Hillshire's Australian Bakery segment net sales of $37 million declined 2.3% from the prior-year quarter, due to 1.4% volume decline, closing of stores and unprofitable private label operations. Excluding unfavorable currency translations, net sales declined 1.1% from the prior-year quarter. The segment's adjusted operating income of $4 million grew 70.8%, driven by lower expenses.

Other Update

Hillshire Brand's reported cash and cash equivalents of $253 million as of September 29, 2012 compared with $235 million as of June 30, 2012.

On October 25, 2012, Hillshire Brand's declared a quarterly cash dividend of $0.125 per share, which will be paid on December 31, 2012 to stockholders of record as of December 3, 2012.  

We currently have a Neutral recommendation on Hillshire Brands Company, a peer of Smithfield Foods, Inc. (SFD). The stock carries a Zacks #3 Rank (short-term 'Hold' rating). We are encouraged by the company's strong performance in the first quarter of 2013. However, we prefer to stay on the sidelines, as we need some time to understand the full impact of the spin off.
 

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