Hillshire Brands: Delivers Strong Fourth Quarter Growth

Chicago / IL. (hbc) The Hillshire Brands Company reported results for the fourth quarter and full fiscal year 2014. Fourth quarter net sales grew 10,7 percent to 1,1 billion USD. Fourth quarter adjusted operating income grew 18,8 percent; reported operating income grew 20,9 percent. Full-year net sales grew 4,2 percent to 4,1 billion USD with growth in both operating segments. Fiscal Year 2014 adjusted diluted EPS of 1,80 USD; reported diluted EPS of 1,71 USD.

CEO Perspective

«I am pleased with our results for fiscal year 2014, which culminated in a very strong fourth quarter», said Sean Connolly, president and chief executive officer of The Hillshire Brands Company. «Despite acute cost inflation, we delivered better than expected performance through a disciplined approach to brand building, pricing and cost management».

«I am very proud of the entire Hillshire team and the terrific job they have done with our brands. We delivered against our goal of building a different kind of food company, one that is simultaneously innovative and lean. This approach has created significant value for our shareholders and a fulfilling work experience for our people».

«We are excited to move forward with Tyson Foods. We have been working closely with the Tyson team to plan out the successful integration of the two companies and look forward to executing the merger».

Discussion of Continuing Operations Results

In the fourth quarter, net sales of 1,1 billion USD grew 10,7 percent versus the prior year´s fourth quarter as positive price/mix in both the Retail and Foodservice / Other segments more than offset volume declines resulting largely from pricing actions. The sales growth rate also benefited from a soft quarter in the prior year and the later timing of the Easter holiday this year. Adjusted operating income of 75 million USD increased 18,8 percent, and reported operating income increased 20,9 percent to 59 million USD primarily behind higher sales and a continued focus on expense management.

On a full year basis, net sales of 4,1 billion USD grew 4,2 percent versus the prior year period as positive price/mix more than offset volume declines. Adjusted operating income of 387 million USD increased 6,5 percent and reported operating income increased 3,0 percent to 306 million USD as positive mix and cost efficiencies more than offset under-recovery of input cost inflation through pricing.

Retail

Retail net sales grew 8,5 percent in the quarter versus the prior year as price/mix and volume were both favorable. Volume growth was driven by new innovation and increased distribution, and also benefited from a soft quarter in the prior year. Operating segment income increased 25,1 percent versus the prior year as increased sales and cost efficiencies more than offset higher input costs.

Hillshire Farm lunchmeat showed strong base volume growth behind an effective advertising campaign. New Hillshire Farm Naturals and Farm Classics products are shipping into the market, and the new American Craft sausages are outperforming distribution expectations. Jimmy Dean continued its strong momentum in the quarter, fuelled by breakfast sandwich growth. The new Jimmy Dean lunch and dinner offerings have been well received by retailers and consumers as distribution expands. Ball Park hot dogs continued to gain share during grilling season, and Flame Grilled Patties showed strong double-digit sales growth in the quarter.

Foodservice / Other

Net sales increased 16,7 percent in the quarter as commodity-driven pricing and favorable mix offset volume declines. Operating segment income in the quarter grew eight million USD versus the prior year´s fourth quarter behind increased sales and continued cost management.

The Foodservice business has been outperforming industry growth rates in both meat and bakery. Sales in the convenience store channel have been strong as the new Jimmy Dean roller grill sausages continue to perform well. Bakery grew behind new innovation in convenient pre-sliced Luxe Layer pies.

Corporate

Excluding significant items, corporate expenses for the quarter totalled 18 million USD, higher than the prior year´s quarter primarily driven by higher compensation-related expenses and two million USD of unfavorable mark-to-market expenses.

Transaction Update

As previously announced, on July 1, 2014, Hillshire Brands entered into a definitive agreement with Tyson Foods Inc. under which Tyson will acquire all outstanding shares of Hillshire Brands for 63 USD per share. On August 12, 2014, each of Tyson and Hillshire Brands received a request for additional information, each often referred to as a «second request», from the Antitrust Division of the Department of Justice in connection with the proposed acquisition. Each second request was issued pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The second requests relate only to a very small portion of the combined Tyson/Hillshire Brands business, and the parties are working expeditiously to resolve this matter with the Antitrust Division. Tyson and Hillshire Brands continue to expect that the transaction, which remains subject to customary closing conditions, will be completed by September 27, 2014.

No Outlook for FY 2015 Provided

As a result of the proposed merger, the company is not providing public targets for FY 2015 and is not holding a conference call to discuss results. The company expects to file its Annual Report on Form 10-K on or before August 27, 2014.

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