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Go meat: Hillshire earnings beat expectations

by Margaret Sutherlin
Nov 01, 2012


MEAT1Q-SUTHERLIN

Margaret Sutherlin/MEDILL

Hillshire Brand Co. stock has slumped since it spunoff from Sara Lee Corp. in July. Shares rebounded Thursday closing up$1.49 to $27.50.

Hillshire Stock Price Nov. 1

Opening price: $26.80

Closing price: $27.50

Gain: $1.49

5.73 percent increase


Riding the momentum of successful repackaging of brands such as Jimmy Dean sausage and Ball Park hot dogs Hillshire Brands Co. surprised many with strong fiscal first-quarter earnings. By selling more products and lowering costs, Hillshire boosted its profit by 75 percent.

The better than expected earnings caused Hillshire shares to jump almost 6 percent Thursday.

Hillshire, which was spun off from Sara Lee Corp. in July, reported a net income of $53 million, or 43 cents per share, in the quarter ended Sept. 29, a sizable improvement from the loss of $218 million, or $1.85 per share, the company recorded after the split.

Revenue fell about 19 percent to $1.01 billion from the $1.02 billion last year. All earnings were reported as adjusted because it was the start of Hillshire’s first fiscal year.

After splitting from Sara Lee in July, Hillshire has developed as a meat-centric food company that includes Sara Lee’s frozen dessert business. In the first quarter the company experienced relatively slow growth while executives developed a plan to make its products more competitive and attractive in the marketplace.

Hillshire had long suffered from a lack of innovation and it has refocused on new products, better packaging, and streamlining production. It also has brought in new management. Strong sales of Ball Park hot dogs and Jimmy Dean sausage were important factors in Hillshire’s growth.

Strong sales in the protein category are on trend with the rest of the grocery industry, retail consultants say.

“Overall, people who are really cash strapped—and the price of protein has been going up—have been buying and ‘trading’ down,” said Jim Hertel, a managing partner with Willard Bishop, a consulting firm in Barrington.

If filet minion is the top of the meat market, Hertel said, the bottom would be processed products. But right now, consumers are seeing the price of meat come down because livestock herds were culled during the summer drought.

Hillshire executives were optimistic Thursday, but they also warned that the rest of 2013 may not be as rosy. Maria Henry, Hillshire’s chief financial officer, said that the company expected inflation to hit hard in the second half of the year. Hillshire also is facing significant expenses to modernize factories.

“We’re in our transition year and we’re only one quarter in,” Henry said. “We put a lot of great people and ideas into action and we’re nowhere near done making the necessary fixes and necessary investments to set ourselves up for long term success.”