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Hillshire Brands Posts Strong Results To Start Fiscal Year 2013

Stocks in this article: HSH

1 The term “adjusted diluted EPS” and other financial measures identified as “adjusted” are explained and reconciled to comparable GAAP measures at the end of this release.

 

   

Financial Summary - As Adjusted *

For the Quarter ended Sept. 29, 2012 and Oct. 1, 2011 (in millions, except per share data - unaudited)
 
Quarter ended
 
Sept. 29, Oct. 1,

%

2012 2011 Change
Continuing operations:
 
Adjusted net sales:
 
Retail $ 719 $ 698 3.0 %
Foodservice/Other 255 259 (1.6 )
Australian Bakery 37 38 (2.3 )
Intersegment   -     (4 )  
Total adjusted net sales $ 1,011   $ 991   2.0 %
 
 
Adjusted operating income
 
Retail $ 84 $ 58 45.5 %
Foodservice/Other 25 22 10.9
Australian Bakery   4     2   70.8  
Adjusted operating segment income 113 82 36.7 %
 
General corporate expenses (11 ) (17 )
Mark-to-market derivatives gains/(losses) 4 (4 )
Amortization of trademarks & intangibles   (1 )   (1 )  
Total adjusted operating income $ 105   $ 60   76.3 %
 
 
Adjusted income from continuing operations $ 62   $ 38   65.9 %
 
Adjusted net income - As Restated $ 62   $ 124   (50.0 )%
Adjusted net Income attributable to Hillshire Brands:
 
Continuing operations $ 62 $ 38 65.9 %
Discontinued operations - As Restated $ - $ 86 NM
 
 
Adjusted diluted earnings per share:
 
Income from continuing operations $ 0.51   $ 0.32   59.4 %
 
Net income - As Restated $ 0.51   $ 1.05   (51.4 )%
 
Adjusted operating margin:
 
Retail 11.6 % 8.2

%

 

 

3.4 %
Foodservice/Other 9.9 8.7 1.2
Australian Bakery 10.8 6.2 4.6
 
Total Hillshire Brands 10.4

%

 

 

6.0

%

 

4.4 %
 
NM = Not meaningful
 
* Represents a non-GAAP financial measure.
See detailed explanation of these and other non-GAAP measures at end of this release.

 

   

Financial Summary - As Reported

For the Quarter ended Sept. 29, 2012 and Oct. 1, 2011 (in millions, except per share data - unaudited)
 

 

Quarter ended
 
Sept. 29, Oct. 1,

%

2012 2011 Change
Continuing operations:
 
Net sales:
 
Retail $ 719 $ 698 3.0 %
Foodservice/Other 255 293 (12.9 )
Australian Bakery 37 38 (2.3 )
Intersegment   -     (4 )  
Total net sales $ 1,011   $ 1,025   (1.4 )%
 
 
Operating income
 
Retail $ 86 $ 44 96.5 %
Foodservice/Other 25 25 0.2
Australian Bakery   3     2   9.5  
Operating segment income 114 71 59.5 %
 
General corporate expenses (30 ) (39 )
Mark-to-market derivatives gains/(losses) 4 (4 )
Amortization of trademarks & intangibles   (1 )   (1 )  
Total operating income $ 87   $ 27   NM  
 
 
Income from continuing operations $ 51   $ 12   NM  
 
Net income (loss) - As Restated $ 53   $ (218 ) NM  
Net income (loss) attributable to Hillshire Brands:
 
Continuing operations $ 51 $ 12 NM
Discontinued operations - As Restated $ 2 $ (232 ) NM
 
 
Diluted earnings per share:
 
Income from continuing operations $ 0.41   $ 0.10   NM  
 
Net income (loss) - As Restated $ 0.43   $ (1.85 ) NM  
 
Operating margin:
 
Retail 12.0 % 6.3 % 5.7 %
Foodservice/Other 9.9 ' 8.6 1.3
Australian Bakery 7.2 6.4 0.8
 
Total Hillshire Brands 8.6

%

 

2.6

%

 

6.0 %
 
NM = Not meaningful

 

 

Consolidated Statements of Income

For the Quarters ended Sept. 29, 2012 and Oct. 1, 2011 (in millions, except per share data - unaudited)
 
Quarter ended
Oct. 1,
Sept. 29, 2011
2012 As Restated (1)
Continuing operations
Net sales $ 1,011   $ 1,025  
Cost of sales 705 740
Selling, general and administrative expenses 222 227
Net charges for (income from) exit activities, asset and business dispositions (3 ) 21
Impairment charges   -     10  
Operating income 87 27
Interest expense 11 23
Interest income   (2 )   (1 )
Income from continuing operations before income taxes 78 5
Income tax expense (benefit)   27     (7 )
Income from continuing operations   51     12  
 
Discontinued operations:
Income (loss) from discontinued operations,
net of tax expense of nil and $70 - (322 )
Gain on sale of discontinued operations, net of
tax expense of $1 and $170   2     92  
Net income (loss) from discontinued operations   2     (230 )
Net income (loss) 53 (218 )
 
Less: Income from noncontrolling interests, net of tax
Discontinued operations   -     2  
Net income (loss) attributable to Hillshire Brands $ 53   $ (220 )
 
Amounts attributable to Hillshire Brands:
Net income from continuing operations $ 51 $ 12
Net income (loss) from discontinued operations 2 (232 )
 
Earnings per share of common stock:
Basic
Income from continuing operations $ 0.42 $ 0.10
Net income (loss) $ 0.43 $ (1.86 )
Average shares outstanding 122 118
 
Diluted
Income from continuing operations $ 0.41 $ 0.10
Net income (loss) $ 0.43 $ (1.85 )
Average shares outstanding 123 119
 
 
Cash dividends declared per share of common stock $ 0.125 $ -
 
 

(1) As disclosed in the company's Annual Report on Form 10-K for the year ended June 30, 2012,

the company restated its previously issued unaudited financial results for the first three quarters of Fiscal 2012 to

recognize the correction of accounting errors. See Note 1 to the Annual Report for additional information.

 

   

Net Sales Bridge

 
For the Quarter ended September 29, 2012 (unaudited)
 
The following table illustrates the components of the change in net sales versus the prior year
 
 
First Quarter ended Sept. 29, 2012 Total
Foodservice/ Australian Business
Retail Other Bakery Segments
Volume 2.3 % 5.3 % (1.4 )% 3.2 %
 
Mix 1.3 (5.2 ) 0.3 (0.3 )
 
Price (0.8 ) (1.1 ) (0.3 ) (0.9 )
 
Other 0.2 (0.6 ) 0.3 0.0
       
Organic sales change 3.0 (1.6 ) (1.1 ) 2.0
 
Foreign exchange impact 0.0 0.0 (1.2 ) 0.0
       
*Adjusted net sales change 3.0 (1.6 ) (2.3 ) 2.0
 
Dispositions 0.0 (11.3 ) 0.0 (3.4 )
       
Total Net Sales Change 3.0 % (12.9 )% (2.3 )% (1.4 )%
 
 
* Represents a non-GAAP financial measure.
See detailed explanation of these and other non-GAAP measures at end of this release.

 

 

Condensed Consolidated Balance Sheet Data

At September 29, 2012 and June 30, 2012 (in millions - unaudited)
 
Sept. 29, June 30,
  2012   2012
 
Assets
Cash and equivalents $ 253 235
Trade accounts receivable, less allowances 236 248
Inventories 328 288
Current deferred income taxes 105 114
Income tax receivable 37 52
Other current assets 53 65
Total current assets 1,012 1,002
 
Property, net of accumulated depreciation of $1,313 and $1,245, respectively 843 847
Trademarks and other identifiable intangibles 130 132
Goodwill 348 348
Deferred income taxes 37 36
Other noncurrent assets   82   85
$ 2,452 $ 2,450
 
Liabilities and Equity
Accounts payable $ 322 359
Other accrued liabilities 429 469
Current maturities of long-term debt   5   5
Total current liabilities   756   833
Long-term debt 942 939
Pension obligation 160 166
Other liabilities 283 277
 
Equity
Hillshire Brands common stockholders’ equity   311   235
$ 2,452 $ 2,450

 

 

Consolidated Statements of Cash Flows

For the Three Months Ended Sept. 29, 2011 and Oct. 1, 2012 (in millions - unaudited)
 
Three Months ended
Oct. 1,
Sept. 29, 2011
2012 As Restated (1)
Operating activities -
Net income (loss) $ 53 $ (218 )
 
Adjustments to reconcile net income/(loss) to net cash
from operating activities:
Depreciation 39 61
Amortization 4 12
Impairment charges - 389
Net (gain) loss on business dispositions (9 ) (262 )
Pension contributions, net of expense (3 ) (117 )
Increase (decrease) in deferred income taxes 8 (110 )
Other - (6 )
Changes in current assets and liabilities, net of
businesses acquired and sold:
Trade accounts receivable 13 (41 )
Inventories (40 ) (213 )
Other current assets 10 (57 )
Accounts payable (55 ) 27
Accrued liabilities (31 ) 28
Accrued taxes   16     287  
Net cash received from (used in) operating activities   5     (220 )
 
Investing activities -
Purchases of property and equipment (35 ) (55 )
Purchases of software and other intangibles (1 ) (1 )
Dispositions of businesses and investments 16 (16 )
Cash received from derivative transactions 5 18
Sales of assets   1     1  
Net cash received from (used in) investing activities   (14 )   (53 )
 
Financing activities -
Issuances of common stock 27 29
Borrowings of other debt - 30
Repayments of other debt and derivatives - (162 )
Net change in financing with less than 90-day maturities - 187
Purchase of noncontrolling interest - (10 )
Payments of dividends   -     (68 )
Net cash received from (used in) financing activities   27     6  
 
Effect of changes in foreign exchange rates on cash   -     (114 )
 
Increase/decrease in cash and equivalents 18 (381 )
Add: Cash balances of discontinued operations at beginning of year - 1,992
Less: Cash balances of discontinued operations at end of period - (1,630 )
Cash and equivalents at beginning of year   235     74  
 
Cash and equivalents at end of quarter $ 253   $ 55  
 
Supplemental cash flow data:
 
Cash paid for restructuring actions $ 27 $ 66
Cash contributions to pension plans 2 115
Cash paid for income taxes 4 56
 
 
(1) As disclosed in the company's Annual Report on Form 10-K for the year ended June 30, 2012,
the company restated its previously issued unaudited financial results for the first three quarters of Fiscal 2012 to
recognize the correction of accounting errors. See Note 1 to the Annual Report for additional information.

 

         

Operating Results by Business Segment

For the Quarters ended Sept. 29, 2012 and Oct. 1, 2011 (in millions - unaudited)
   
As As
Reported Dispositions   Adjusted *
First Quarter 2013
Net sales:
Retail $ 719 $ - $ 719
Foodservice/Other 255 - 255
Australian Bakery 37 - 37
Intersegment -     -   -  
Total net sales $ 1,011   $ - $ 1,011  
 
First Quarter 2012
Net sales:
Retail $ 698 $ - $ 698
Foodservice/Other 293 34 259
Australian Bakery 38 - 38
Intersegment (4 )   -   (4 )
Total net sales $ 1,025   $ 34 $ 991  
 
 
 

 

Other
First Quarter 2013 As Restructuring Accelerated Impairment Significant As
Reported Dispositions   Actions Depreciation Charges Items Adjusted *
Operating income:
Retail $ 86 $ - $ - $ (1 ) $ - $ 3 $ 84
Foodservice/Other 25 - - (2 ) - 2 25
Australian Bakery   3     -   (1 )   -     -     -   4  
Total operating segment income   114     -   (1 )   (3 )   -     5   113  
 
General corporate expenses (30 ) - (11 ) (8 ) - - (11 )
Mark-to-market derivative gains/(losses) 4 - - - - - 4
Amortization of trademarks/intangibles   (1 )   -   -     -     -     -   (1 )
Operating income $ 87   $ - $ (12 ) $ (11 ) $ -   $ 5 $ 105  
 
Operating margin 8.6 % 10.4 %
 
First Quarter 2012
Operating income:
Retail $ 44 $ - $ (8 ) $ (6 ) $ - $ - $ 58
Foodservice/Other 25 4 (1 ) - - - 22
Australian Bakery   2     -   -     -     -     -   2  
Total operating segment income   71     4   (9 )   (6 )   -     -   82  
 
General corporate expenses (39 ) - (30 ) - (10 ) 18 (17 )
Mark-to-market derivative gains/(losses) (4 ) - - - - - (4 )
Amortization of trademarks/intangibles   (1 )   -   -     -     -     -   (1 )
Operating income $ 27   $ 4 $ (39 ) $ (6 ) $ (10 ) $ 18 $ 60  
 
Operating margin 2.6 % 6.0 %
 
 
* Represents a non-GAAP financial measure.
See detailed explanation of these and other non-GAAP measures at end of this release.

 

     

Significant Items

   

Quarters ended Sept. 29, 2012 and Oct. 1, 2011 (in millions, except per share data - unaudited)

   
 
Quarter ended Sept. 29, 2012 Quarter ended Oct. 1, 2011
Diluted Diluted
Pretax Net EPS Pretax Net EPS
(In millions except per share data) Impact Income/(loss) Impact (1) Impact Income/(loss) Impact (1)
 
Continuing Operations:
Restructuring actions:
Severance/ retention costs $ - $ - $ - $ (16 ) $ (10 ) $ (0.09 )
Lease and contractual obligation exit costs (3 ) (2 ) (0.01 ) (6 ) (4 ) (0.03 )
Consulting/advisory costs (9 ) (5 ) (0.05 ) (17 ) (14 ) (0.11 )
Income from asset dispositions 5 3 0.03 - - -
Accelerated depreciation   (11 )   (7 )   (0.06 )   (6 )   (4 )   (0.03 )
Total restructuring actions (18 ) (11 ) (0.09 ) (45 ) (32 ) (0.26 )
 

Gain on HBI tax settlement

- - - 15 10 0.08
Impairment charges - - - (10 ) (6 ) (0.05 )
Tax indemnification accrual adjustment   -     -     -     3     2     0.01  
Impact of significant items on income/(loss) from continuing operations   (18 )   (11 )   (0.10 )   (37 )   (26 )   (0.22 )
 
Discontinued operations:
Restructuring actions:
Severance/ retention costs - - - (13 ) (10 ) (0.08 )
Consulting/advisory costs - - - (24 ) (18 ) (0.16 )
Impairment charges - - - (379 ) (341 ) (2.87 )

Gain on the sale of discontinued operations

3 2 0.02 262 92 0.77
Tax basis differences - - - - 118 0.99
Tax audit settlement/reserve adjustments - - - - 70 0.59
Tax valuation allowance adjustment - - - - (75 ) (0.63 )
Tax on unremitted earnings   -     -     -     -     (154 )   (1.30 )
Impact of significant items on income/(loss) from discontinued operations   3     2     0.02     (154 )   (318 )   (2.68 )
Impact of significant items on net income $ (15 ) $ (9 ) $ (0.08 ) $ (191 ) $ (344 ) $ (2.90 )
 
 
Impact of significant items on income from continuing operations before income taxes
 
Cost of sales $ (3 ) $ (6 )
Selling, general and administrative expenses (18 ) -
Impairment charges - (10 )
Exit and business dispositions   3     (21 )
Total $ (18 ) $ (37 )
 
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.

 

       

EPS Reconciliation - Reported to Adjusted

Quarters ended Sept. 29, 2012 and Oct. 1, 2011 (in millions, except per share data - unaudited)

 
Quarter ended September 29, 2012 Quarter ended October 1, 2011
Impact of As Reported Impact of
As Significant (As Significant
Reported Items Adjusted * Restated) Items Adjusted *
Continuing operations:
 
Income from continuing operations
before income taxes $ 78 $ (18 ) $ 96 $ 5 $ (37 ) $ 42
 
Income tax expense (benefit) 27     (7 )   34     (7 )   (11 )   4  
 
Income from continuing operations 51     (11 )   62     12     (26 )   38  
Discontinued operations:
 
Income from discontinued operations, net of tax - - - (322 ) (410 ) 88
Gain (loss) on sale of discontinued operations, net of tax 2     2     -     92     92     -  
 
Net income (loss) from discontinued operations 2     2     -     (230 )   (318 )   88  
 
Net income (loss) 53 (9 ) 62 (218 ) (344 ) 126
Less: Income from noncontrolling interests, net of tax
Discontinued operations -     -     -     2     -     2  
Net income (loss) attributable to Hillshire Brands $ 53   $ (9 ) $ 62   $ (220 ) $ (344 ) $ 124  
 
Amounts attributable to Hillshire Brands:
Net income from continuing operations $ 51 $ (11 ) $ 62 $ 12 $ (26 ) $ 38
Net income (loss) from discontinued operations 2 2 - (232 ) (318 ) 86
 
Earnings per share of common stock:
Diluted
Income from continuing operations $ 0.41 $ (0.10 ) $ 0.51 $ 0.10 $ (0.22 ) $ 0.32
Net income $ 0.43 $ (0.08 ) $ 0.51 $ (1.85 ) $ (2.90 ) $ 1.05
 
Effective tax rate - continuing operations 35.2 % 35.3 % (162.6 )% 10.1 %
 
* Represents a non-GAAP financial measure.
See detailed explanation of these and other non-GAAP measures at end of this release.

 

   

Operating Income Reconciliation - Reported to Adjusted

 
Quarters ended Sept. 29, 2012 and Oct. 1, 2011 (in millions, except per share data - unaudited)
     
Quarter ended September 29, 2012
Impact of
As Significant
Reported Items Dispositions Adjusted *
 
Net Sales $ 1,011 $ - $ - $ 1,011
 
Cost of Sales   705     3     -   702
 
Gross Profit   306     (3 )   -   309
 
MAP Expense 46 - - 46
 
SG&A (excluding MAP) 176 18 - 158
 
Net charges for exit activities, asset and business dispositions (3 ) (3 ) - -
 
Impairment charges - - - -
       
Operating income $ 87   $ (18 ) $ - $ 105
 
 
Quarter ended October 1, 2011
Impact of

 

As Significant
Reported Items Dispositions Adjusted *
 
Net Sales $ 1,025 $ - $ 34 991
 
Cost of Sales   740     6     26   708
 
Gross Profit   285     (6 )   8   283
 
MAP Expense 48 - - 48
 
SG&A (excluding MAP) 179 - 4 175
 
Net charges for exit activities, asset and business dispositions 21 21 - -
 
Impairment charges 10 10 - -
       
Operating income $ 27   $ (37 ) $ 4 $ 60
 
* Represents a non-GAAP financial measure.
See detailed explanation of these and other non-GAAP measures at end of this release.
 

Explanation of Non-GAAP Financial Measures

Management measures and reports Hillshire Brands’ financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). In this release, Hillshire Brands highlights certain items that have significantly impacted the company’s financial results and uses several non-GAAP financial measures to help investors understand the financial impact of these significant items.

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