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Hillshire Brands Reports Solid Start To Fiscal 2014

Investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements, and the company wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Hillshire Brands' actual results to differ from such forward-looking statements are those described under Item 1A, Risk Factors, in Hillshire Brands' most recent Annual Report on Form 10-K, as well as factors relating to:

  • The consumer marketplace, such as (i) intense competition, including advertising, promotional and price competition; (ii) changes in consumer behavior due to economic conditions, such as a shift in consumer demand toward private label; (iii) fluctuations in raw material costs, Hillshire Brands' ability to increase or maintain product prices in response to cost fluctuations and the impact on profitability; (iv) the impact of various food safety issues and regulations on sales and profitability of Hillshire Brands' products; and (v) inherent risks in the marketplace associated with product innovations, including uncertainties related to execution and trade and consumer acceptance;
  • Hillshire Brands' relationship with its customers, such as (i) a significant change in Hillshire Brands' business with any of its major customers, such as Wal-Mart, its largest customer; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment;
  • Hillshire Brands' spin-off of its international coffee and tea business in June 2012, including potential tax liabilities and other indemnification obligations; and
  • Other factors, such as (i) Hillshire Brands' ability to generate margin improvement through cost reduction and productivity improvement initiatives; (ii) Hillshire Brands' credit ratings, the impact of Hillshire Brands' capital plans on such credit ratings and the impact these ratings and changes in these ratings may have on Hillshire Brands' cost to borrow funds and access to capital/debt markets; and (iii) the settlement of a number of ongoing reviews of Hillshire Brands' income tax filing positions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Hillshire Brands transacts or has transacted business.
 
 
 

Income Statement Summary: Reported to Adjusted

For the Three Months ended September 28, 2013 and September 29, 2012 (in millions, except per share data—unaudited)
 
Three Months ended
September 28, 2013   September 29, 2012
Reported  

SignificantItems
  Adjusted (1) Reported  

SignificantItems
  Adjusted (1)
Continuing Operations:        
Retail $ 714 $ 714 $ 719 $ 719
Foodservice/Other 270         270   255         255  
Net sales 984 984 974 974
% change from prior year 1.0 % 1.0 %
 
Cost of Sales 719     3     716   680     3     677  
Gross Profit 265 (3 ) 268 294 (3 ) 297
Gross Margin 27.0 % 27.3 % 30.2 % 30.5 %
SG&A
MAP 40 40 46 46
SG&A (excluding MAP) 167 15 152 167 17 150
 
Net charges (gain) for exit activities, asset and business dispositions 3 3 (3 ) (3 )
                   
Total operating income 55 (21 ) 76 84 (17 ) 101
% change from prior year (35.2 )% (24.4 )%
Operating Margin 5.6 % 7.8 % 8.7 % 10.4 %
 
Net interest expense 11 11 9 9
Income tax expense (benefit) 15     (7 )   22   26     (6 )   32  
Net income $ 29 $ (14 ) $ 43 $ 49 $ (11 ) $ 60
% change from prior year (40.3 )% (27.0 )%
Net Margin   3.0 %       4.4 %   5.0 %       6.1 %
Reconciliation from operating segment income to operating income:
Retail $ 60 $ 60 $ 84 $ 84
Foodservice/Other 25         25   25         25  
Operating segment income 85 85 109 109
 
General corporate expenses (25 ) (15 ) (10 ) (31 ) (19 ) (12 )
Mark-to-market derivative gains/(losses) 2 2 5 5
Amortization of trademarks/intangibles (1 ) (1 ) (1 ) (1 )
Significant items - business segments (6 )   (6 )     2     2      
Total operating income   $ 55     $ (21 )   $ 76     $ 84     $ (17 )   $ 101  
Average Shares Outstanding
Basic 123 123 122 122
Diluted 125 125 123 123
Earnings per share
Basic $ 0.24 $ (0.11 ) $ 0.35 $ 0.40 $ (0.09 ) $ 0.49
% change from prior year (40.0 )% (28.6 )%
 
Diluted $ 0.23 $ (0.12 ) $ 0.35 $ 0.40 $ (0.09 ) $ 0.49
% change from prior year (42.5 )% (28.6 )%
 

(1) Represents a non-GAAP financial measure. See detailed explanation of these and other non-GAAP measures at end of this release.
 
 
 

Net Sales Bridge

For the Three Months ended September 28, 2013 (unaudited)
 

The following table illustrates the components of the change in net sales versus the prior year:
     
First Three Months ended September 28, 2013 Retail Foodservice/

Other
Total

Company
Volume (0.6 )% 0.3 % (0.3 )%
Price/Mix (0.2 ) 5.4   1.2  
Organic sales change (0.8 ) 5.7 0.9
Acquisitions 0.1       0.1  
Total Net Sales Change (0.7 )% 5.7 % 1.0 %
 

See detailed explanation of this and other non-GAAP measures in this release.
 
 
 

Condensed Consolidated Balance Sheet Data

At September 28, 2013 and June 29, 2013 (in millions—unaudited)
   
September 28, 2013 June 29, 2013
Assets
Cash and equivalents $ 176 $ 400
Short term investments 193
Trade accounts receivable, less allowances 223 219
Inventories 327 313
Current deferred income taxes 73 71
Income tax receivable 4 18
Other current assets 88   85
Total current assets 1,084 1,106
Property, net of accumulated depreciation of $1,205 and $1,185, respectively 809 818
Trademarks and other identifiable intangibles 136 121
Goodwill 371 348
Deferred income taxes 16 20
Other noncurrent assets 23   21
$ 2,439   $ 2,434
Liabilities and Equity
Accounts payable $ 304 $ 295
Accrued liabilities 349 357
Current maturities of long-term debt 111   19
Total current liabilities 764 671
Long-term debt 840 932
Pension obligation 116 119
Other liabilities 228 228
Equity
Hillshire Brands common stockholders’ equity 491   484
$ 2,439   $ 2,434
 
 
 

Consolidated Statements of Cash Flows

For the Three Months ended September 28, 2013 and September 29, 2012 (in millions—unaudited)
 
Three Months ended
September 28, 2013   September 29, 2012
Operating activities -
Net income $ 29 $ 53
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 33 39
Amortization 4 4
Net gain on business dispositions (9 )
Pension contributions, net of income/expense (2 ) (3 )
Increase (decrease) in deferred income taxes (4 ) 8
Other 7
Changes in current assets and liabilities, net of businesses acquired and sold:
Trade accounts receivable (3 ) 13
Inventories (13 ) (40 )
Other current assets (2 ) 10
Accounts payable 1 (55 )
Accrued liabilities (9 ) (31 )
Accrued taxes 18   16  
Net cash from operating activities 59   5  
Investing activities—
Purchases of property and equipment (23 ) (35 )
Purchases of software and other intangibles (2 ) (1 )
Acquisition of businesses (35 )
Dispositions of businesses and investments 16
Cash from (used in) derivative transactions (3 ) 5
Cash used to invest in short-term investments (193 )
Sales of assets   1  
Net cash used in investing activities (256 ) (14 )
Financing activities—
Issuances of common stock 2 27
Purchase of common stock (10 )
Repayments of other debt and derivatives (4 )
Payments of dividends (15 )  
Net cash from (used in) financing activities (27 ) 27  
(Decrease) / Increase in cash and equivalents (224 ) 18
Cash and equivalents at beginning of year 400   235  
Cash and equivalents at end of period $ 176   $ 253  
Supplemental cash flow data:
Cash paid for restructuring actions $ 21 $ 27
Cash contributions to pension plans 1 2
Cash paid for income taxes 4
 
 
 

Significant Items

Three Months ended September 28, 2013 and September 29, 2012 (in millions, except per share data—unaudited)
 
  Quarter Ended September 28, 2013   Quarter Ended September 29, 2012
(In millions except per share data) Pretax

Impact
  Net

Income (Loss)

Attributable to

Hillshire Brands (2)
  Diluted

EPS

Impact (1)
Pretax

Impact
  Net

Income (Loss)

Attributable to

Hillshire Brands (2)
  Diluted

EPS

Impact (1)
Continuing Operations:
Restructuring actions:
Severance/ retention costs $ (3 ) $ (2 ) $ (0.02 ) $ $ $
Lease & contractual obligation exit costs (3 ) (2 ) (0.01 )
Consulting/advisory & other costs (14 ) (9 ) (0.07 ) (8 ) (5 ) (0.04 )
Income from asset dispositions 5 3 0.03
Accelerated depreciation (5 ) (3 ) (0.03 ) (11 ) (7 ) (0.06 )
Total restructuring actions (22 ) (14 ) (0.11 ) (17 ) (11 ) (0.08 )
Reimbursed claim proceeds 2 1 0.01
Acquisition advisory & other costs (1 ) (1 ) (0.01 )      
Impact of significant items on income (loss) from continuing operations (21 ) (14 ) (0.12 ) (17 ) (11 ) (0.09 )
Discontinued operations:
Consulting, advisory & other costs (1 ) (0.01 )
Gain on the sale of discontinued operations       3   2   0.02  
Impact of significant items on income from discontinued operations       2   2   0.01  
Impact of significant items on net income (loss) attributable to Hillshire Brands $ (21 ) $ (14 ) $ (0.12 ) $ (15 ) $ (9 ) $ (0.08 )
 
Impact of significant items on income from continuing operations before income taxes
Cost of sales $ (3 ) $ (3 )
Selling, general and administrative expenses (15 ) (17 )
Exit and business dispositions (3 ) 3  
Total $ (21 ) $ (17 )
 
Notes:
(1)   EPS amounts are rounded to the nearest $0.01 and may not add to the total.
(2) Taxes computed at applicable statutory rates.
 

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. Other companies may calculate these non-GAAP financial measures differently than Hillshire Brands.

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