We recently initiated coverage for
The Hillshire Brands Company
) with a price estimate of $38 a piece. Retail packaged meats
account for the biggest source of value for the firm and drives its
growth outlook. The company plans to spend more on marketing and
product development to emphasize healthier meats, which has
resonated well with customers in the past. This can help drive
market share gains among its leading brands, which are the key
engines to the company's growth outlook discussed below.
See our complete analysis of Hillshire
The Growth Opportunity in Packaged Meats
The most important growth driver for the Hillshire Brands
Company is its retail market share in the meat products segment. It
can be easily illustrated by flattening out the graph for this
particular driver on our
. Doing so, we can observe that the forecasted growth in this
driver contributes around $6 to our price estimate for the company.
Here, we take a look at the key observable trends shaping out
growth in the company's retail market share.
The retail division makes up more than 70% of our price
estimate. Hillshire Brands owns several leading brands in the
packaged meat products segment. Key retail brands including
(meat and sausages),
(hot dogs) and
(corn dogs), occupy leading market share positions in their
respective product categories and are leading the company's
growth in the segment.
Brand building intiatives by the company marked by an increased
focus on innovation and product development along with marketing
and promotional (MAP) activities are the key trends expected to
drive its market share in the segment higher. The company expects
to increase its MAP spending as a percentage of revenues to 5%, up
from the historic average of 3.5%.
Innovation and product development initiatives include upgrading
product quality and packaging, the expansion of existing product
lines as well as the introduction of new categories. Earlier
this year, the company announced expansion of its
' with new flatbread sandwiches and Sara Lee premium meat products
were enhanced for their health quotient. The company also
introduced new transparent packaging for its
lunch meat products and is emphasizing quality to consumers with
measures like new packaging that allows customers see the meat
before buying it, which is helping drive sales.
An impact of these measures can already be seen in growing sales
volume of these brands.
hot dogs total volume increased 5.2% year-to-date during FY2013,
while it decreased 4.7% during FY2012. As similar trend was also
seen in other retail brands namely,
up 7.2% and
lunch meat up 1% against the decline of 3.6% and 7.5%
respectively during FY2012.
We currently expect Hillshire Brands' market share in the retail
packaged meat products to grow from around 3% to 3.6% over the
forecast period. Increased market share and innovation have long
term benefits in the form of pricing power as well. This is further
expected to enhance bottom line forecast of the company going
Hillshire Brands also has a cost-reduction agenda of adding
around $100 million to the bottom line by the end of FY2015. While
most of this is expected to be neutralized by higher commodity and
other raw material costs, it is expected to drive the company's
operating margins higher as well.
How a Company's Products Impact its Stock Price at Trefis