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Hillshire Brands (HSH)

Q1 2013 Earnings Call

November 01, 2012 8:30 am ET

Executives

Melissa Napier - Senior Vice President of Investor Relations

Sean M. Connolly - Chief Executive Officer, Director, Member of Executive Committee and Chief Executive Officer of North American Retail & Food Service Business

Maria Henry - Chief Financial Officer and Executive Vice President

Analysts

Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

Kenneth Goldman - JP Morgan Chase & Co, Research Division

John J. Baumgartner - Wells Fargo Securities, LLC, Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Robert Moskow - Crédit Suisse AG, Research Division

Andrew Lazar - Barclays Capital, Research Division

Presentation

Operator

Good morning, and welcome to the First Quarter Fiscal 2013 Earnings Conference Call for Hillshire Brands. [Operator Instructions] And this call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Melissa Napier, Treasurer and Senior Vice President of Investor Relations for Hillshire Brands.

Melissa Napier

Thanks, Wendy. Good morning, everyone, and welcome to our first quarter earnings call. Our results were released at 6:30 a.m. Central Time this morning. We also filed an 8-K to disclose some additional historical quarterly information. You can find that release and 8-K along with the slides that we'll be reviewing today posted to our website. We're expecting to file our 10-Q by the end of this week.

I'm joined today by Sean Connolly, our CEO; and Maria Henry, our CFO. Sean and Maria will provide their perspectives on the performance of the business during the quarter. We'll take your questions after management's prepared remarks conclude. [Operator Instructions]

I'd like to refer you to the forward-looking statement currently displayed and remind you that during today's call, we may make forward-looking statements about future operations, financial performance and business conditions. Actual results may differ from those expressed or implied in these statements, and all explanations of non-GAAP financial measures are included in our release. Sean, I'll turn the call over to you.

Sean M. Connolly

Thanks, Melissa, and good morning, everyone. Maria and I are glad to be speaking with you today and sharing the results of our first quarter.

But before we get started, I know that many of you are listening from areas that have been impacted by Hurricane Sandy. Maria, Melissa and I all hope that you and your families are safe. Knowing that many of your lives have been disrupted both professionally and personally, we particularly appreciate you joining us today.

Now I'd like to make some big-picture comments about the business before diving into the results. Hillshire Brands is a focused food company, and our aim is to become the most innovative meat-centric food company in the U.S. As you know, we're a new company with an energized and experienced management team. We're clearly committed to growth and profitability through strong brands and innovation. We have a disciplined plan to create value and ultimately believe that we represent a compelling investment opportunity.

Importantly, fiscal '13 is a foundational year for us. That means we're taking foundational steps like upgrading our capabilities and team, fixing some underperforming businesses, reestablishing our commitment to advertising and rebuilding the innovation pipeline. Q1 is just the beginning of our transition year, and I am very pleased with our fast start, both with respect to the performance we delivered and the progress we're making against our overall game plan.

We had a strong Q1, particularly in our Retail segment as we drove additional volume by spending MAP more effectively and pricing more competitively in select categories. We also capitalized on declining input costs and continued to reap the benefits of our push to reduce SG&A, some of which was timing. We're definitely encouraged by our Q1 results, but expect input costs to rise as we move through the year. Clearly, we'll continue to gain more clarity on the cost picture as the year unfolds, and we'll have more to say later. No matter where it lands, our priority is to consistently build a stronger branded portfolio that can perform in any environment. Therefore, we'll continue to reinvest back in our business as we work our way through this transition year. And as you'll hear from Maria, we don't want you to extrapolate Q1's OI performance out across the remaining quarters.

Now let me spend a little time talking about our segment performances. Our Retail segment volume was up 2.3% versus last year behind Jimmy Dean's continued strong performance and Ball Park's strong summer hot dog season. This is the third consecutive quarter that we've achieved year-over-year volume increases in the Retail segment. If you recall, Easter was early last year and hit our Q3 volume instead of Q4. So if we adjusted this slide for Easter timing, we would see sequential improvement in each quarter as well.

We're happy about this accomplishment, but remember, significant price increases were taken in fiscal 2011 and carried into the first half of our fiscal 2012, which lowered our prior year volumes. So the comps are a bit easier right now. And again, we also anticipate we will see commodity inflation coming in the second half, which may put additional pressure on our volume performance. Nonetheless, we are very encouraged by these top line trends, and we haven't yet fully ramped up our brand support through MAP and innovation.

Now even though we have more MAP and innovation coming, the underlying baseline volume consumption trends on several of our businesses are already moving in the right direction. Recall this metric is a good proxy for brand vitality even in the absence of promotion, and what you see here is that the fiscal year-to-date trends are quite a bit better than the past 52 weeks.

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