On the money: Hillshire innovation key to offset rising costs

By Michelle Russell | 10 August 2012

Hillshire said the drought and heat events will “no doubt” impact commodity prices over time

Hillshire said the drought and heat events will “no doubt” impact commodity prices over time

Hillshire Brands has said the expectation of rising commodity costs has placed more importance on innovation and brand building at the US meats firm.

The company, formed after Sara Lee spun off its coffee and tea business earlier this year, said yesterday (9 August) its commodity bill increased by US$8m in its fourth quarter, which comprised the three months to the end of June

The company said it had absorbed $385m of commodity cost increases into the business over the last two years. However, the US is experiencing its worst drought for 50 years, which has put pressure on grain stocks.

Hillshire said the drought and heat events will "no doubt" impact commodity prices over time, but more specifically will be an "issue" in the back half of fiscal 2013 and into fiscal 2014.

"It really has to do with the cycle times associated with raising different livestock species," CEO Sean Connolly told analysts on the firm's earnings call. "So we expect the grain prices to roll through the proteins later, not sooner."

CFO Maria Henry added that, in the near term, some of the meat commodities the company is most exposed to will have have declining prices.

"The timing of exactly how the conditions will flow through the market and affect the basket of commodities we purchase will continue to evolve."

She added: "The expectation for rising commodity cost at the end of this fiscal year and into fiscal '14 places even more importance on our strategy to build our brands, so that we have the brand strength and pricing power to adjust changing input cost. Our SG&A for fiscal '13 is expected to be up versus last year."

Connolly said Hillshire intends to increase its MAP spend in fiscal 2013 in a bid to "further strengthen" its core brands and support new innovations. This, the CEO reveals, will include expanding into alternate channels.

"In the fourth quarter, our efforts in non-traditional grocery channels continued to pay dividends as we gained some new or expanded distribution in dollar channels, convenience stores and club stores. This is another key piece of our growth strategy, and we will continue to focus on it in fiscal '13 and beyond," he told analysts.

Connolly said the company will air an advertising campaign in the first half of its current fiscal year, with new product and packaging changes to follow.

"We've got innovation that's going to sprinkle out into the marketplace throughout the year. I think as important as the innovation that's going to hit the marketplace this year is the rebuilding of the innovation pipeline, and that is exactly why we brought in [chief innovation officer] Sally Grimes and created a fully dedicated team.

"Fiscal '14 and '15 will really hinge on the work we're doing right now, and we have lots of good ideas that we're pursuing that we've got to validate that will come to the marketplace later."

Hillshire yesterday forecast flat sales for the new fiscal year and operating segment income to be "flat to down" as it booked a drop in full-year operating income.

The company did not report net earnings for the fourth quarter or the full year, due to the need to restate historical results to reflect accounting irregularities at the spun-off tea and coffee company.

Sanford Bernstein analyst Alexia Howard described the outlook as "disappointing".

"Given the expected step-up in both marketing, advertising and promotional spend and innovation this year, this may be conservative. Moreover, the company's retail segment volume growth seems to be improving sequentially in measured channels, particularly now that price gaps in lunchmeats have been fixed."

Sectors: Financials, Meat & poultry

Companies: Sara Lee

View next/previous articles

Currently reading -

On the money: Hillshire innovation key to offset rising costs

There are currently no comments on this article

Be the first to comment on this article

Related research

Hillshire Brands Co in Packaged Food (World)

Hillshire Brands is the result of a spin-off by Sara Lee to create two independent publically traded companies. Hillshire Brands is a “meat-centric” packaged food player, which focuses on its key brands Jimmy Dean and Hillshire Farm. It also maintain...

Meat (Fresh and Processed)

This report analyzes the worldwide markets for Meat (Fresh And Processed) in Thousands of Tons by the following Product Segments: Pork, Lamb & Goat, Beef & Veal, and Poultry. The report provides separate comprehensive analytics for the US, Canada, Ja...

Related articles

US: Flowers delays guidance on M&A outcome

US baker Flowers Foods has delayed issuing guidance for 2013 until the outcome of its attempt to buy various assets, including bread operations from Hostess Brands, is clear.

just-food's outlook for 2013: Mega deals unlikely as consolidation continues

There may be caution over the prospect for blockbuster deals in a dilapidated economic environment, but the food sector mergers and acquisitions table still has plenty to whet the appetite.

US: Hillshire Brands poaches Kraft exec for strategy VP role

Hillshire Brands has announced that Brian Davison has joined the company from Kraft Foods as VP of corporate strategy and development.

Read further items in this columns

On the money

Food companies discuss and dissect their latest results.

Welcome to the home of food information, insight & intelligence

Not a member? Join here

Decrease font sizeDecrease font sizeDecrease font size Increase font sizeIncrease font sizeIncrease font size Comment on this article Email this to a friend Print this page