REFILE-Hillshire Brands thinks outside the corn dog with CEO Connolly
By Atossa Araxia Abrahamian
NEW YORK, Sept 27(Reuters) - Since Hillshire Brands spun off from the Sara Lee Corp. last June, CEO Sean Connolly has made a point of thinking outside the box - and even beyond the traditional pig and cow.
Connolly, 47, joined Hillshire last year after serving as the president of Campbell North America. He has focused for the last year on energizing the brand, best known for Jimmy Dean sausages. He is trying to reach a broader and younger consumer base and get creative with poultry and even no-meat options.
He has also tried to foster a more collaborative atmosphere at work, moving into a office with an open design and no special "executive row."
"I am incredibly pleased with the amount of progress we've made in first year, but I am clear-eyed about the fact that it's the first year," he said in an interview this week with Reuters.
The largest and most important part of the company's business is packaged meat. The $1 billion Jimmy Dean brand's sales grew in the high single digits in the 2013 fiscal year, the company said.
The overall company, however, has seen sales slip due to high commodity prices and stiff competition. In the fourth quarter, operating income fell 23 percent and sales fell 2 percent. Earnings were 26 cents per share, topping the analysts' average estimate by a penny, and net income fell to $41 million, or 33 cents per share, from $599 million, or $5.02 per share, a year earlier.
Out of ten analysts with a recommendation, only one has rated Hillshire as a "buy" according to Thomson Reuters, but none put a "sell" on the stock. Others have ratings of "hold", "outperform" or "overweight."
Connolly nevertheless remains optimistic that in the long-term, the company will be profitable, helped by healthier and more portable meat products but also chicken, turkey, and vegetarian items.
"The vast majority of our products have meat in them -- meat is the 'hero ingredient', as we say -- but we are building relationships with households, and in come cases, the household is saying 'hey, every now and then I want a choice that doesn't have meat'" Connolly said.
He said Aidells -- an organic, hormone-free and antibiotic-free line of chicken and turkey sausages, acquired by Sara Lee in 2011 - is its fastest growing brand.
The "artisanal" sausages and meatballs, which are among the company's most expensive products, come in unusual flavors such as spicy mango with jalapeno and pineapple and bacon. They are part of Hillshire's Gourmet Foods Group, which grew in the single-high digits last year, according to the company.
Another well-received new breakfast, according to Connolly, is a Jimmy Dean-brand low-calorie flatbread with egg whites, Mozzarella-style "cheese product", and spinach -- a rare vegetarian item in Hillshire's portfolio.
Morningstar analyst Ken Perkins said that Hillshire is trying to "appeal to a broader customer -- so if you have a family where someone eats meat and likes Jimmy Dean, but someone else doesn't like meat, they've got a meatless offering that's just as good."
Perkins added that some of these products have the benefit of appearing healthier -- something that more and more consumers look for.
Hillshire's share price is currently at $30.86, which Morningstar considers slightly above "fair value."
One of Hillshire's biggest challenges is to capture the attention of Millenial consumers -- whom Connolly described as "very discriminating" -- in a competitive market that includes Kraft Foods Group, Tyson Foods, Inc., and Hormel Foods Corporation.
"They are the future of Hillshire's brands, so it means our brands must evolve to meet their needs," Connolly said.
Connolly -- who enjoys fishing with his sons on days off -- also said the company would consider expanding its recently-acquired Golden Island jerky business to include more than beef and pork to accommodate consumers' demands for a high-protein snack.
"There's no turkey in the lineup yet but we're certainly looking at more innovation in the jerky category down the road," he said.
Timothy Raney, an analyst at D.A. Davidson & Company, said that while he sees opportunity in the packaged meat sector, Connolly's focus on innovation and higher-end products might not play to Hillshire's core strengths.
"Aidells is a great product, but it's a small percentage of the company for sure so they need to be doing Aidells and five other things like that," Raney added.
"I think that their strategy is probably sound. But I don't have a lot of illusions about this becoming a high-growth company. It's a packaged meat company and innovation's important but I suspect they're a little aggressive in terms of their view to the long-term outlook for the future" said Raney.
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