(Recasts, adds executive comment, details on meat inflation,
updates stock price)
By Lisa Baertlein
May 6 Hillshire Brands Co on Tuesday
reported better-than-expected quarterly sales after raising
prices to offset higher costs for the pork and beef used to make
its Ball Park hot dogs and Jimmy Dean sausage.
Shares of the company were up 3.5 percent at $36.53 in
The results from the company, which also sells Hillshire
Farm lunch meat and more upscale Aidells sausages and meatballs,
came as a host of food companies, including Kraft Foods Group
Inc, McDonald's Corp and Chipotle Mexican Grill
Inc, raise prices because of soaring pork and beef
Hillshire's third-quarter net sales rose 3.4 percent to $955
million, topping the average analyst estimate of $939 million.
Price increases and strong sales of products like Jimmy Dean
breakfast sandwiches helped to more than offset an overall
volume decline of 3.2 percent.
Net income from continuing operations was $42 million, or 35
cents per share, for the quarter ended March 29, little changed
from a year earlier.
"Our brand has gotten a lot stronger. The volume drop is not
as severe as they would have been in the old days when we were
not supporting the business at the level we've been supporting
it at for the last couple of years," Chief Executive Officer
Sean Connolly told Reuters. He cited investments in advertising
and new products.
Chief Financial Officer Maria Henry said in an interview
that ingredient costs this fiscal year will be "more than $100
million above" what was originally planned. Three-quarters of
that additional expense is due to a deadly piglet virus, called
PEDv, that has reduced supplies and driven up the price of pork,
Hillshire normally spends just over $1 billion a year for
meat, Henry said.
The Jimmy Dean fresh sausage business has been one the
hardest hit by the spike in pork costs. The base price for that
product, which is sold in plastic rolls, is up 15 percent.
History has shown that poorly managed price increases can
give customers "sticker shock" and drive them to other brands.
Hillshire expects pork prices to continue to rise, with
margins under pressure in its current fourth quarter.
Despite that, executives nudged higher their 2014 forecasts.
Hillshire expects full-year sales growth to be in the
low-single-digit percentage range. It had said sales would be
slightly above last year, without giving a figure.
The company also expects full-year earnings per share to be
at the high end of its forecast for flat to low-single-digit
The Chicago company was formed after Sara Lee Corp spun off
its international coffee and tea business in June 2012 into D.E
Master Blenders 1753 NV and changed the name of its
remaining food business to Hillshire Brands.
(Reporting by Siddharth Cavale in Bangalore and Lisa Baertlein
in Los Angeles; Editing by Don Sebastian and Jeffrey Benkoe)