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Ramping up innovation key message in Hillshire's strong earnings report

By Hank Schultz , 02-Nov-2012
Last updated the 02-Nov-2012 at 15:27 GMT

Hillshire Brands Co. reported strong earnings in its first quarter as an independent company, reporting net income of $53 million in the first quarter of fiscal 2013 that ended Sept. 29.

Hillshire was spun off from  Sara Lee Corp. in July,  creating a meat-centric company with the Sara Lee frozen desert lines thrown in. Major brands include Jimmy Dean and Ball Park hot dogs.  Strong sales of these two lines helped drive the overall positive performance.

Hillshire had been dinged by some observers as lacking a spirit of innovation.  It’s a criticism that the management team took to heart.

“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,” CEO Sean Connolly said in an earnings conference call. “We have a fully dedicated new innovation team now in place.”

Old faithful comes through

The standout performer is one of the company’s oldest brand names, Jimmy Dean.

“Jimmy Dean continues to be our standout performer with very strong volume and sales growth,” Connolly said.

“Jimmy Dean's strong performance is a function of a commonsense equation: Produce a high-quality family of products that people want to buy, price them appropriately and invest in marketing to reinforce brand equity. Frankly, Jimmy Dean's success shows that this equation works and just reinforces our conviction in our long-term strategy of replicating the Jimmy Dean model across our other high-potential retail brands,” he said.

One of those brands in Ball Park.  The brand had positive performance, but Connolly raised the question of whether it had been resting on its laurels.

“Ball Park remains strong through the tail end of grilling season, although I continue to believe that the hot dog category has been too flat-footed on innovation, which is at the root of overall category sluggishness. We will do our part to change that,” he said.

Among the innovations in the brand, Connolly cited the Ball Park Flame Grilled burgers and a 100% natural hot dog launch under the Aidells brand.

Drought was a factor

The newly formed company was greatly aided by the drought, which depressed commodity meat prices as farmers were forced to slaughter herds prematurely, both in cattle and swine.  While this was a welcome tailwind, it likely won’t last, Connolly said, which was one of the reasons why the company was not raising its full year earnings guidance at this time.

“The drought last summer was an unusually significant event, and its full impact on the protein complex is still emerging. And a lot of factors play into that final outcome, including the variable of global demand. So a lot is still moving, and that's part of the reason why we want to get farther in the year before we consider changing our outlook,” he said.

Sweeping out stodginess

A number of the company’s businesses had become somewhat stodgy, Connolly said. For example, he had this to say about the Sara Lee sliced meats business: “It's a decent size business for us. As you've heard me say in the past, nothing really happened on that business for a long, long time.”

A new management team is in place for that product line and Connolly said the company is aggressively moving to ramp up product quality and upgrade the packaging, a business plan that will extend to the whole company. Connolly summed up the newly aggressive stance of the company by calling it a culture of “productive paranoia.”

“We will not do what we've done in the past, which is if competitors try to come after our business, we won't sit back on our heels and just allow our market share to be taken away,” he said.

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