Hillshire Brands thinks outside the corn dog with CEO Connolly

Reuters

By Atossa Araxia Abrahamian

NEW YORK, Sept 27(Reuters) - Since Hillshire Brands spun off from the Sara Lee Corp. last June, CEO Sean Connollyhas made a point of thinking outside the box - and even beyondthe traditional pig and cow.

Connolly, 47, joined Hillshire last year after serving asthe president of Campbell North America. He has focusedfor the last year on energizing the brand, best known for JimmyDean sausages. He is trying to reach a broader and youngerconsumer base and get creative with poultry and even no-meatoptions.

He has also tried to foster a more collaborative atmosphereat work, moving into a office with an open design and no special"executive row."

"I am incredibly pleased with the amount of progress we'vemade in first year, but I am clear-eyed about the fact that it'sthe first year," he said in an interview this week with Reuters.

The largest and most important part of the company'sbusiness is packaged meat. The $1 billion Jimmy Dean brand'ssales grew in the high single digits in the 2013 fiscal year,the company said.

The overall company, however, has seen sales slip due tohigh commodity prices and stiff competition. In the fourthquarter, operating income fell 23 percent and sales fell 2percent. 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, ayear earlier.

Out of ten analysts with a recommendation, only one hasrated Hillshire as a "buy" according to Thomson Reuters, butnone put a "sell" on the stock. Others have ratings of "hold","outperform" or "overweight."

Connolly nevertheless remains optimistic that in thelong-term, the company will be profitable, helped by healthierand more portable meat products but also chicken, turkey, andvegetarian items.

"The vast majority of our products have meat in them -- meatis the 'hero ingredient', as we say -- but we are buildingrelationships with households, and in come cases, the householdis saying 'hey, every now and then I want a choice that doesn'thave meat'" Connolly said.

He said Aidells -- an organic, hormone-free andantibiotic-free line of chicken and turkey sausages, acquired bySara Lee in 2011 - is its fastest growing brand.

The "artisanal" sausages and meatballs, which are among thecompany's most expensive products, come in unusual flavors suchas spicy mango with jalapeno and pineapple and bacon. They arepart of Hillshire's Gourmet Foods Group, which grew in thesingle-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 rarevegetarian item in Hillshire's portfolio.

Morningstar analyst Ken Perkins said that Hillshire istrying to "appeal to a broader customer -- so if you have afamily where someone eats meat and likes Jimmy Dean, but someoneelse doesn't like meat, they've got a meatless offering that'sjust as good."

Perkins added that some of these products have the benefitof appearing healthier -- something that more and more consumerslook for.

Hillshire's share price is currently at $30.86, whichMorningstar considers slightly above "fair value."

One of Hillshire's biggest challenges is to capture theattention of Millenial consumers -- whom Connolly described as"very discriminating" -- in a competitive market that includesKraft Foods Group, Tyson Foods, Inc., andHormel Foods Corporation.

"They are the future of Hillshire's brands, so it means ourbrands 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 itsrecently-acquired Golden Island jerky business to include morethan beef and pork to accommodate consumers' demands for ahigh-protein snack.

"There's no turkey in the lineup yet but we're certainlylooking at more innovation in the jerky category down the road,"he said.

Timothy Raney, an analyst at D.A. Davidson & Company, saidthat while he sees opportunity in the packaged meat sector,Connolly's focus on innovation and higher-end products might notplay to Hillshire's core strengths.

"Aidells is a great product, but it's a small percentage ofthe company for sure so they need to be doing Aidells and fiveother things like that," Raney added.

"I think that their strategy is probably sound. But I don'thave a lot of illusions about this becoming a high-growthcompany. It's a packaged meat company and innovation's importantbut I suspect they're a little aggressive in terms of their viewto the long-term outlook for the future" said Raney.

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