HILLSHIRE BRANDS CO. $36 (New York symbol HSH; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 122.4 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.1; Dividend yield: 1.9%; TSINetwork Rating: Average; www.hillshirebrands.com) makes a variety of packaged meat products. Its main brands include Ball Park hot dogs, Jimmy Dean sausages and Hillshire Farm deli meats.
In June 2012, the old Sara Lee Corp. spun off its international coffee and tea business, D.E. Master Blenders, as a separate company. The remaining operations became Hillshire Brands.
Hillshire gets 74% of its sales from supermarkets and other mass retailers; Wal-Mart is its largest single customer, accounting for 25% of its total sales. Restaurants supply the other 26%.
After the breakup, Hillshire launched a plan to improve its productivity, including closing older plants. It expects these moves to save it $145 million when it completes the plan in fiscal 2016.
Meanwhile, Hillshire’s sales rose 2.1% in its fiscal 2014 second quarter, which ended December 28, 2013, to $1.08 billion from $1.06 billion a year earlier. Without contributions from acquisitions, sales rose 1.6%. That’s mainly because the company raised its prices to offset higher pork costs after a virus reduced U.S. hog supplies. Pork and beef account for 60% of Hillshire’s total operating costs. Earnings rose 7.9% to $82 million, or $0.66 a share, from $76 million, or $0.62.
Hillshire recently agreed to pay $165 million for Van’s Natural Foods, which makes gluten-free pancakes and whole-grain waffles. The new operations should add $60 million to its annual revenue.
Hillshire can easily afford this purchase. Its long-term debt of $840 million is just 19% of its market cap. It also holds cash of $397 million, or $3.24 a share.
The stock is up 24% since the spinoff from Sara Lee. It now trades at a high 20.9 times the $1.72 a share that Hillshire will likely earn in fiscal 2014. The $0.70 dividend yields 1.9%.
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