In the first quarter of fiscal 2011, operating income was $169 million, compared to $326 million in the year-ago period, a decrease of 48.1%, primarily resulting from no longer receiving $133 million in contingent sale proceeds in the first quarter, as well as lower operating segment income. Diluted EPS as reported were $0.29 in the first quarter of fiscal 2011, compared to $0.41 per share in the year-ago period.
Net sales for the first quarter of fiscal 2011 were $2.6 billion, down 0.5% versus the year-ago period as a favorable shift in sales mix and higher prices were offset by lower unit volumes and unfavorable foreign currency exchange rates. The company’s adjusted net sales rose 1.5% in the quarter. This increase was driven by strong adjusted net sales growth in the North American Retail (sales up 7.3%, volume up 4.4%, mix up 1.3%) among other things.
Higher commodity costs net of pricing were a headwind for the North American Retail segment, which includes meat businesses, in the first quarter of fiscal 2011. This year’s quarter compares with a very strong year-ago period when margins were above the trend line of gradual improvement helped by a tailwind from lower commodity costs.
This segment continued to invest heavily behind two of its core retail brands, Hillshire Farm and Jimmy Dean, the launch of new products and other consumer-centric marketing programs. Investments were also made in the new Kansas City sliced-meat plant that will become operational in early calendar year 2011, as well as in the implementation of the segment’s ERP and trade optimization systems.
In all, operating segment income decreased $17 million, or 20.6% in the first quarter to $63 million, while adjusted operating segment income decreased $19 million, or 23.0%. The impact of the higher commodity costs net of pricing, and marketing and other investments, were partially offset by a favorable sales mix shift into higher-margin products, the strong volume performance of the segment’s core retail business and continuous improvement and Project Accelerate savings.
Unit volumes increased 4.4% in the first quarter, driven by growth for Jimmy Dean breakfast sandwiches and sausages and Hillshire Farm lunchmeats and smoked sausage.
Net sales of $707 million in the North American Retail segment were up 7.3% in the first quarter, on a reported and adjusted basis, driven by higher unit volumes, favorable sales mix (up 1.3%), as well as higher prices. The segment successfully launched various new products, such as a line of kids-focused Jimmy Dean breakfast products under the Jimmy D’s sub-brand, lower sodium Hillshire Farm and Sara Lee lunch and deli meats and Hillshire Farm lunch meat variety packs.
The retail business’ competitive position continued to strengthen with market share improvements in 10 of its 12 core categories. Hillshire Farm smoked sausage, for example, increased its market share by 1.6 points versus last year, strengthening its number one market position to 29.1%, while Jimmy Dean protein breakfast increased its leading market share by 3.7 points to 58.0%.