“We are moving forward aggressively, preparing our Meat and Coffee & Tea businesses for strong futures as independent pure-play companies,” said Jan Bennink, Sara Lee executive chairman. “Meanwhile, we are increasing our investment in the future, with strong support behind core brands and new product development.”
The Meat business implemented cost reductions and reorganizations largely driven by the company’s numerous portfolio changes. The newly acquired Aidells business was integrated with Sara Lee’s Gallo business and is now reported under Foodservice and Specialty Meats.
The Retail segment reported a 2 percent decline in adjusted and reported net sales to $684 million, as the positive effect of higher prices was more than offset by volume declines. In the prior year, the first quarter showed strong volume growth partially driven by heavy promotional expenditure. During the first quarter of this year, the company launched several new products under the Hillshire Farm brand, including Grilled Essentials, Gourmet Creations and Deli Carvers. These innovations resulted in start-up and marketing expenses in the first quarter of this year, but will have a positive impact on performance from the second quarter through the remainder of the year.
Adjusted operating segment income declined 9 percent to $56 million as volume declines and higher marketing investment offset SG&A savings and efficiencies from the implementation of SAP across all meat plants. MAP spending was 13 percent higher behind the launch of new products and support of the core brands. Pricing actions along with cost savings more than offset continued increases in commodity costs. Reported operating segment income declined $18 million.
Looking forward, the segment will increasingly benefit from a number of factors, including the positive impact of innovation and selective pricing actions to improve volume softness. Meanwhile, the lapping of price increases and the increasing benefits of cost initiatives taken in recent quarters will contribute to the bottom line.
The newly-named North American Foodservice & Specialty Meats segment is comprised of the North American foodservice meats and bakery businesses (the beverage business is now reported as a discontinued operation) and the company’s specialty meats business, currently consisting of Aidells and Gallo. The segment reported another quarter of solid top-line growth. Adjusted net sales increased 2 percent to $280 million, driven largely by pricing actions taken across the portfolio, while volumes increased 2 percent, including the contribution from the Aidells acquisition.
Excluding Aidells, volumes declined 2 percent versus a strong prior year quarter driven by soft restaurant traffic and declines in foodservice bakery. Reported net sales grew by 12 percent, largely driven by strong performance from Aidells, which outperformed expectations with double-digit volume and sales growth.