Sara Lee Corp. reported earnings for the second quarter and first half of fiscal 2012. The Meats business showed encouraging progress in the second quarter, the company reported, as selective pricing actions were effective in reversing volume loss trends in key categories. After a volume decline of 5.7% in the first quarter, the second quarter showed a decline of 3.5%, with trends improving as the quarter progressed. Volume and share improvement in the company’s core meat categories was diluted by weak performance in bakery categories. A portion of the volume decline can be attributed to short-term disruption related to the transition of accounts to a third party broker. The long-term benefit of this strategic move is expected to greatly outweigh the near-term volume impact. Mix declined 0.4% in the first quarter but increased 1.0% in the second quarter.
In the second quarter, adjusted and reported net sales were flat versus the prior year period, as volume declines of 4.9% were offset by a positive mix effect of 1.5% as well as pricing. The North American Retail segment implemented selective strategic pricing actions in the second quarter in order to address competitive price gaps in certain categories. As a result, the company saw volume and share trends improve in core categories. The overall result was a quarter-over-quarter volume/mix improvement of 390 basis points (from -7.3% in the first quarter to -3.4% in the second quarter). Adjusted operating segment income increased 5% as a result of lower SG&A, operations productivity and lower MAP spend. Commodity price increases were not fully recovered in the quarter.
Market share trends showed meaningful improvements in each of the segment’s core categories. The best performance in the quarter came from the Jimmy Dean business which continues to deliver positive trends on volume, revenue and operating profit, driven by innovation. Meanwhile, extensive resources are being put behind plans to improve the innovation and positioning of the Hillshire Farm brand. The bakery business underperformed during the holiday season in a very competitive market, impacting quarterly results and diluting the impact of positive trends in meat.
In the first six months, adjusted and reported net sales declined 1% to $1,425 million. Pricing and sales mix virtually offset volume declines, the exit of the final hog resale contract and slotting fees on new items. Adjusted operating segment income declined 1% as the impact of volume declines more than offset lower SG&A and operations productivity.
In the second half of the year, the company will continue to balance pricing and MAP spend while remaining focused on innovation.
For the North American Foodservice and Specialty Meats sector, adjusted net sales grew 4% to $287 million, as positive pricing more than offset unit volume declines. The segment showed mixed results as strong sales and mid-single-digit volume growth in meats were offset by mid-single-digit volume declines in bakery, resulting from market declines in out-of-home desserts as well as reductions in military sales. The specialty meats business performed well, driven by the strong performance of Aidells, which continues to grow volume, revenue and operating profit. Adjusted operating segment income declined 19%, with prices increases lagging commodity cost increases.
In the first six months, adjusted net sales increased 3% to $567 million, driven by higher prices. Adjusted operating segment income declined 9% as volume declines and commodity increases more than offset higher prices and lower SG&A costs.
Source: Sara Lee Corp.