Sara Lee Corp.’s Hillshire Farm and Jimmy Dean brands are gaining market share in retail packaged meats categories, though rising commodity costs may temper profit margins, the company said.
The Downers Grove, Ill.-based foodmaker boosted marketing, advertising and promotion spending 4.9 percent in its recently-completed quarter, primarily in Jimmy Dean, Hillshire Farm and Ball Park products, Sara Lee said in a statement.
Targeted promotions and discounts led to “attractive price points for high-quality products,” Sara Lee said. Those efforts “drove unit volume growth,” the company said. “In the second half of the year, volumes are likely to continue to improve.”
Jimmy Dean, Hillshire and Ball Park are key players for Sara Lee as it battles Kraft Foods Inc. and other competitors in grocery meat cases. Increasing retail meat sales, particularly with summer grilling season ahead, may provide a lift for beef and pork prices already rebounding from last year’s slump, analysts say.
Grocery prices generally have been rising as concern over job losses prompts people to eat more at home, industry analyst George Whalin said.
“We’re seeing price increases in the grocery industry, both for grocers and suppliers,” Whalin said. “Grocers have found they can get away with it.”
Lower costs overall helped Sara Lee post better than expected net income of $371 million, or 53 cents a share, during the quarter ended Dec. 26, the company said today. In the same period a year earlier, Sara Lee had a net loss of $17 million.
Net sales in the most-recent quarter rose to $2.858 billion from $2.856 billion.
In Sara Lee’s North American retail business, which includes Jimmy Dean and Hillshire Farm, operating income surged to $122 million from $73 million as operating margin rose to 16.4 percent from 9.9 percent.
But with commodity costs rising, margins may have peaked, Sara Lee hinted. During a conference call with analysts, Sara Lee executives said they expect margins this year to “moderate” to the “low double-digits.”
“We were probably a little tick higher on price points compared to our competitors” during the quarter, Sara Lee’s Chief Executive Officer Brenda Barnes said during the call. “While commodity costs went down, we held our pricing.”
“We have a combination of great products that have been marketed significantly well in recent years,” Barnes said. “We still get a premium on those brands and a great presence on shelves.”
Among Sara Lee brands, Jimmy Dean’s share of the North American frozen protein breakfast category rose 2.4 percentage points, to 54.3 percent, in the 12 weeks ending Dec. 13, the company said, citing Information Resources, Inc., data.
Hillshire’s share in lunchmeats increased 1 percentage point, to 13.3 percent, during the same period.
Sara Lee shares today fell 12 cents, or 1 percent, to $12.32. The stock has gained 32 percent over the past 12 months.