It has made Coach handbags, Isotoner gloves, Kiwi shoe polish and Playtex bras. But now Sara Lee Corp. has slimmed down to meat and cheesecake.
What was a $20 billion, multinational holding company with more than 150,000 employees in 2000 will become a food-focused company renamed Hillshire Brands, with about 8,500 employees, a portfolio of meat products and frozen desserts and nearly $4 billion in sales.
The tighter focus is the result of a 12-year process in which Sara Lee has spun off and sold businesses, partly because investment trends have dimmed the appeal of diversified conglomerates. But experts also say the Downers Grove, Ill., company never found a solid base business in any particular segment, even though Sara Lee boasted of such marquee names as Coach, Hanes undergarments and its eponymous cheesecakes.
Hillshire Brands’ new chief executive is betting that a simpler mission will improve shareholder returns.
“I’ve long been a believer in the power of a focused company,” Sean Connolly said. “When you’re focused, you can make sure you’re nurturing your brands and paying attention to consumers. The evidence is clear that big, unfocused companies don’t deliver.”
Sara Lee is completing the spinoff of its remaining international coffee and tea business, with a $3.3 billion company now being called DE Master Blenders 1753 and based in the Netherlands.
Hillshire Brands will trade on the New York Stock Exchange under the ticker HSH. About 85 percent of its sales will come from meat products like Jimmy Dean, Hillshire Farm and Ball Park. About 15 percent of its sales will be the frozen desserts like the cheesecake Midwesterners long have wistfully associated with the S&P 500 company.
Connolly came to Sara Lee in January, after a decade at Campbell Soup Co., where he helped build the company’s V8 business by reframing it as a fruit and vegetable drink and an easy vehicle for nutrients.
He plans something similar at Hillshire: to extend its biggest brands beyond raw sausage and hot dogs and into new supermarket aisles and categories. As an example, Connolly pointed to the frozen breakfast sandwiches, quesadillas and casseroles that have become an important part of the Jimmy Dean business in the past decade. These products have higher margins and took the well-known sausage brand into the freezer aisle.
New products will be key to Hillshire’s growth, he said. By fiscal 2015, new offerings should equal 13 to 15 percent of company sales, up from an average of 9 percent over the last four years.
Hillshire also is looking to increase sales among certain consumers, such as Hispanic families and calorie-conscious women. Jimmy Dean Delights, a line that includes breakfast sandwiches and bowls with fewer than 300 calories, have been a success with women, he said. The company also plans to launch a Mexican-style corn dog to appeal to Hispanic families.
To support its goals, Hillshire will beef up its marketing budget. Connolly has projected a marketing investment equal to 5 percent of sales by fiscal 2015, up from 3.6 percent of sales for the fiscal year to date.
While Hillshire’s frozen desserts business, including its cheesecakes, seems to have little to do with sausage, Connolly argued that the business is extremely popular in commercial food service and gives Hillshire a chance to sell those clients on its meat products.
He added that the bakery expertise helps Hillshire make better-quality frozen breakfast sandwiches, which have been a growth engine for Jimmy Dean in recent years.
By January, Hillshire plans to move 500 to 600 employees back to Chicago, on the Near West Side, which Connolly sees as fitting because of the company’s roots in the city.
Like the company’s history, the mechanics of its separation are a little complicated.
Company shareholders will receive one share in DE Master Blenders for every share owned in Sara Lee. The company stock will also go through a one-for-five reverse split, meaning shareholders will receive one share in Hillshire for every five shares held in Sara Lee. This relatively unusual division prevents the new Chicago-based company from debuting as a $5 stock.
“It’s more of a marketing or appearance sort of thing,” said Joe Cornell, managing principal of Spin-Off Advisors and author of Spin-off to Pay-off. “They’d rather not have a sub-$10 stock, but cutting the pie differently doesn’t change the value.”
Shareholders will also receive a $3 special dividend.
Established in Baltimore as a sugar, coffee and tea business in 1939, the company moved to Chicago in 1942 and changed its name to Sprague Warner-Kenny Corp., going public in 1946.
The company nabbed Kitchens of Sara Lee in 1956, as part of an acquisition of Piggly Wiggly supermarkets. Hillshire Farm, Hanes and Chef Pierre, a maker of frozen prepared desserts, and others were purchased in the 1970s.
James Schrager, a clinical professor of entrepreneurship and strategic management at the University of Chicago’s Booth School of Business, explained, “it became very, very profitable to be in a conglomerate and the stock market welcomed and rewarded executives who went out and bought other companies.”
But “by the mid-’80s everyone figured out it was a temporary gain,” he said. “In fact, it’s much harder to manage a company than it seems when they’re just buying a good brand when you don’t know what’s going on inside them.” But Sara Lee kept buying.
Brands like Jimmy Dean, Kiwi shoe polish, and Champion sportswear joined the portfolio in the 1980s. Sara Lee Corp. became the company’s official name in 1985.
Sara Lee bought Playtex in the 1990s, along with other apparel, meat and coffee brands, reaching the $20 billion sales mark in 1998. Then growth hit a plateau. Sara Lee began scaling back in 2000, spinning off Coach and selling other businesses.
After years of lackluster earnings, Sara Lee announced plans to spin off or sell 40 percent of its businesses in 2005, including its apparel division led by Hanes, European packaged meats and U.S. retail coffee. PepsiCo alum Brenda Barnes was named chief executive and credited with accelerating the company’s divestitures.
Sara Lee announced major sell-offs in 2009 and 2010: its household and body care business to Unilever, followed by its North American bakery business to Grupo Bimbo. Barnes stepped down in 2010, after suffering a stroke. She was succeeded by Marcel Smits, who announced the intention to break up the company in early 2011.
After the split, the question for a number of industry analysts is whether a smaller company can stay independent, or if it’s likely to be absorbed by a larger one. After all, Hillshire’s first-year sales are expected to be about half those of meat-industry competitor Hormel and a fraction of those of Tyson Foods.