• by Nina Lentini  @Nina_Lentini, November 8, 2006

New products, including breads and microwaveable breakfasts, are being credited in part for the sharp gain in net income reported by Sara Lee in its first fiscal quarter. A large tax benefit helped as well.

Earnings for the quarter ended Sept. 30 totaled $333 million, or 44 cents per share--up from $67 million, or 9 cents per share during the same period last year. North American retail bakery sales grew 8 percent, as did international beverage sales. The company expects net sales in 2007 to grow between 2 and 3 percent.

Chairman/CEO Brenda Barnes said sales volumes rose in all business segments for the first time in two years, and that the company was making "great progress" in its foods and beverages.

"We have outstanding capabilities to deliver truly great innovative products," she said during the company's earnings conference call Tuesday. Barnes pointed to several successful new products, including Hearty & Delicious breads, Jimmy Dean Breakfast Bowls and new flavors in Hillshire Farm's deli and meats.

The company's food and beverage unit is focusing on packaged meats and fresh bread because those are two of the largest categories in grocery stores, and neither has a clear market leader. It expects to introduce more than 20 new products in fiscal year 2007, including Hillshire Farm Entrée Salads in January.

Sara Lee appears to be on the right track for breakfast foods. Marcia Mogelonsky, a researcher at Mintel, says the breakfast category is literally heating up.

In September, Mintel surveyed 2,000 people on their breakfast preferences and found that more than half try to eat a hot breakfast. And many respondents said they eat breakfast for nutrition and to get energy. "That's where Jimmy Dean [Breakfast Bowls] comes in," Mogelonsky says.

Mintel also found that from 2004 to 2006, for breakfasts prepared at home:

Entrees were up 6.7 percent

Breads were up 15 percent

Meats were down 7.1 percent

"Meats are down because people used to eat pounds of bacon for breakfast," she said, referring to the Atkins Diet craze. Breads are back because carbs are "back in, with whole grains." The spike in entrees is due to the convenience factor. "People don't have time to cook the sausage, and it feels healthier than going through a drive-through."

Barnes said that when Sara Lee launched its Healthy & Delicious bread, it was able to take advantage of a new company focus on investing in a product only when it has full distribution. Wheat prices are "way up and at a many-year high," but the company has passed the prices on to consumers, Barnes said. "Bread is such a daily staple that a couple of pennies doesn't make all that much difference."

Barnes also reported good news in its single-serve coffee line, Senseo, which saw a 20 percent increase in unit volume. She said Sara Lee is "offering the right value" and "doing all the right marketing."

Engaging ads focusing on the joy of eating were Sara Lee's first effort to group its vast assortment of products under one umbrella theme.