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Bloomberg News
Hillshire Brands, spun off from Sara Lee Corp., is aiming to take its line of lunchmeat and sausage offerings upmarket.

Sara Lee spinoff primed for growth

– Will Americans eat chicken curry meatloaf?

Sean Connolly is betting they will. The chief executive officer of Hillshire Brands Co. is trying to take the purveyor of sausage and lunchmeat upmarket at a time when shoppers are trading down to store brands or buying ready-to-eat entrées.

The new company, which sells Hillshire Farms meats, Jimmy Dean sausages and Ball Park Franks, began trading in late June – making official its split from Sara Lee Corp., which is dividing into a U.S. meat business and a global coffee and tea company.

Because Hillshire and the other meat brands were once part of an enterprise selling goods as varied as apparel and cheesecake, “we haven’t had a focused food company, so we haven’t had the innovation we need,” Connolly said in a phone interview.

“We see enormous potential for growth. Meatcentric meals is a $68 billion business and we have $3 billion of it.”

The company, which will be based in Chicago, is No. 1 in its core U.S. markets: Hillshire Farms, an almost $1 billion brand, leads in dinner sausage; Jimmy Dean, which also generates about $1 billion a year in sales, is tops in breakfast sausage; Ball Park Franks sells the most hot dogs.

To hit his goal of 5 percent annual revenue growth, Connolly will have to gain market share in those slow-growing niches and create new categories, as Jimmy Dean did with refrigerated breakfast sandwiches.

Doing all of that – and maintaining profit – won’t be easy, according to Tim Ramey, an analyst with D.A. Davidson Co. in Lake Oswego, Ore.

In 2009, Sara Lee’s retail meat business did $2.8 billion in sales, growing to only $2.9 billion last year. Plus, operating margins, which were 10.8 percent this time last year, narrowed to 10.2 percent in the first three quarters of fiscal 2012.

That’s partly because food ingredient prices have been rising.

While Connolly is plotting a growth strategy, Hillshire may become a takeover target, according to Alexia Howard, a Sanford C. Bernstein & Co. analyst in New York.

In a June 25 report, Howard said Hillshire brands is attractive because it has a family of established brands and is the only company focused almost exclusively on meat. Potential suitors include Hormel Foods Corp. and Tyson Foods Inc., she said.

“This will be a transformational deal for whoever makes it,” Howard said in the report.

Connolly made a name for himself at Campbell Soup Co., where he helped bring to market such innovations as the V8 V-Fusion line of vegetable-fruit drinks.

Since taking over Sara Lee’s meat business in January, he has set up a new research and development team to come up with new creations, including the chicken curry meatloaf.

One of Connolly’s first acts was to start cutting staff, which will save $100 million over three years, according to a company statement. The streamlining is also supposed to reduce how long Hillshire takes to get new products to market, he said.

“We had analysis paralysis,” Connolly said. “So we consciously downsized the organization so it’s leaner. We have fewer meetings and fewer check-offs on decision-making.”