Adjusted operating margins improved by 590 basis points over the prior year’s fourth quarter, increasing to 11.4 percent. Reported operating margin for the quarter was 10.1 percent. For the second straight quarter, commodity cost increases were recovered through cost savings initiatives and pricing actions. The net commodity recovery along with lower MAP spending (versus significant investment in the fourth quarter of last year) and a reduction in SG&A expense drove an adjusted operating segment income increase of $44 million versus last year. Reported operating segment income increased $32 million. The implementation of SAP across all meat plants is now complete and is expected to generate efficiencies and cost savings in fiscal 2012.
In the North American Foodservice segment, adjusted net sales increased 9 percent to $400 million, driven largely by pricing actions taken across the portfolio. This marks the second straight quarter of strong top-line growth in the segment. Reported net sales grew by 2.1 percent. Segment volumes were down as declines in roast and ground coffee and diversified bakery more than offset volume growth in meats, frozen bakery and liquid coffee. The segment posted particularly strong results for Jimmy Dean breakfast sausages, pre-sliced pies and cakes and branded meats distributed through convenience stores.
Adjusted operating segment income increased 37 percent driven by cost savings and strong business performance in meats, frozen bakery and liquid coffee. Adjusted operating margin expanded 100 basis points over the prior year to 5.0 percent driven by manufacturing efficiencies and favorable sales mix. This growth was achieved despite the loss of the low-volume, high-margin liquid coffee contract during last year’s fourth quarter. Reported operating segment income declined $6 million due to impairment charges and spin off related costs while the reported operating margin decreased 150 basis points to 0.1 percent.
Adjusted net sales of the international beverage segment increased 14 percent to $978 million in the fourth quarter. The increase was driven by pricing and sales mix of 17 percent and higher green coffee export sales from Brazil, partially offset by volume softness. The volume decline mainly reflects the multiple price increases that were put through in the majority of markets to offset commodity price increases. Price increases and cost savings are expected to have fully offset commodity price increases by the second quarter of fiscal 2012. Volumes were also impacted by a slight decline in the overall coffee market in the Netherlands and a deliberate choice to end private label production in France. Reported net sales increased 24 percent to $996 million.
L’OR EspressO continues to perform well in France and initial results from the Netherlands, Spain and Belgium are promising and reaffirm the growth potential of this product. L’OR EspressO capsules are now sold through more than 15,000 retail stores in Europe. In Brazil, Senseo was successfully launched in Rio de Janeiro following the promising results of the initial introduction of Senseo in São Paulo. The integration of Brazilian Damasco is ahead of plan, with better than expected synergies and growth. Australia successfully launched two new products, Piazza D’Oro and Moccona Café Classics Frappé, which helped to reach a record-high value share of 67 percent in the freeze-dried instant coffee segment. In Foodservice, the trend in machine placements picked up in the quarter and the recent successful roll-out of Cafitesse Excellence contributed to the positive momentum.
The international beverage business is making good progress in aligning its organizational structure with its future growth ambitions. As part of this process, the marketing and R&D functions are being redesigned to optimize the innovation process and allow for a faster product to market process.
Adjusted operating segment income decreased 13 percent to $121 million resulting in an adjusted operating margin of 12.4 percent which largely reflects the time lagging effect between commodity cost increases and subsequent price increase. MAP spending in the fourth quarter was below the significant investment in the prior-year period which in large part is attributable to last year’s launch of L'OR EspressO in France. On a full year basis, MAP investment was up 3 percent providing adequate support to the coffee and tea brands. Reported operating segment income declined 4 percent to $119 million.
Adjusted net sales for international bakery declined 8 percent to $182 million mainly due to difficult macro-economic and competitive conditions in Spain. Reported net sales declined 1 percent to $182 million.