Sara Lee sees sales gains across all units for first time in two years

by Eric Schroeder
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CHICAGO — Operating income in the Sara Lee Food & Beverage business in the first quarter ended Sept. 30 was $32 million, up 146% from the first quarter last year, when operating income was $13 million. Sales were $1,128,000,000, up 5%.

Operating profits of the North American Retail Meats business were $27 million, up 56% from $17 million in the first quarter of fiscal 2006. Sales were $630 million, up 2% from $615 million.

Results in meat benefited from higher sales and unit volumes, continuous improvement savings, lower benefit plan expenses and lower MAP spending. Sales gains were driven by strong new product performance by Jimmy Dean Breakfast Sandwiches and Skillets and higher unit volumes for Hillshire Farm smoked sausage and sliced meats. The acquisition of the Donfer meats business in Mexico during the third quarter of fiscal 2006 also contributed to the sales growth, Sara Lee said.

The North American Retail Bakery segment posted an operating profit of $5 million during the first quarter, which compared with a loss of $4 million in the same quarter a year ago. Sales were $498 million, up 8% from $461 million.

First-quarter earnings in the segment were adversely affected by $5 million in significant items, offset partially by a $2 million gain from acquisitions. This compared with $10 million in charges during the first quarter of fiscal 2006.

Net sales in the bakery segment benefited from the addition of the Butter-Krust baking business, price increases to cover higher wheat and other input costs and a favorable sales mix, more than offsetting the effect of lower unit volumes.

"Unit volumes, excluding acquisitions, for North American Retail Bakery decreased 4% in the first quarter of fiscal 2007, as volume growth in branded fresh bakery and Senseo single-serve coffee were more than offset by lower volumes in non-branded bakery products — for the most part as a result of stock-keeping unit rationalization and exists from non-branded business — and volume softness in frozen bakery," Sara Lee said.

The company noted that branded fresh bakery volume growth was driven by the continued strength of the Sara Lee brand.

Net income of Sara Lee Corp. in the first quarter was $333 million, equal to 34c per share on the common stock, up sharply from $67 million, or 13c per share, in the first quarter last year. Results included a gain of 19c per share from special items, including exit activities, asset and business dispositions, transformation actions and a tax benefit.

Net sales were $2,891 million, up 5% from $2,763 million. For the first time in two years, net sales improved in all business segments.

Operating income in the quarter was $255 million, up from $102 million.

The company said it expects full-year earnings between 86c and 92c per share, which includes 8c per share related to discontinued operations owned during the first fiscal quarter and a 16c per share gain related to the sale of its tobacco business in fiscal 1999, partially offset by a 1c per share charge associated with other net significant items.

Sara Lee said it expects net sales for fiscal 2007 to increase by 2% to 3%.

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