Income down, but sales strong at Sara Lee

by Eric Schroeder
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DOWNERS GROVE, ILL. — Net income at Sara Lee Corp. in the fiscal year ended June 30 totaled $504 million, equal to 68c per share on the common stock, down 9% from $555 million, or 72c per share, in fiscal 2006. But for the fourth quarter ended June 30, income soared to $117 million from $8 million, driven by progress made in the company’s turnaround plan.

Net sales for the year were $12,278 million, up 7% from $11,460 million. For the fourth quarter, sales totaled $3,199 million, up 8% from $2,969 million.

Brenda C. Barnes, chairman and chief executive officer, said the fourth-quarter improvement signals the company’s shift away from its disposition program and organizational restructuring into a growth phase.

"We are confident that our improved sales and marketing capability, combined with a robust innovation pipeline and a renewed approach to operational excellence, will continue to drive our performance in the coming year," Ms. Barnes said.

Sara Lee said sales grew in all six of its business units during fiscal 2007, led by particularly strong growth in International Beverage, Household and Body Care, International Bakery and North American Retail Bakery.

Within Sara Lee’s food and beverage operations, the company’s North American Retail Meats segment posted operating income of $79 million, down 47% from income of $149 million in fiscal 2006. The decline resulted from charges for exit activities, an impairment and accelerated depreciation, higher commodity and labor costs, increased media advertising and promotion spending (MAP), a loss in Mexico and the impact of the planned exit of the commodity pork business.

Net sales in the segment rose 4% during the year to $2,638 million.

"The Jimmy Dean brand had another year of double-digit sales growth, due in large part to successful new product launches," Sara Lee said. "The Hillshire Farm and Ball Park brands each reported high single-digit sales growth in fiscal 2007, also building upon growth in the prior year."

Sara Lee’s North American Retail Bakery segment, which includes its Senseo coffee business, sustained an operating loss of $2 million in the fiscal year ended June 30, which compared with a loss of $197 million during fiscal 2006. The year-over-year improvement in operations was boosted by the company’s larger transformation efforts, which helped drive a 6.8% gain in net sales in the unit to $1,998 million.

"Unit volumes, excluding acquisitions, decreased 3.5% in the fourth quarter and 3.9% for the full year, partially due to a planned shift from less profitable non-branded and regional business to Sara Lee branded business," Sara Lee said. "During the quarter, the bakery business increased or maintained market share in six of its seven fresh bakery categories, while the Sara Lee brand maintained its position as the No. 1 fresh bakery brand in America with a 7.9% share, according to I.R.I. data (for the 12 weeks ended July 1)."

In its International Bakery business, operating income was $38 million, up from $20 million in fiscal 2006. Sara Lee said unit volumes in the segment rose nearly 2% during the year, driven by growth in the Spanish fresh bakery business and the European refrigerated dough business, partially offset by declines in the fourth quarter in the Australian business. For the year, the Spanish bakery brand Bimbo posted high single-digit sales growth, building upon mid single-digit growth in fiscal 2006, the company said.

Net sales in International Bakery for the full year rose 7.8% to $799 million.

Sara Lee’s International Beverage business recorded the largest year-over-year sales improvement, rising 12.8% to $2,617 million. Operating income for the unit, meanwhile, fell back 18% to $317 million, reflecting impairment charges incurred during the second quarter of fiscal 2007.

The company’s Food Service business, which includes meats, bakery and coffee, posted net sales of $2,197 million for the second quarter, up 0.8% compared with the same period last year. Operating income for the unit was $139 million, up 20% from fiscal 2006.

The company expects full-year fiscal 2008 earnings per share to be in the range of 95c to $1.01 per share, which would include 18c per share of contingent proceeds received in the first quarter of fiscal 2008 from the sale of its tobacco business in fiscal 1999.

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