Core business performs solidly at Sara Lee

by Josh Sosland
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DOWNERS GROVE, ILL. — Adjusted operating income of Sara Lee Corp. in the first quarter ended Oct. 1 was $182 million, up 4% from $175 million in the first quarter of fiscal 2011. Adjusted sales were $1,900 million, up 6% from $1,798 million.

In the midst of completing the sale of two of its baking divisions and splitting the remaining company into two separate businesses, Sara Lee’s results for the quarter were heavily affected by the transformation in process.

The company sustained a net loss of $215 million in the quarter, compared with net income of $194 million, or 29c per share on the common stock, in the first quarter of fiscal 2011. Sales were $1,943 million, up 13%. Adjusted net income in the fiscal 2011 quarter was $129 million, equal to 21c per share.

Sara Lee sustained a quarterly loss of $181 million in the quarter on discontinued operations. In particular, Sara Lee took a $371 million impairment charge relating to its Spanish and French baking businesses, to be sold to Grupo Bimbo S.A.B. de C.V.

“We are moving forward aggressively, preparing our Meat and Coffee & Tea businesses for strong futures as independent pure-play companies,” said Jan Bennink, executive chairman of Sara Lee. “Within the past month we have closed the sale of North American refrigerated dough to Ralcorp and announced the sales of Spanish bakery to Grupo Bimbo and the majority of the North American food service beverage operations to J.M. Smucker.

“We have also gained D.O.J. (Department of Justice) approval on the North American Fresh Bakery sale to Grupo Bimbo. These actions demonstrate our progress toward the creation of two focused entities that are poised for long-term growth. Meanwhile, we are increasing our investment in the future, with strong support behind core brands and new product development. The solid performance of our base business and our exciting pipeline of innovation give me great confidence that both companies are positioned for successful futures.”

Adjusted operating income of the Sara Lee Coffee & Tea segment was $121 million, up 20% from $101 million in the first quarter last year. Sales were $906 million, up 14% from $793 million.

Sara Lee touted a “strong rebound” for the coffee/tea business in the quarter. The sales gain was helped by a 32% increase in marketing, advertising and promotion spending. Pricing and mix contributed 14% and 4%, respectively, to the sales gain while volume fell by 3%.

“The success of the L’Or EspressO capsules, continued good performance of Senseo in Spain and France and the termination of private label production in France each contributed to positive mix growth,” the company said. “Price increases were enacted in multiple markets to offset commodity price increases in fiscal 2011.”
The company said price increases and cost savings were expected to offset higher commodity prices in fiscal 2012 and beyond, “barring any unforeseen commodity spikes.”

In the North American Foodservice and Specialty Meat division, operating income was $27 million, up 7% from $25 million in the quarter ended Oct. 1. Sales were $280 million, up 2%.

The segment, newly named, includes food service meat and bakery business in North America. Sara Lee said top-line growth was “solid” bolstered by pricing actions. Volume rose 2%, helped by the acquisition of the Aidells business. Excluding the acquisition, volume fell 2%. The acquisition exceeded expectations in the quarter, Sara Lee said.

“We’re pleased with the solid top- and bottom-line performances of our businesses while facing the challenge of managing volume and margins in an environment of commodity inflation and weak macroeconomic conditions,” said Marcel Smits, chief executive officer. “The Coffee & Tea business showed strong progress, with double-digit top- and bottom-line growth and margin expansion despite a healthy increase in marketing investment. In North America, we've invested heavily behind new product launches, implemented organizational changes and achieved further cost reductions. For Sara Lee as a whole, we are on track to achieve our goal of $180 million to $200 million in cost savings. All of these initiatives taken together give us confidence for the remainder of the year and allow us to maintain our EPS guidance despite a currency headwind and the exclusion of our N.A. Foodservice Beverage business from continuing operations.”

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