Sara Lee updates on baking exit

by Josh Sosland
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DOWNERS GROVE, ILL. — Moves to exit nearly all of the company’s baking operations are progressing toward completion, Jan Bennink, executive chairman of Sara Lee Corp., said Aug. 11. Speaking to investment analysts in connection with the company’s quarterly earnings, Mr. Bennink and Marcel Smits, chief executive officer, both expressed their pleasure at progress toward the shedding of the company’s baking businesses.

In addition to the recently announced agreement to sell the Sara Lee private label refrigerated dough business to Ralcorp Holdings Inc. and offering an update on the sale of the North American fresh business, they also offered an optimistic view of prospects for selling the company’s European baking business quickly.

Of the North American division, Mr. Bennink characterized his update on the fresh unit as “very good news” and called the selling price of the refrigerated dough unit a success.

“We expect the closing in September,” he said of the sale to Grupo Bimbo S.A.B. de C.V. “I think there's an awful lot of debate about it, but, that’s what we can announce today. The refrigerated dough, which we announced two days ago on the 9th, we’re very pleased with the price we got for that. I think it is a great business, and the great people will be in good hands with Ralcorp.”

Sara Lee had announced in May it was looking at strategic alternatives for its struggling international bakery business.

The Sara Lee International Bakery business includes a fresh baking business primarily in Spain and a refrigerated dough business primarily in France. The division’s products include bread, buns, rolls, specialty bread, refrigerated dough and frozen desserts, sold under brands that include Bimbo, CroustiPate, Ortiz Sara Lee and BonGateaux.

Mr. Bennink offered a hopeful update to the May announcement.

“We’ve, in the meantime, seen a lot of investors and a lot of people who were interested in the (French refrigerated dough) business, and we’re making good progress toward an announcement somewhere in the Q1, Q2,” he said. “The same with the Spanish Bakery. We’re very pleased with that. We’ve been looking at that for a long time and I think we’ve announced, now today, that we will divest the businesses. And, also there, we have seen a lot of interest and we expect announcement for that in Q1 and Q2.”

Mr. Smits commented on the prospective sale while offering an update on the division’s financial results.

“The decision to exit from our French and Spanish business is the right one,” he said. “This is not for us. There will be others who will do better.”

He described the current operating situation for the European baking business as a “rough patch.”

“Operationally, not much has changed since what we shared in May,” he said. “You see that tough market conditions in Spain have manifested in declines in adjusted net sales and operating income in the quarter. We consciously decreased prices in Spain, in an attempt to reverse, or at least slow down, our volume declines. We suffered on the bottom line, and I can only take consolation from the fact that competition doesn’t seem to have a good time, either. The restructuring activities to transform the sales force to independent operators, which we’ve talked to you about before, has been, meanwhile, agreed, and, will provide meaningful benefits. We pushed them through. Even though the benefits will accrue to whomever buys the business. We’re pleased to say there are a number of people out there who expressed a strong interest.”

More encouraging were results of the company’s French dough business, which Mr. Smits said was feeling price pressure but remained “very profitable.”

“It too has attracted significant interest from parties who have synergy potential,” he said.

Sara Lee has taken significant charges in connection with the European baking business in recent years. In fiscal 2010 (year ended July 3), the company took a $13 million charge against earnings related to the write down of bakery equipment associated with the Spanish bakery reporting unit.

“During 2009, the corporation recognized a $314 million non-cash charge primarily for the impairment of goodwill and other long-lived assets associated with the Spanish bakery operations and goodwill associated with the North American food service beverage operations as both operations were not expected to generate sufficient profitability to support the remaining goodwill balances,” Sara Lee said in its fiscal 2010 10-K filing with the Securities and Exchange Commission.

The charges included $124 million equating to the entire amount of remaining goodwill in the Spanish baking division plus $83 million for assets in the division, $79 million of which related to trademarks.

When the divestitures are completed, Sara Lee’s baking business will be limited to its heritage frozen desserts business, including cakes, pies and cheesecakes.
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