Sara Lee: Reports Q4 and Fiscal 2009 Results

Downers Grove / IL. (slc) Sara Lee Corporation reported net sales of 3,2 billion USD for the fourth quarter of fiscal 2009, ending June 27, 2009, a decline of 9,8 percent compared to 3,5 billion USD in the comparable period last year. For fiscal 2009, net sales were 12,9 billion USD, a decrease of 2,5 percent compared to 13,2 billion USD in the prior year. Net sales increased in the North American fresh bakery and retail segments, up 8,5 percent and 5,9 percent respectively, but these increases were more than offset by the impact of unfavourable foreign currency exchange rates, most notably the Euro, and divestitures made during the year.

Adjusted net sales decreased 1,3 percent in the fourth quarter, but increased 2,7 percent in fiscal 2009. Adjusted net sales exclude acquisitions/divestitures and present fiscal 2008 net sales at fiscal 2009 foreign currency exchange rates.

«I am pleased to report that we have just completed our second consecutive year of strong overall performance, despite tough economic and competitive headwinds», said Brenda C. Barnes, chairman and chief executive officer of Sara Lee Corporation. «Our 2009 results reflect the significant progress we have made in transforming Sara Lee and focusing the company on core businesses with large and growing brands in important categories. We have dramatically improved efficiencies and productivity across the board, while fostering a culture of innovation and collaboration. We have built a solid foundation and will continue to invest in the future. We are confident that we will continue to execute our growth strategy in fiscal 2010 and in the years to come», she added.

Sara Lee reported fourth quarter operating income of 65 million USD, compared to an operating loss of 506 million USD for the year-ago period, while adjusted operating income was 331 million USD, down 6,2 percent compared to the year-ago period. In the fourth quarter of fiscal 2009, the company incurred non-cash, pre-tax impairment charges of 207 million USD associated with goodwill balances and other long-lived assets at the Spanish bakery business, as well as 61 million USD of other charges for significant items. For the fiscal year, the company reported operating income of 713 million USD in fiscal 2009, up significantly from 260 million USD in fiscal 2008. Adjusted operating income was 1,02 billion USD in fiscal 2009, compared to 1,0 billion USD in the prior year, an increase of 1,9 percent. Adjusted operating income excludes the impact of significant items, contingent sale proceeds and acquisitions/divestitures and presents fiscal 2008 results at fiscal 2009 foreign currency exchange rates.

Fourth quarter results were a net loss of 14 million USD in fiscal 2009 compared to a net loss of 672 million USD last year primarily due to significant impairment charges in both years. Diluted EPS as reported were a loss of (0,02 USD) in the fourth quarter of fiscal 2009 versus a loss of (0,95 USD) in the year-ago period.

For the fiscal year, the company reported net income per diluted share of 0,52 USD, compared to a loss of (0,11 USD) per share in the prior year, Fiscal 2009 diluted EPS as reported, included several significant items that had a net negative impact of 0,53 USD per share, while significant items in fiscal 2008 had a net negative impact of 1,12 USD per share. Adjusted EPS were 0,84 USD in fiscal 2009, compared to 0,82 USD per share in fiscal 2008.

Other Highlights

• Net cash from operating activities was 900 million USD in fiscal 2009, compared to 606 million USD in fiscal 2008. This year-over-year increase was primarily driven by improvements in working capital, partially offset by higher pension contributions.
• Media advertising and promotion (MAP) spending decreased 15,4 percent in fiscal 2009, partially due to a shift from MAP spending to trade spending in the challenging economic environment, as well as the impact of foreign currency exchange rates and lower media and agency costs.
• Net interest expense was 125 million USD for fiscal 2009, an increase of 25 million USD compared to fiscal 2008, primarily due to lower interest income.
• General corporate expenses were 256 million USD in fiscal 2009, compared to 232 million USD in fiscal 2008, an increase primarily due to 18 million USD in unrealized mark-to-market losses on commodity derivative contracts in fiscal 2009 compared to gains of 22 million USD in fiscal 2008.
• In fiscal 2009, the corporation repurchased 11,4 million USD shares of its common stock at an average price of 9,01 USD per share, for a total cost of 103 million USD, The company did not repurchase any shares of its common stock in the fourth quarter. At the end of fiscal 2009, approximately 13,5 million USD shares remained authorized by the board of directors for repurchase.
• The effective tax rate for fiscal 2009 was 38,1 percent, compared to 125,6 percent in fiscal 2008.
• On March 30, 2009, Sara Lee announced that it is reviewing strategic options for its international household and body care business after receiving expressions of interest. The company is currently considering all alternatives for the segment, including the option to divest the business.
• Project Accelerate, the company´s series of global cost reduction and efficiency projects, is well under way. As Sara Lee evaluated many efficiency initiatives over the past couple of months, it has found additional opportunities. As a result, the company now expects more than 300 million USD of one-time charges, predominantly front-end loaded in fiscal 2009 and 2010, and anticipates annualized savings in the range of 350 to 400 million USD by fiscal 2012.

North American Retail

• Net sales increased 1,7 percent to 695 million USD in the fourth quarter of fiscal 2009, primarily driven by favourable sales mix at retail and pricing actions, which were slightly offset by lower non-retail commodity meat sales. Adjusted net sales also increased 1,7 percent.
• Operating segment income was 63 million USD in the fourth quarter, compared to 44 million USD in the year-ago period. The increase was primarily the result of much lower significant items versus a year-ago, improved retail sales mix, pricing actions and continuous improvements savings, which more than offset higher MAP spending and consumer research investments. Adjusted operating segment income was 64 million USD in the fourth quarter, compared to 77 million USD in the prior year´s period.
• Net sales for the full year increased 5,9 percent to 2,8 billion USD. Adjusted net sales also increased 5,9 percent.
• Operating segment income for the full year was 260 million USD, compared to 155 million USD last year, an increase of 67,9 percent, while adjusted operating segment income increased 37,7 percent.

Unit volumes decreased 1,9 percent in the fourth quarter, consisting of 2,0 percent lower volumes for retail and 1,3 percent lower volumes for non-retail commodity meats. Strong unit volumes for Hillshire Farm smoked sausage, Jimmy Dean breakfast sausage and State Fair cocktail sausage were more than offset by the impact of the phasing out of the commodity meats business and the exit of the kosher meats business, as well as SKU rationalization and the impact of re-sizing of certain products to deliver more consumer preferred price points. For the full year, unit volumes for the segment decreased 2,0 percent.

North American Fresh Bakery

• Net sales increased 1,0 percent to 560 million USD in the fourth quarter of fiscal 2009, driven by higher selling prices and unit volume growth. Adjusted net sales also rose 1,0 percent.
• Operating segment income was 24 million USD in the fourth quarter, compared to 29 million USD in the year-ago period. The decrease was primarily driven by severance costs, the costs to close a bakery and unfavourable sales mix. Adjusted operating segment income was 30 million USD, compared to 32 million USD in the prior year.
• Net sales for the full year increased 8,5 percent to 2,2 billion USD. Adjusted net sales also rose 8,5 percent.
• Operating segment income for the full year was 33 million USD, compared to 60 million USD in fiscal 2008, a decrease primarily driven by a 31 million USD charge in the second quarter for a partial withdrawal liability relating to a multi-employer pension plan. Adjusted operating segment income was 70 million USD, compared to 63 million USD in the prior year. Unit volumes increased 0,7 percent in the fourth quarter, primarily driven by volume growth in non-branded bakery products due to the gain of non-branded business in additional retail stores, as well as consumer trade-down to private label breads. Unit volumes for the segment were up 3,2 percent for the full year.

North American Foodservice

• Net sales of 454 million USD were 15,5 percent lower in the fourth quarter of fiscal 2009, primarily due to the divestiture of both the DSD foodservice coffee and the sauces and dressings businesses earlier in the year, as well as lower unit volumes in the weak foodservice market, which were partially offset by higher pricing. Adjusted net sales were down 3,3 percent.
• Operating segment income was 38 million USD in the fourth quarter versus a loss of 408 million USD in the year-ago period, the latter primarily due to impairment charges. Fiscal 2009 fourth quarter results were driven by continuous improvement savings and lower commodity costs. Adjusted operating segment income increased 30,8 percent to 39 million USD.
• Net sales for the full year were 2,1 billion USD, down 4,3 percent. Adjusted net sales increased 0,9 percent.
• Operating segment income for the full year was 54 million USD, compared to a loss of 302 million USD last year. Adjusted operating segment income increased 21,2 percent for the year.

Unit volumes decreased 5,1 percent in the fourth quarter, as strong growth in private label refrigerated dough products could not fully offset volume softness in other categories due to the weak economy and planned business exits in foodservice meats. Unit volumes were down 4,2 percent for the year.

International Beverage

See Performance Review in «Sara Lee Reports Fourth Quarter and Fiscal 2009 Results» – complete press release, PDF, 23 pages, 139 KB.

International Bakery

• Net sales decreased 22,8 percent to 187 million USD in the fourth quarter of fiscal 2009, primarily driven by unfavourable foreign currency exchange rates and significantly lower unit volumes in the Spanish fresh bakery business, which were partially offset by the impact of earlier price increases. Adjusted net sales declined 9,1 percent.
• The segment reported an operating segment loss of 200 million USD in the fourth quarter, primarily due to 207 million USD in non-cash impairment charges for goodwill balances and other long-lived assets at the Spanish bakery business. The segment reported a loss of 385 million USD in the year-ago period due to 400 million USD in impairment charges. Adjusted operating segment income was 15 million USD, compared to 14 million USD in the prior-year period.
• Net sales for the full year decreased 14,9 percent to 790 million USD, while adjusted net sales decreased 6,5 percent.
• The segment reported an operating segment loss of 193 million USD for the full year, compared to a loss of 346 million USD for fiscal 2008. Adjusted operating segment income for the full year was 52 million USD, down 13,9 percent compared to 60 million USD in fiscal 2008.

Unit volumes decreased 11,3 percent in the fourth quarter, primarily resulting from significantly lower unit volumes in the Spanish fresh bakery business as consumers continued to trade down to private label breads in the very challenging economy, as well as from loss of business from a large customer and lower refrigerated dough exports, Unit volumes for the year were down 11,6 percent.

International Household and Body Care

See Performance Review in «Sara Lee Reports Fourth Quarter and Fiscal 2009 Results» – complete press release, PDF, 23 pages, 139 KB.