Sara Lee: Reports Strong Fiscal 2010 First Quarter

Downers Grove / IL. (slc) Sara Lee Corporation reported significant operating income growth for the first quarter of fiscal 2010, primarily driven by strong performance in the North American business segments and lower corporate expenses. Net sales fell as a result of unfavorable foreign currency exchange rates, volume declines and strategic business exits. Cash from operations was very strong, driven by higher operating income, favorable working capital and lower pension contributions. Highlights: *Diluted earnings per share of 0,41 USD, compared to 0,32 USD in the prior year first quarter

• Company raises guidance for fiscal 2010 Adjusted EPS by 0,06 USD (0,90 USD to 0,96 USD per share)
• Adjusted operating income increased 79,2 percent; operating income up 10,7 percent
• Cash flow from operations of 187 million USD, an increase of 225 million USD

«I am very pleased with our first quarter performance, which demonstrates substantial bottom-line improvement», said Sara Lee chairman and chief executive officer Brenda C. Barnes. «A number of factors contributed to our results, including lower input costs, Project Accelerate cost savings and pricing discipline. At the same time, we are increasing or maintaining our market share positions in many of our key categories behind important new products such as Hillshire Farm Family Size lunchmeat tubs, Jimmy Dean D-Lights breakfast sandwiches and various new Senseo coffee pods in our international markets. The combination of these factors allows us to both raise our EPS guidance for fiscal 2010 and to increase our investment in a full pipeline of growth opportunities. We continue to spend more toward our consumers and expect MAP spending to be up for the year. During the quarter, we announced that we received a binding offer of 1’275 million USD from Unilever for our global body care and European detergents businesses. This enables us to focus on our core food and beverage businesses. We are confident that we will soon divest the remainder of the segment». (…)

North American Fresh Bakery

North American Fresh Bakery delivered strong adjusted operating segment income growth through solid pricing discipline and productivity improvements. The marketplace continues to place stress on pricing levels and the business is likely to shift focus to more price actions and trade promotion as the year unfolds. Operating segment income was 14 million USD in the first quarter, compared to 17 million USD in the year-ago period. The decrease was primarily due to a seven million USD charge for partial withdrawal liabilities relating to multi-employer pension plans. Adjusted operating segment income was 22 million USD, up 30,8 percent compared to 17 million USD in the prior year quarter, as a result of lower commodity costs net of pricing, lower MAP spending and SG+A costs, the latter driven by Project Accelerate initiatives and other continuous improvement savings.

During the first quarter, fresh bakery launched its marketing campaign for Sara Lee Soft + Smooth breads built around Disney Channel´s popular «Wizards of Waverly Place» TV series. New products launched in the first quarter included Sara Lee Soft + Smooth Mini Bagels, Sara Lee Delightful wheat buns and EarthGrains 100 percent Natural Thin Buns. Net sales decreased 5,2 percent to 541 million USD in the first quarter of fiscal 2010, primarily due to lower unit volumes, unfavorable sales mix and price decreases following lower input costs and competitive pressures. Unit volumes for branded bakery products fell as a result of intense price competition and increased new product activity in the category.

North American Foodservice

North American Foodservice delivered a very strong first quarter as it lapped a relatively weak year-ago period. The strong performance was primarily the result of lower commodity costs, supply chain productivity savings and strong performance of the private label refrigerated dough business. The segment continues to be very focused on improving its sales mix through winning attractive new business and exiting low margin business. Management remains cautious, however, about the back-half of the year given the continuing difficult market environment.

The segment reported operating segment income of 38 million USD in the first quarter, compared to 25 million USD in the prior year period, while adjusted operating segment income doubled to 38 million USD in the first quarter. The increase was primarily driven by lower commodity costs and a decrease in SG+A expense resulting from business dispositions and from Project Accelerate and continuous improvement savings, which were partially offset by the impact of lower unit volumes.

Net sales decreased 15,0 percent to 457 million USD in the first quarter of fiscal 2010, primarily due to the divestiture of the direct store delivery (DSD) foodservice coffee business and the sauces and dressings business during the past year, as well as lower unit volumes. Adjusted net sales, which excludes the impact of the dispositions, decreased 4,7 percent driven by lower unit volumes. Strong growth in private label refrigerated dough could not fully offset weak foodservice category trends and planned business exits in foodservice meats. New products launched in the first quarter included Chef Pierre pre-sliced lattice fruit pies – new variants in the successful pre-sliced pies line that was launched last year. During the quarter, Sara Lee was also named sole supplier for private label breakfast sausage products for the leading foodservice distributor in the United States. (…)

International Bakery

In International Bakery, the year-ago quarter included a substantial amount of branded business that has since shifted to private label as a result of the very weak Spanish economy. While the first half of the year will likely be down compared to the year-ago period due to this shift to private label, the benefits of productivity improvements, new product roll-outs and cost reductions are expected to contribute to an improved second half of fiscal 2010.

International Bakery reported operating segment income of six million USD in the first quarter, compared to 15 million USD in the year-ago period. Project Accelerate charges were the primary difference between reported and adjusted results. Adjusted operating segment income was 13 million USD, compared to 14 million USD in the prior-year quarter. The change was driven by lower prices and lower unit volumes, which were partially offset by lower commodity costs and Project Accelerate and continuous improvement savings.

Net sales decreased 11,5 percent to 204 million USD in the first quarter, primarily due to unfavorable foreign currency exchange rates, lower unit volumes and lower selling prices, partially offset by strength in the refrigerated dough business in France and the frozen bakery business in Australia. Adjusted net sales decreased 6,2 percent. Successful new products launched in the first quarter included Ortiz branded bread in Spain, various new Sara Lee branded ice creams in Australia and several private label refrigerated dough products in France.

Info: The complete press release «Sara Lee Reports Strong Fiscal 2010 First Quarter, Raises Guidance» (PDF, 19 pages, 203 KB) is available on Sara Lee´s homepage in the Investor Relations section.