Sara Lee: sees upside in fresh bakery operations

Downers Grove / IL. (slc) Sara Lee Corporation hosted its annual «Meet the Management» analyst meeting in New York. Marcel Smits, interim chief executive officer, and other members of senior management provided an overview of fiscal 2010 results and discussed long-term strategies and growth opportunities. Smits began the meeting by demonstrating how Sara Lee has delivered value to its shareholders over the last few years and is building a foundation for the future through strategic investments, such as increased innovation and geographic expansion.

Looking forward, Smits discussed that fiscal 2011 should be another year of growth. In addition, in fiscal 2012, the elimination of more than half of the fiscal 2011 Household and Body Care-related stranded overhead, a decline in amortization of 35 million USD and further share repurchases will lead to an anticipated positive earnings per share impact of 0,15 USD to 0,20 USD. Smits also said Sara Lee Corporation has bought back 360 million USD of shares of common stock in the first quarter of fiscal 2011.

Smits also noted that Sara Lee officially informed its employees and the European Works Council about intentions to bring the corporate functions and shared services organization in line with the needs of the International Beverage and Bakery business. As a result, approximately 390 positions will become redundant in the next three years, leading to a total labor cost reduction of approximately 30 million EUR by fiscal 2013. This action is a consequence of the sale of the Household and Body Care business, and is being pursued in order to maintain the necessary competitive position for the International Beverage and Bakery business.

Following Smits was Mark Garvey, interim chief financial officer, who provided an overview of Sara Lee´s Project Accelerate, a company-wide cost savings and productivity initiative. He noted that Project Accelerate has provided cumulative benefits of approximately 180 million USD to date, and is expected to drive a cumulative benefit of 350 to 400 million USD by the end of fiscal 2012.

International Beverage and Bakery chief executive officer Frank van Oers and chief financial officer Buster Kennett teamed with Marleen Vaesen, senior vice president, International Beverage, to provide an update on the International Beverage and Bakery business. They noted the International Bakery, the refrigerated business is doing well, the frozen business has improved and they are fixing the fresh business by focusing on cost structure and pricing as well as innovation. Kennett outlined the International Beverage business´ three growth drivers:

• Premiumization – such as the recent successful launch of L´OR Espresso in France, as this high-margin product has sold more than 50 million capsules through the end of August, 2010. Sara Lee´s Senseo platform continues its leadership position, with more that 26 million appliances and 26 billion coffee pads sold globally. Also, the company is bringing its successful L´OR Pepites d´Arome – bean-shaped doses of compressed coffee that allow for easy measuring and great taste – to new markets in the near future.
• Geographic focus – the company is consolidating its coffee stronghold in the Benelux region, creating new profit engines in France and Spain and laying a foundation for future growth in the United Kingdom and Brazil. Sara Lee will soon introduce Senseo in Brazil.
• Process optimization and continuing working capital improvement – this focus has helped the business reduce its average inventory by 22 percent over the last two years.

CJ Fraleigh, chief executive officer, North America, provided an overview of the North American Retail, Foodservice and Fresh Bakery segments, and how they are driving value creation through sustainable competitive advantage. Fraleigh said that North American Fresh Bakery recently launched a more disciplined approach to simplify its business and standardize pricing and LEAN efforts. Fresh Bakery´s additional investment in marketing, people and price competitiveness started in the fourth quarter of fiscal 2010 and continues through the first quarter of fiscal 2011. He noted that the first quarter of fiscal 2011 should be a very strong investment quarter for Fresh Bakery, and overall fiscal 2011 should show improvement over fiscal 2010. He noted that Sara Lee´s fresh bakery is a leading player in the category with 41 dedicated bakeries, 4’500 routes and 13’100 employees. Fraleigh also said that the North American Foodservice business has delivered strong profit performance despite the challenging economy.

Monty Pooley, president, North American Retail, outlined the strategies that have led to this business´ impressive recent performance, including a 34-percent increase in adjusted operating segment income in fiscal 2010. These include:

• Focusing on building the best brands – such as Ball Park, Hillshire Farm, Jimmy Dean and Sara Lee – which has led to strong and growing No. 1 and No. 2 positions in most key categories.
• Increased focus on wellness and nutrition – such as offering products with lower sodium, fat and calories.
• Multi-cultural marketing – The segment is focusing on marketing to Hispanic and African-American audiences.

Tom Hayes, chief supply chain officer, North American Retail and Foodservice, provided an update on the company´s supply chain and its business benefits. Hayes noted that the company´s Kansas City, Kansas, state-of-the-art meat processing plant is on schedule to start shipping products in early 2011.