Processed and packaged foods company Sara Lee Corp. (SLE), Thursday, reported a 23% year-over-year increase in profit for the first quarter, boosted by higher margins and cost cutting initiatives, despite a 7.4% decline in net sales.
The company also returned to a profit after reporting a loss in the previous quarter. The company benefited from strong performance in the North American business segments and lower corporate expenses. The company also raised its adjusted earnings outlook and reaffirmed its sales forecast for the full year 2010.
In a statement, chairman and chief executive officer, Brenda Barnes said, "I'm very pleased with our first quarter performance, which demonstrates substantial bottom-line improvement. A number of factors contributed to our results, including lower input costs, Project Accelerate cost savings and pricing discipline."
The company also added that it is increasing or maintaining its market share positions in many of the 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 its international markets.
First Quarter Results
The Downers Grove, Illinois-based company reported net income of $284 million or $0.41 per share for the first quarter, higher than $230 million or $0.32 per share in the prior-year quarter, driven by discontinued operations. The company also returned to a profit after reporting a loss in the previous quarter.
Income from discontinued operations for the quarter was $94 million, higher than $39 million in the year-ago quarter, primarily due to the recognition of $53 million of net tax benefits. The international household and body care businesses are now being reported as discontinued operations.
Excluding discontinued operations, income from continuing operations for the quarter edged down a million to $190 million, with earnings per share remaining flat with the year-ago quarter at $0.27 per share.
The company said its latest quarter results included several significant items that had a net positive impact of $0.03 per share, while prior year results had a net benefit of $0.01 per share from significant items.
Excluding items, adjusted earnings grew to $0.32 from prior year's $0.26, and continuing operations, excluding significant items, rose to $0.38 from last year's $0.31. On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.16 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales from continuing operations for the quarter declined 7.4% to $2.59 billion from $2.79 billion in the same quarter last year, due to unfavorable foreign currency exchange rates, volume declines and strategic business exits. Nine Wall Street analysts had a consensus revenue estimate of $3.16 billion. Adjusted net sales from continuing operations decreased 3.3%, as a result of lower volumes and planned business exits.
Peer Performance
Sara Lee's peer, Northfield, Illinois-based packaged foods and beverages company Kraft Foods, Inc. (KFT) reported on Tuesday a 40% year-over-year drop in profit for the third quarter, as the year-ago quarter benefited from huge gains from divestiture of discontinued operations. Net income was $824 million or $0.55 per share, lower than $1.4 billion or $0.91 per share last year. However, earnings per share from continuing operations grew to $0.55 from last year's $0.34. Quarterly net revenues declined 5.7% to $9.80 billion from $10.40 billion in the same quarter last year, hurt mainly by the impact of a stronger U.S. dollar.
Another peer, Springdale, Arkansas-based meat products producer Tyson Foods, Inc. (TSN) is slated to announce financial results for the fourth quarter on November 23, 2009. Analysts expect the company to report earnings of $0.26 per share, on revenues of $6.89 billion for the fourth quarter.
Segmental Details
Sara Lee has operations organized under five business segments: North American Retail Meats, North American Retail Bakery, Foodservice, and International Beverage. Its major brands include Ambi Pur, Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi, Sanex, Senseo and Sara Lee.
Sara Lee's North American retail business net sales for the quarter totaled $659 million, down 3.2% from last year, on a reported and adjusted basis, hurt by some volume softness. The segment benefited from lower input costs, favorable sales mix, and significant growth for the Jimmy Dean brand.
North American fresh bakery recorded a 5.2% year-over-year decline in net sales to $541 million, primarily reflecting lower unit volumes, unfavorable sales mix and price decreases following lower input costs and competitive pressures.
Net sales for North American foodservice declined 15% from last year to $457 million, due to lower unit volumes and the divestiture of both the DSD foodservice coffee and the sauces and dressings businesses. Adjusted net sales were down 4.7%.
International beverage segment's quarterly net sales fell 6.4% to $734 million from a year ago, due to unfavorable foreign currency exchange rates. Adjusted net sales in the quarter edged down 0.1%.
In the International Bakery business, net sales declined 11.5% to $204 million from last year, 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. On an adjusted basis, net sales decreased 6.2%.
In September, Anglo-Dutch consumer giant Unilever Plc (UL, UN, ULVR.L) made a binding offer to acquire the global body care and European detergents businesses of Sara Lee for EUR 1.275 billion in cash. Sara Lee has agreed to accept the offer, and the deal is expected to be closed during calendar year 2010.The company has also received significant interest in the remainder of its international household and body care businesses and is continuing to pursue divestiture options for these businesses, which include air care, shoe care, insecticides and non-European cleaning brands.
Barnes added, "During the quarter, we announced that we received a binding offer of €1.275 billion 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."
Other Metrics
Operating income for the third quarter was up 10.7% to $325 million from last year, with operating margin growing 210 basis points to 12.6%. Meanwhile, adjusted operating income climbed 79.2% to $216 million, with margin growing 390 basis points to 8.4%. The significant operating income growth was attributable to strong performance in the North American business segments and lower corporate expenses.
The company noted that its 'Project Accelerate', a company-wide cost saving and productivity initiative, continues to deliver benefits. In the first quarter, Project Accelerate produced $25 million of cost savings, and is expected to generate between $100 million and $150 million in annualized benefits in fiscal 2010.
The company ended the first quarter with cash and cash equivalents of $1.26 billion, compared to $1.23 billion at end of the prior-year quarter. In mid-September, Sara Lee announced that its board of directors intends to maintain the current quarterly dividend of $0.11 for fiscal 2010, regardless of the timing of dispositions.
Outlook
Looking ahead to fiscal 2010, Sara Lee expects earnings in a range of $1.12 to $1.18 per share. Adjusted earnings is now expected in the range of $0.90 to $0.96 per share, up from the prior forecast of $0.84 to $0.90 per share. Net sales for the year is still anticipated between $12.9 billion and $13.2 billion. Analysts expect the company to report earnings of $0.89 per share, on revenues of $13.15 billion.
Looking at the business segments, Sara Lee currently expects four out of the five continuing business segments, as well as the discontinued international household and body care operations, to show an increase in adjusted operating segment income in fiscal 2010. The company continues to be cautious about the North American Foodservice segment, as market trends remain weak.
Stock Quote
In Thursday's regular trading session, SLE is currently trading at $11.83, up $0.43 or 3.77% on a volume of 3.22 million shares. In the past 52-week period, the stock has been trading in a range of $6.80 to $11.91.
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