Processed and packaged foods company Sara Lee Corp. (SLE), Thursday reported a profit for the second quarter of fiscal 2010, compared to a loss last year, benefiting from lower cost of sales and operating expenses as well as an income tax benefit. Based on its better first half performance, the company raised its earnings outlook for the fiscal year 2010, expecting above the market estimates.
The Downers Grove, Illinois-based company's net earnings for the second quarter were $371 million or $0.53 per share, compared to a loss of $17 million or $0.02 per share in the same quarter last year. Results for the quarter exclude total significant items of $0.15 per share and contingent sale proceeds of $0.02 per share.
On an adjusted basis, earnings were $0.36 per share, compared to $0.19 per share last year.
On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.23 per share. Analysts' estimates typically exclude special items.
Income from continuing operations for the quarter was $305 million or $0.43 per share, compared to a loss of $40 million or $0.06 per share last year.
Net sales for the quarter were $2.86 billion, same as in the prior-year quarter as favorable foreign currency exchange rates were offset by slightly lower corporate unit volumes, lower prices and the impact of divestitures. Six analysts had a consensus revenue estimate of $3.12 billion for the quarter.
In the preceding first quarter, the company reported a 23% year-over-year increase in profit, boosted by higher margins and cost cutting initiatives, despite a 7.4% decline in net sales. Net income was $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. Net sales from continuing operations for the quarter declined 7.4% to $2.59 billion from the same quarter last year, due to unfavorable foreign currency exchange rates, volume declines and strategic business exits.
By segment, North American Retail sales for the quarter under review slightly declined to $745 million from $746 million last year. Operating segment income was $122 million in the second quarter, up 66.6% from the year-ago period, due to favorable supply chain performance, Project Accelerate and continuous improvement savings, lower input costs and strong performance from the segment's core retail business.
North American Fresh Bakery net sales declined 7.5% to $499 million from a year ago. Operating segment income was $16 million in the second quarter, compared to a loss of $16 million in the year-ago period, due to a $30 million charge for a pension partial withdrawal liability in last year's second quarter.
North American Foodservice net sales declined 13.8% to $529 million from the previous year. Operating segment income was $45 million in the second quarter, compared to a loss of $48 million in the year-ago period, driven by lower commodity costs net of pricing, lower SG&A expense and savings from Project Accelerate and continuous improvement initiatives, which were partially offset by the impact of lower unit volumes.
International Beverage net sales rose 14.8% to $884 million from last year. Reported operating segment income was $172 million, up 59.1% from the second quarter of fiscal 2009 due to higher net sales, Project Accelerate and continuous improvement savings and favorable foreign currency exchange rates.
International Bakery net sales were $211 million, up 7.1% from a year ago. The segment reported an operating segment loss of $1 million in the second quarter, narrower than $19 million in the year-ago period, primarily due to costs associated with Project Accelerate and for the impairment of certain fixed assets in the Spanish bakery business.
Cost of sales declined to $1.75 billion from $1.89 billion in the comparable quarter last year. Selling, general and administrative expenses were $791 million, down from $832 million in the previous year.
Net charges for exit activities, asset and business dispositions declined to $15 million from $34 million last year. Impairment charges declined to $17 million from $107 million in the prior-year quarter.
Operating income for the quarter was $282 million, compared to an operating loss of $4 million in the prior-year period. Adjusted operating income was $319 million in the second quarter, up 75.8% from last year, including a $103 million increase in total adjusted operating segment income for all continuing business segments, $27 million of favorable mark-to-market variances on commodity derivatives and lower corporate costs.
Interest expense was $38 million, down from $41 million a year ago.
The effective tax rate for continuing operations in the second quarter was a negative 21.5%, compared to a negative 0.8% in the year-ago period, a decrease primarily driven by the impact of significant items in the quarter.
Among Sara Lee's peers, Springdale, Arkansas-based meat products producer Tyson Foods, Inc. (TSN) is scheduled to report its first quarter earnings on February 5. Analysts currently expect the company to report earnings of $0.18 per share for the quarter.
For the six-month period, net income surged to $655 million or $0.94 per share from $213 million or $0.30 per share in the same period of the previous year. Net sales for the year declined to $5.45 billion from $5.65 billion a year ago.
Looking forward, Sara Lee currently expects full-year fiscal 2010 total earnings per share to be in the range of $1.36 to $1.41, compared to previous estimates of $1.12 to $1.18 per share. The range includes $0.19 per share of contingent sale proceeds received in the first quarter of fiscal 2010 from the sale of its tobacco business in fiscal 1999 and a $0.17 per share gain from significant items realized in the first six months of fiscal 2010.
Adjusted earnings for the year are now expected to be in the range of $1.00 to $1.05 per share, compared to prior outlook of $0.90 to $0.96 per share. Analysts expect earnings of $0.95 per share for the full year.
Net sales for the year is still anticipated to be between $12.9 billion and $13.2 billion. Analysts expect the company to report revenues of $11.46 billion for fiscal 2010.
SLE is currently trading at $12.40, down 0.04 or 0.32%, on a volume of 3.74 million shares on the NYSE. In the past 53-week period, the stock traded in a range of $6.80 to $12.61, on a 3-month average volume of 4.86 million shares.
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