Sara Lee Corp. (SLE), one of the world’s leaders in manufacturing and marketing of a range of branded packaged meat, bakery, and beverage products, registered decent fourth quarter 2011 earnings of 20 cents per share that shot up by 186% from 7 cents posted in the year-ago period. Earnings were in line with the Zacks Consensus Estimate.
The upswing came on the back of new products like Jimmy Dean Jimmy D’s that were introduced and expanded successful brands like L’OR EspressO and Senseo into new geographies.
Sara Lee expects fiscal 2012 earnings to be in the range of 89 cents to 95 cents per share. The current Zacks Consensus Estimate is 22 cents for the first quarter of 2012. The estimate for full year 2012 is $1.06.
Consolidated Revenue and Margins
Sara Lee's quarterly net sales climbed 8% to $2.3 billion compared with $2.1 billion in the prior-year period, driven by strong 14% year over year growth in International business, 4% growth in North American Retail and 9% growth in North American Foodservice.
Sara Lee forecasts total net sales between $8.5 billion to $8.75 billion for fiscal 2012.
On a year-over-year basis, operating income climbed 40.0% to $189.0 million. Time lagging effect between commodity cost increases and subsequent price increase resulted in a 13% decrease in operating income which partially offset a decent 37% upswing in operating income in North American Foodservice.
Selling, General and Administrative expenses went down to $540 million compared to $601 million in the prior year quarter primarily due to cost saving initiatives.
Slimming Down
The company’s policy of streamlining the portfolios to provide the best foundation for a strong and focused business continued in the quarter, with more plans for the future. On August 9th, the company agreed to sell its North American refrigerated dough business to Ralcorp for $545 million.
Moreover, the divestment of North American Fresh Bakery to Grupo Bimbo is expected to close before the end of September. It has also decided to shed off the Spanish bakery and French refrigerated dough businesses.
Our Take
We are encouraged by Sara Lee’s focus on leveraging its consumer brands to generate sales growth. The company intends to bring in changes in the organizational structure and product portfolio thereby, improving operational efficiency.
However, commodity-price inflation, competition in the branded food industry along with the presence of stiff competitors are matters of concern.
Currently SLE holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock with a short-term Hold rating.
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