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 first quarter 2012 earnings of 18 cents per share that shot up by 50% from 12 cents posted in the year-ago period. Earnings also exceeded the Zacks Consensus Estimate by a penny.
However, higher commodity costs and some charges led to a loss of 6 cents per share in the quarter, including impairment charges and one-time items. Sara Lee’s total commodity costs increased by $153 million in the reported quarter. However, they were offset by $160 million in higher prices.
For fiscal 2012, Sara Lee affirms its earnings guidance to be in the range of 89 cents to 95 cents per share amidst unfavorable foreign currency exchange rates and the reclassification of North American Foodservice Beverage as a discontinued operation.
Consolidated Revenue and Margins
Sara Lee's quarterly adjusted net sales climbed 5.7% to $1.9 billion compared with $1.8 billion in the prior-year period. Revenues lagged the Zacks Consensus Estimate of $2.0 billion.
The results were driven by strong 14% year over year growth in Coffee & Tea business.
However, Meat businesses declined 0.6% in the quarter, which implemented cost reductions and reorganizations largely driven by the company’s numerous portfolio changes. The newly acquired Aidells business was integrated with Sara Lee’s Gallo business and is now reported under Foodservice and Specialty Meats.
The former International Bakery segment is now made up of only Australian Bakery as the operations in Spain and France have been moved to discontinued operations.
Sara Lee also continues to make good progress in reducing corporate expenses. Excluding significant items, general corporate expenses were $10 million in the first quarter of 2012, a decline of $13 million from the prior year, primarily due to lower corporate headcount costs and pension expenses.
Sara Lee forecasts total net sales to be in the range of $7.9 billion to $8.15 billion for fiscal 2012. This also reflects unfavorable foreign currency exchange rates and the reclassification of North American Foodservice Beverage as a discontinued operation.
On a year-over-year basis, adjusted operating income climbed 4.1% to $182.0 million. Meat operating income plummeted 4.0% to $83.0 million, while Coffee & Tea increased 19.5% to $121.0 million.
Sara Lee forecasts its adjusted operating income, including acquisitions, to be in the range of $875 million to $930 million for fiscal 2012.
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.
During the quarter, Sara Lee closed the sale of North American refrigerated dough to Ralcorp Holding Inc (RAH) and has announced the sales of Spanish bakery to Grupo Bimbo and the majority of the North American foodservice beverage operations to J.M. Smucker.
Moreover, the company has got the approval to sell the North American Fresh Bakery to Grupo Bimbo. Sara Lee has also increased its investment, along with focusing on its core brands and new product development.
Other Financial Details
At the end of October 1, 2011, cash and cash equivalents were $1.7 billion and long-term debt was $1.9 billion.
Sara Lee’s net cash from operating activities was an outflow of $220 million in the first quarter, compared to an inflow of $28 million in the prior year quarter. The decrease was primarily due to a one-time €60 million payment to the Netherlands pension plan, increased working capital due to higher commodity costs, and a significant decline in the cash generated by discontinued operations.
The company expects cash of $300 million at the end of 2012 and year-end debt of $2.1 billion.
Sara Lee also expects cost reduction opportunities of $180 – $200 million, compared to the fiscal 2011 base and achievable within fiscal 2012 and 2013. These savings are a result of downsizing corporate resources, reducing overhead in the Meat and Coffee & Tea businesses and completing Project Accelerate initiatives.
Further, the company expects its stranded overhead costs from business divestitures to be $50-$60 million in 2012.
The company also expects fiscal 2012 significant items, excluding impairment charges and gains or losses on the sale of businesses, to be $450-$475 million.
In addition, the company expects to declare and pay the $3.00 special dividend in the first half of calendar 2012 before completion of the spin-off of the company’s international coffee & tea business.
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 Sara Lee holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock with a short-term Hold rating.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment