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 is shedding off its North American refrigerated dough business to Ralcorp Holdings Inc (RAH), for approximately $545 million. The two retail giants are expected to ink the deal by the end of calendar year 2012.
The North American dough business offers a wide range of private brand products, comprising of basic and specialty biscuits, crescent rolls, pizza and pie crusts and toaster pastries. They are sold to leading food and mass retailers.
Sara lee decided to shed its business unit to bolster its private-label brands with pizza and toaster pastries. For Ralcorp, the deal will strengthen its leadership position in the private-brand industry with a $1.8 billion refrigerated dough category.
Moreover, the acquisition is expected to be accretive to Ralcorp on a GAAP (expand) basis by over 30 cents per share in the first year, including synergies but excluding one-time acquisition related expenses. On a cash basis, Ralcorp expects an accretion of $0.50 per share during the first year. The acquisition is also expected to increase Ralcorp's cash flow and generate operational synergies from the third year onwards.
The refrigerated dough business employs approximately 700 people and has manufacturing and distribution facilities in Carrollton, Texas and Forest Park, Georgia. After the business becomes part of the Ralcorp family of companies, it will operate as part of a broader Ralcorp Frozen Bakery Products division.
Ralcorp reported results for the third quarter 2011, which include the operations of American Italian Pasta Company (AIPC), Sepp's Gourmet Foods Ltd., J.T. Bakeries Inc., and North American Baking Ltd that was acquired in the second half of fiscal 2010. While adjusted diluted EPS went up to $1.15 compared to $1.11 a year ago, net sales surged 22% year over year.
Sara Lee is scheduled to report its fourth-quarter 2011 financial results on Thursday, August 11, 2011. The current Zacks Consensus Estimate for the quarter is pegged at 20 cents a share. The Zacks Consensus Estimate projects revenues for the quarter to be $2,224 million. It posted strong operating income for the third quarter of fiscal 2011. Adjusted earnings for the quarter were 30 cents a share compared to 29 cents during the same period of fiscal 2010. Earnings were well above the Zacks Consensus Estimate of 25 cents.
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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