Commodity Costs Hit Sara Lee Profits

On January 28, 2011, Sara Lee announced that its board of directors agreed in principle to divide the company into two separate, publicly-traded companies. The separation is expected to be completed in early calendar year 2012.

2/9/2011 --- Sara Lee Corp. has reported a 1.8% increase in second quarter fiscal 2011 adjusted net sales from continuing operations, driven by gains in the company’s two strategic growth businesses, North American Retail and International Beverage. On a reported basis net sales were essentially flat (-0.4%), due to the impact of a weaker euro. The company reported lower operating income and diluted earnings per share from continuing operations for the second quarter of fiscal 2011, primarily due to higher commodity costs net of pricing. Second quarter results compare to a very strong year-ago period, when decreasing commodity costs provided a benefit to the company. Sara Lee’s North American Fresh Bakery segment is now reported as a discontinued operation, following the agreement to sell the business to Grupo Bimbo.

On January 28, 2011, Sara Lee announced that its board of directors agreed in principle to divide the company into two separate, publicly-traded companies. The separation is expected to be completed in early calendar year 2012. The North American Retail and North American Foodservice businesses (excluding the North American beverage business) are planned to be spun off, tax-free, into a new public company that will assume the “Sara Lee” name.

The yet to be named other company will consist of Sara Lee’s current International Beverage and Bakery businesses, as well as the North American beverage business. Each company will have leading consumer brands and compelling growth prospects.

“We are excited to move forward with the implementation of our strategic initiative to create two pure-play companies. We are confident that this plan offers the best opportunity to deliver long-term value to our shareholders,” said Sara Lee Corp. chief executive officer Marcel Smits.

Reported net sales from continuing operations for the second quarter of fiscal 2011 were $2.3 billion, down 0.4% versus the year-ago period, as a favorable shift in sales mix and higher prices were offset by lower unit volumes and unfavorable foreign currency exchange rates. The company’s adjusted net sales rose 1.8% in the quarter, as growth in International Beverage and North American Retail more than offset expected declines in North American Foodservice and International Bakery. In the first half, reported net sales from continuing operations were $4.4 billion, up 0.1% versus the year ago period. Adjusted net sales grew 2.4% in the first half.

The first half of fiscal 2011 compares to a very strong year-ago period. In the prior year, favorable commodity costs and pricing contributed to a strong first quarter and even stronger second quarter. This year, in contrast, operating segment income will be more heavily weighted toward the second half of the year. The second quarter of fiscal 2011 delivered $294 million of adjusted operating segment income versus $195 million in the first quarter.

Reported operating income from continuing operations for the second quarter of fiscal 2011 was $206 million, compared to $269 million in the year-ago period, a decrease of $63 million, or 23%. The decline was primarily driven by higher commodity costs net of pricing (-$54 million), as well as volume declines net of mix improvements, higher MAP spending, unfavorable exchange rates and the impact of commodity mark-tomarket, partially offset by savings from corporate and continuous improvement net of inflation. Adjusted operating income from continuing operations was $249 million, compared to $296 million in the second quarter of fiscal 2010, a decrease of $47 million, or 16%.

Reported operating income from continuing operations for the first half of fiscal 2011 was $376 million, compared to $581 million in the year-ago period, a decrease of $205 million, or 35%. The decline was primarily the result of no longer receiving contingent sale proceeds from the sale of its tobacco business ($133 million in the year-ago period), as well as higher commodity costs net of pricing (-$96 million), increased investment in MAP and unfavorable exchange rates, partially offset by savings from corporate and continuous improvement net of inflation, a commodity mark-to-market benefit and mix improvement net of volume declines. Adjusted operating income from continuing operations was $428 million, compared to $483 million in the first half of fiscal 2010, a decrease of $55 million, or 11%.