Sara Lee cuts outlook, may sell more businesses

AP News
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Posted: May 05, 2011 1:25 PM
Sara Lee cuts outlook, may sell more businesses

Sara Lee Corp. is slimming down even further.

The food maker, which has already sold several business lines and is in the process of splitting in two, said Thursday that it is considering selling its international bakery and North American refrigerated dough businesses.

Sara Lee made the announcement as it reported second-quarter results just shy of expectations and cut its full-year outlook because rising commodity costs are putting more pressure on its business.

The food maker reported net income of $153 million, or 25 cents per share, for the quarter. That compared with a loss of $336 million, or 49 cents per share last year.

After adjusting for a number of one-time items as it sold off business units, the company earned 24 cents per share from continuing operations, compared with 22 cents per share in the prior year.

Sara Lee's revenue rose 7 percent to $2.22 billion, helped in part by higher prices.

That's just shy of the 25 cents per share on revenue of $2.23 billion that analysts polled by FactSet anticipated.

Sara Lee, like most of its peers, has raised prices to offset higher costs for meat, coffee and other key commodities. Sara Lee has cut costs to make up some of the difference. But company leaders said it has reached a point where prices may be high enough that some consumers will trade down to lower-priced store brands or other products, further hurting its bottom line.

The company now expects to earn 79 to 83 cents per share on an adjusted basis, down from 85 to 89 cents per share. It's below the 86 cents per share analysts had forecast.

Investors, however, were receptive to Sara Lee's commitment to narrowing its business and ditching lower-performing operations, sending its shares higher in trading.

Sara Lee has been slowly transforming from what analysts once saw as an unfocused company that made underwear, shoe polish and cheesecake into a narrower business concentrated on food.

The company has been selling off business units for years and announced in January that it would split its remaining businesses in two by early 2012, with one company focused on coffee and the other largely focused on meat.

Sara Lee leaders said the potential sale of the bakery business would only help this process. The business unit accounted for less than 10 percent of the company's revenue. It has struggled with tough competition and staffing issues in some markets.

"We only want to be in businesses where we can win," Sara Lee CEO Marcel Smits said.

Sara Lee also announced that it is buying Aidells Sausage Co. for $87 million in cash to help strengthen its North American meat business and expand its reach into premium meats. The transaction is expected to close in the next few months.

Shares of the company rose 33 cents, nearly 2 percent, to $19.47 in midday trading.

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AP Business Writer Michelle Chapman contributed to this report from New York.