High commodity costs hurt Sara Lee in 4Q

AP News
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Posted: Aug 11, 2011 2:28 PM
High commodity costs hurt Sara Lee in 4Q

Sara Lee Corp.'s fourth-quarter income fell 41 percent as it sold off businesses and higher prices drove shoppers away.

The company, like most food and beverage makers, has raised prices to offset higher costs for everything from coffee to fuel. Many companies are struggling to find the right balance, but Sara Lee has been willing to sacrifice sales volume to maintain profit margins. Sara Lee's results also were impacted because it's been shedding units to become leaner before it splits its remaining business into two companies by early next year __ one focused on coffee and the other largely on meat.

"It's a year of transition," said Sara Lee's Executive Chairman Jan Bennink. "But we feel good about it."

The company, based in Downers Grove, Ill., earned $111 million, or 19 cents per share, for the quarter. That's down from $187 million, or 28 cents per share, a year ago. Adjusted earnings from continuing operations were 20 cents per share, meeting analyst expectations.

Price hikes helped send its total revenue up 9 percent to $2.3 billion, topping expectations of $2.28 billion, according to FactSet. But the hikes also negatively impacted profit.

Results also were hurt by the company's strategy to shed business units. The company, like several major U.S. companies, has been doing so as part of its strategy to move away from large corporations with a vast array of brands to smaller ones that are able to focus better on their areas of expertise.

To that end, two days ago, Sara Lee said that it will sell its North American refrigerated dough business to Ralcorp for $545 million. And the company said Thursday that it has potential bidders for its international bakery business and it hopes to make an announcement soon.

Ultimately, Sara Lee said it's planning to realize $180 million to $200 million in costs savings during fiscal 2012 and 2013 as it prepares for the spinoff of its business.

"I think we have a clear, clear, clear objective _ what we want to do is we want to create two simpler, faster and much more entrepreneurial pure play companies than we currently have," Bennink said.

For the year, Sara Lee earned $1.29 billion, or $2.06 per share. That compares with earnings of $506 million, or 72 cents per share, in the previous year. Annual revenue rose to $8.68 billion from $8.34 billion.

Looking ahead, the company issued a full-year outlook below analysts' expectations and its shares fell in trading Thursday.

Sara Lee expects fiscal 2012 adjusted earnings of 89 cents to 95 cents per share on revenue of $8.5 billion to $8.75 billion. The guidance excludes the international bakery segment, which the company plans to sell. Analysts predict earnings of $1.07 per share on revenue of $9.35 billion.

Shares of the company were down 29 cents, or nearly 2 percent, to $17.02 in afternoon trading.