Sara Lee Corp. Reports Weak Second Quarter Net Sales

Sara Lee Corp. reported a 1.8 percent 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 percent), 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 Jan. 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.
"At $0.24, our second quarter adjusted EPS from continuing operations showed good improvement from the $0.14 earned in the first quarter. As we focus on driving operational improvement in our two growth businesses, we are well positioned to finish the year with a strong second half. The North American Retail segment will benefit from first half pricing actions and MAP investments. In the international beverage business, we continue to push through pricing to offset commodity increases and we expect further benefits from successful innovation.

We are confident in our ability to drive top-line and bottom-line growth for the fiscal year," Smits concluded.

Net sales from continuing operations for the second quarter of fiscal 2011 were $2.3 billion, down 0.4 percent 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 percent 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 percent versus the year ago period. Adjusted net sales grew 2.4 percent 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 percent. 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-to market, 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 percent.