Sara Lee Corp. Reports First Quarter Earnings Gain

Sara Lee Corp. reported earnings for the first quarter and updated the progress of the spin-off of the company’s international coffee and tea business.

Adjusted net sales increased 6 percent and adjusted operating income increased 4 percent. Net sales increased 13 percent while reported operating income declined 29 percent.

Meat adjusted net sales declined 0.6 percent and adjusted operating segment income declined 4 percent.

Meat net sales increased 2 percent and reported operating segment income declined 17 percent.

Coffee and tea adjusted net sales increased 14 percent and adjusted operating segment income increased 20 percent.

Coffee and tea net sales and operating segment income increased 27 percent and 26 percent, respectively.

Adjusted earnings per share (EPS) increased $0.06 to $0.18; reported EPS decreased $0.15 to $(0.06)

“We are moving forward aggressively, preparing our meat and coffee and tea businesses for strong futures as independent pure-play companies,” said Sara Lee Executive Chairman Jan Bennink in a prepared statement. “Within the past month we have closed the sale of North American refrigerated dough to Ralcorp and announced the sales of Spanish bakery to Grupo Bimbo and the majority of the North American foodservice beverage operations to J.M. Smucker. We have also gained DOJ approval on the North American Fresh Bakery sale to Grupo Bimbo. These actions demonstrate our progress toward the creation of two focused entities that are poised for long-term growth. Meanwhile, we are increasing our investment in the future, with strong support behind core brands and new product development. The solid performance of our base business and our exciting pipeline of innovation give me great confidence that both companies are positioned for successful futures.”

Chief Executive Officer Marcel Smits added, “We’re pleased with the solid top and bottom line performances of our businesses while facing the challenge of managing volume and margins in an environment of commodity inflation and weak macroeconomic conditions. The coffee and tea business showed strong progress, with double-digit top and bottom line growth and margin expansion despite a healthy increase in marketing

investment. In North America, we’ve invested heavily behind new product launches, implemented organizational changes and achieved further cost reductions. For Sara Lee as a whole, we are on track to achieve our goal of $180 to $200 million in cost savings. All of these initiatives taken together give us confidence for the remainder of the year and allow us to maintain our EPS guidance despite a currency headwind and the exclusion of our N.A. Foodservice Beverage business from continuing operations.”

The retail segment reported a 2 percent decline in adjusted and reported net sales to $684 million, as the positive effect of higher prices was more than offset by volume declines. In the prior year, the first quarter showed strong volume growth partially driven by heavy promotional expenditure. During the first quarter of this year, the company launched several new products under the Hillshire Farm brand, including Grilled Essentials,

Gourmet Creations and Deli Carvers. These innovations resulted in start-up and marketing expenses in the first quarter of this year, but will have a positive impact on performance from the second quarter through the remainder of the year.

Adjusted operating segment income declined 9 percent to $56 million as volume declines and higher marketing investment offset SG&A savings and efficiencies from the implementation of SAP across all meat plants. MAP spending was 13 percent higher behind the launch of new products and support of the core brands. Pricing actions

along with cost savings more than offset continued increases in commodity costs. Reported operating segment income declined $18 million.