Sara Lee Corp. reported earnings for the third quarter and first nine months of fiscal 2012 and provided an update on the progress of the spin-off of D.E. Master Blenders 1753.
Following are highlights:
3 percent increase in adjusted net sales; 2 percent increase in reported net sales
Coffee & Tea Co: adjusted net sales up 5 percent; reported net sales up 1 percent
Meat Co: adjusted net sales up 1 percent; reported net sales up 2 percent
Adjusted and reported operating income decreased 5 percent and 66 percent
Coffee & Tea Co: adjusted operating segment income down 9 percent; reported operating segment income down 21 percent
Meat Co: adjusted operating segment income down 7 percent; reported operating segment income down 13 percent
Adjusted earnings per share (EPS) decreased two cents to $0.20; reported EPS decreased fourteen cents to $0.06
"I am pleased to announce that we are on track to spin-off the coffee and tea business by June 30. Significant progress has been made in the last quarter with the IRS private letter ruling, an F-1 prospectus filing for coffee, the successful bond redemption and tender offers and the investor day for Coffee Co. (D.E. Master Blenders 1753),” said Executive Chairman Jan Bennink in a prepared statement. "Both companies are in full preparation to become highly successful pure play companies. Sean Connolly, the new CEO for Meats, is finalizing his strategy and his new management structure, which will be presented to investors shortly. Michiel Herkemij, appointed as CEO for Master Blenders in December, has presented his strategy to investors and has added a supply chain executive and a regional head for Western Europe to his executive team. The boards for the new companies will be announced in May."
Chief Executive Officer Marcel Smits added, “I am pleased to report that Meat Co. showed continued improvement in volume trends, achieved SG&A reductions and launched new innovation in the third quarter. The coffee and tea business performed well in its main markets with underlying margin improvement, and is gearing up for significant innovation. Activity levels in both companies increased during this period as the corporate headquarters operation continued to be scaled down. In addition, both businesses worked through manufacturing inefficiencies that impacted results. Positively, after two years of steep commodity cost increases, we finally see a stabilization and, in the case of coffee, a reversal of raw material trends. For the first time in two years, both businesses recovered their commodity cost increases and will see further benefits in Q4, particularly in coffee. We are confident that we will achieve our guidance, at the low end of the range for sales and operating income, as we continue to build two stand-alone businesses.”
Overall, coffee and tea experienced strong performance in its branded business during the quarter. Excluding green coffee exports, adjusted net sales increased by 8.2 percent. Including export sales, the business grew by 4.6 percent. Going forward net sales will be reported excluding green coffee export sales.
All business sectors showed strength, with Western Europe the most robust, at 10.5 percent sales growth, rest of world at 8.4 percent and out-of-home at 2.9 percent. Shares in the key Western European countries (Netherlands, France and Spain) held steady or grew.
Mix improved to 6.5 percent, from 5.4 percent last quarter, while volume continued to be negative at -7.3 percent compared to the prior year in Q3. Volume has been affected by three factors: the elimination of private label business in France in summer 2011; the effects of the Thai flooding; and negative volume trends in several smaller countries due to aggressive pricing to protect margins. Excluding French private label and Thai volume declines, the ongoing business shows a -3.9 percent compared to the prior year in Q3. Actions are underway to rebalance volume and margins in these markets.