Sara Lee Fresh Bakery profit falls 74%

by Eric Schroeder
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DOWNERS GROVE, ILL. — Operating income within the North American Retail Fresh Bakery unit of Sara Lee plummeted 74% in the third quarter, dragged down by gains on the termination of commodity contracts, unfavorable sales mix, higher selling, general and administrative costs and increased media advertising and promotion spending. Income in the quarter ended March 28 was $4 million, down from $14 million in the same period a year earlier.

Net sales in the segment rose 31% to $530 million from $499 million, driven by higher prices and higher unit volumes.

"Unit volumes increased 2.5% in the third quarter, primarily driven by volume growth for non-branded bakery products due to consumer trade-down to private label breads, as well as the gain of new non-branded business in additional retail stores," the company said. "In the third quarter, the Sara Lee bread brand was actively supported by coupons, displays and Sara Lee branded merchandise as part of the High School Musical 3 DVD launch. For the first nine months unit volumes increased 4.1%."

For the nine months ended March 28, operating income in North American Fresh Bakery totaled $9 million, down 73% from $31 million in the same period a year ago. The most recent results included a $31 million charge for a partial withdrawal liability relating to a multi-employer pension plan. Net sales for the first nine months were $1,640 million, up 11% from $1,474 million.

In its International Bakery business, Sara Lee posted operating income of $11 million, down 30% from $17 million in the same period a year ago. The decline reflected lower unit volumes and unfavorable foreign currency exchange rates. Sales fell 23% to $178 million from $231 million.

"Unit volumes, excluding acquisitions/divestitures, decreased 12.5% in the third quarter, primarily resulting from weak unit volumes in Spain as consumers traded down to private label breads in the very challenging economy, loss of business to a large customer and lower refrigerated dough exports," Sara Lee said. "New product launches included Bimbo tender wheat bread in Spain and Portugal."

For the first nine months of fiscal 2009, the company’s International Bakery business had operating income of $7 million, which compared with operating income of $39 million in the same period a year ago. Net sales for the first nine months totaled $603 million, down 12% from $686 million.

Overall, Sara Lee Corp. had income of $165 million in the third quarter, equal to 24c per share on the common stock. This compared with $211 million, or 33c per share. Sales for the third quarter were $3,028 million, down from $3,243 million. For the first nine months of fiscal 2009, Sara Lee posted income of $378 million, or 54c per share, down from $593 million, or 86c per share. Sales totaled $9,717 million, up narrowly from $9,705 million.

"The changes we have implemented to drive efficiencies and reduce costs, combined with our long-term commitment to innovation, marketing and talent management are beginning to benefit our bottom-line results, despite ongoing macro-economic challenges," said Brenda C. Barnes, chairman and chief executive officer. "Given the performance improvement initiatives we continue to implement through Project Accelerate, we believe that we are well positioned to benefit even further when the global economy begins to recover."

The company said it expects its full-year earnings per share guidance to be in the range of 73c to 79c per share, up from its previous guidance of 72c to 79c per share.

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