Sara Lee bakery income up, but sales lose ground
May 6, 2010
by Eric Schroeder
DOWNERS GROVE, ILL. — Operating income within the North American Fresh Bakery unit of Sara Lee rose to $6 million in the third quarter ended March 27, up from $2 million in the same period a year ago. On an adjusted basis, operating income was $5 million, up from $3 million in the third quarter of fiscal 2009.
Net sales in the segment fell 5% to $501 million from $530 million, primarily due to lower unit volumes and lower prices, which was offset partially by favorable sales mix into branded business. Unit volumes decreased 2.5%, as higher unit volumes for branded bread could not fully offset volume weakness in private label bakery products as a result of intense price competition in the category.
“While total unit volumes declined, branded volume rose as a result of pricing recalibration and the launch of new products, such as Sara Lee Soft & Smooth Plus bread made with Omega-3/DHA and EarthGrains 100% whole grain bread made with Eco-Grain,” the company said. “Preparing for the very important buns and rolls season, the segment continued to introduce new products, such as Sara Lee Soft & Smooth mini buns, Sara Lee Delightful hot dog buns and Sara Lee Hearty & Delicious ciabatta rolls, and will carefully manage its pricing.”
For the nine months ended March 27, operating income was $36 million, up sharply from $3 million in the same period a year ago. Adjusted operating income in the nine months totaled $43 million, up 26% from $34 million. Sales totaled $1,541 million, down 6% from $1,640 million.
In its International Bakery business, Sara Lee sustained an operating loss of $1 million in the third quarter, which compared with income of $11 million in the same period a year ago. The loss primarily reflected charges for exit activities, asset and business dispositions associated with the sale of two bakeries in Spain. Adjusted operating income for the year was $9 million, down 24% from $13 million.
Sales for the quarter rose 4% to $186 million from $179 million.
“The International Bakery segment continues to face macro-economic and competitive headwinds in its core Spanish market and has implemented numerous actions to deliver bottom-line improvement moving forward,” Sara Lee said. “While unit volumes are still under pressure from private label competition in Spain, the business model has been significantly improved over the past few years through cost reductions, restructuring and right-sizing of the manufacturing footprint. During the fiscal year, Sara Lee sold several bakeries to a third-party manufacturer, which helped improve the segment’s plant utilization rates and reduce its cost per unit. These actions have helped mitigate the impact of lower unit volumes on profitability. Going forward, the segment has a much improved foundation in its Spanish business to grow upon, while it also expects to benefit from strong performance of its European refrigerated dough and Australian frozen bakery businesses.”
For the nine months ended March 27, International Bakery posted operating income of $4 million, down 40% from $7 million in the same period a year ago. Adjusted operating income was $34 million, down 9% from $38 million. Net sales fell marginally to $601 million from $607 million.
Overall, Sara Lee Corp. sustained a loss of $336 million in the third quarter ended March 27, weighed down by a tax charge and other items. The loss compared with net income of $165 million, equal to 24c per share on the common stock, during the same quarter of the previous year. Despite the loss Sara Lee said it expects to earn 60c to 64c per share for the full year, or $1.06 to $1.10 per share on an adjusted basis, up slightly from its guidance in March.
Income from continuing operations, meanwhile, totaled $25 million, down from $133 million in the same period a year ago.
Sales for the quarter were $2,578 million, up narrowly from $2,575 million during the same quarter of the previous year.
For the nine months ended March 28, net income at Sara Lee was $319 million, or 46c per share, down from $378 million, or 54c per share, during the same period of the previous year. Sales for the nine months were $8,024 million, down from $8,225 million during the same period of the previous year.