Sara Lee Bakery income, sales down in quarter

by Eric Schroeder
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DOWNERS GROVE, ILL. — The North American Fresh Bakery Division of Sara Lee Corp., which was reported as a discontinued operation following the agreement to sell the business to Grupo Bimbo S.A.B. de C.V., posted operating income of $2 million in the second quarter ended Jan. 1, which compared with income of $19 million in the same period a year ago. Adjusted operating income, meanwhile, was $8 million, down from $19 million a year ago. Net sales within North American Fresh Bakery fell 2% during the second quarter to $487 million.

“The decline in operating segment income was driven by flat volumes and lower pricing,” Sara Lee said. “Prices increased versus the first quarter but still remain below prior-year levels. Input costs continue to rise in the category, and the company is preparing further price increases in the back half of the year to offset additional cost increases.”

Sara Lee said results for its International Bakery business also came in below expectations, as adjusted operating income fell to $5 million from $11 million in the same period of fiscal 2010. Net sales fell 12% to $185 million from $211 million. Sara Lee attributed the declines in income and sales to lower unit volumes, a net reduction in prices and an unfavorable shift in sales mix.

“Earlier restructuring actions continue to benefit the Spanish bakery business but performance is still impacted by difficult macro-economic and competitive conditions in Spain,” the company said. “The Spanish business is reducing costs, narrowing price gaps to private label and launching innovative new products. Meanwhile, the French refrigerated dough business continues to perform well, reporting volume and sales growth versus last year.”

Overall, the sale of the company’s household and body care business as well as gains in the North American Retail and International Beverage businesses helped drive a sharp earnings gain at Sara Lee Corp. during the second quarter. For the quarter ended Jan. 1, the company had income of $880 million, equal to $1.38 per share on the common stock, up from $371 million, or 53c per share, during the same quarter of the previous year. Sales for the quarter were $2,349 million, nearly flat compared with $2,359 million during the same quarter of the previous year.

Sara Lee late last month announced its intent to divide the company into two separate, publicly-traded companies.

“We are excited to move forward with the implementation of our strategic initiative to create two pure-play companies,” said Marcel Smits, chief executive officer. “We are confident that this plan offers the best opportunity to deliver long-term value to our shareholders.

“At 24c, our second-quarter adjusted e.p.s. from continuing operations showed good improvement from the 14c 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.”

For the six months ended Jan. 1, the company posted income of $1,072 million, or $1.66 per share, up 64% from $655 million during the same period of the previous year. Sales for the six months were $4,408 million, nearly flat compared with $4,406 million during the same period of the previous year.

The company also announced it is reaffirming its fiscal 2011 guidance of adjusted operating income from continuing operations of $904 million to $940 million and adjusted e.p.s. from continuing operations at 85c to 89c.

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