Branded CPG giant Sara Lee Corporation has posted sales for its Q4 ended 29 June, of US$4.5bn, up 14% year on year. Excluding unusual items, diluted earnings per share (EPS) were US$0.42, up 14% year on year.

For the FY year, the Chicago-based firm saw sales of US$17.6bn, up 6% over the same period a year ago, and diluted EPS, excluding unusual items, of US$1.36, equal to last year's results.

Corporate unit volumes, excluding acquisitions and divestitures, increased 1% in the Q4, and were flat for the FY. Operating income increased 7% in the Q4 but declined 5% for the FY. Q4 results reflect the acquisition of The Earthgrains Company as well as increased base business income from the Sara Lee Meats and Intimates and Underwear lines of business.

"We ended FY 2002 with a strong Q4 for many of our key businesses," said C. Steven McMillan, chairman, president and CEO. "We began to see the benefits of the reshaping efforts carried out over the last two years, and I expect the company's improved sales and profit performance to strengthen throughout FY 2003.

Performance review

Meats

                        Fourth Quarter            Fiscal Year
                        --------------          ---------------
                         2002    2001  Change    2002     2001  Change
                        ------  ------ ------   ------    ----- ------
Sales                   $ 901  $  935   (4)%   $ 3,704  $ 3,722    0%
Operating Income        $ 102  $   91    11%   $   356  $   357    0%

While Q4 sales declined 4%, operating income rose 11%, reflecting lower average raw material costs and increased sales of high-margin new products. The Sara Lee "Red Wave" programme continued its national expansion, creating in-store presence for Sara Lee branded deli-quality pre-sliced meats and cheeses. During the Q4, meat sales were particularly strong to Wal-Mart. Media advertising spending for Sara Lee Meats increased 16% in the Q4 and 26% for the full year, with a significant portion of that spending targeted to new product introductions.

Global unit volumes for Sara Lee Meats were unchanged in the Q4 and fell 1% for the FY. In both periods, unit sales increased in Mexico and in the US for breakfast sausages, ham, breakfast sandwiches, cocktail sausages and Sara Lee deli meat and cheese products. These gains were offset by declines in smoked sausages and hot dogs as well as lower volumes in Europe, reflecting a decline in overall meat consumption.

Bakery

                          Fourth Quarter           Fiscal Year
                          --------------          -------------
                           2002    2001  Change    2002   2001  Change
                          ------  ------ ------   ------  ----- ------
Sales                     $ 803  $  181     NM   $ 2,976  $ 832    NM
Operating Income          $  29  $   13     NM   $   147  $   6    NM

The significant growth in sales and operating income reflects the acquisition of The Earthgrains Company in August 2001, which more than tripled the size of Sara Lee Bakery's operations and substantially increased its profitability. As a result, sales grew to US$803m in the Q4, and for the FY, sales increased from US$832m in 2001 to nearly US$3bn.

In the Q4, unit volumes for the US frozen operations rose 4%, driven by increased pie sales and strong demand for in-store bakery products. In the US fresh bakery business, unit volumes fell slightly, down 2% compared to Earthgrains's performance in the year ago period prior to its acquisition by Sara Lee. Lower unit volumes in the popular segment of the fresh bread market offset strong sales of superpremium Sara Lee and Earth Grains branded products. European fresh bread unit sales increased 2% during the quarter, while refrigerated dough unit sales fell 2% in the US and 4% in Europe.

New product introduction is a key strategy for this business, and the group continued to extend Sara Lee branded fresh breads and sweet goods into new geographic markets through its extensive direct-store distribution system. IronKids crustless bread and Ball Park hot dog buns both entered systemwide distribution in July, and sales for crustless bread in Europe continued to grow as well.

Beverages

                        Fourth Quarter           Fiscal Year
                        --------------          --------------
                         2002    2001  Change    2002    2001   Change
                        ------  ------ ------   ------  ------  ------
Sales                   $ 642  $  649   (1)%   $ 2,539 $ 2,786   (9)%
Operating Income        $ 102  $  120  (15)%   $   423 $   485  (13)%

Lower commodity costs and retail pricing combined with higher marketing expenditures and lower unit volumes, particularly in the US, resulted in sales and operating income declines for Sara Lee Beverage during both the Q4 and FY 2002. Unit volumes fell 5% in the Q4 and declined 6% for the FY.

On a geographic basis, business trends were mixed in the Q4, with sales and profit increases in Europe and Brazil offset by weakness in the US. In Europe, sales and profits increased for both the retail and out-of-home channels driven, in large part, by new, higher margin products. Market shares increased in many key countries, including the Netherlands, Belgium, Denmark, the UK and Hungary. The company's Brazilian operations enjoyed a nice recovery from weak Q3 results, realising increases in both sales and profits. US sales fell by more than 10% reflecting less promotional activity in the retail market and continued soft demand for foodservice products.

Media advertising and promotion spending increased 34% for the global beverage operations in the Q4 and rose 12% for the year as the company spent aggressively to support new product activity, including its successful Senseo crema retail coffee product. After about one year in the market, Senseo gained an 8.5% value share of the Dutch market. In addition, the product was launched in France and Belgium during the Q4.

Outlook

Sara Lee currently expects diluted EPS for the Q1 2003 to be within a range of US$0.27 to US$0.29 compared to US$0.26 in the year-ago period. FY 2003 diluted EPS are expected to fall in a range of US$1.44 to US$1.50, compared to US$1.36 in fiscal 2002.