Chicago-based consumer goods giant Sara Lee Corp has posted a 4% rise in sales year on year to US$4.2bn for the Q3 ended 30 March.
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Diluted earnings per share (EPS) were US$0.31, an increase of 15% compared to US$0.27, excluding unusual items, for last year’s Q3.
For the first nine months of fiscal 2002, sales were US$13.1bn, up 3% over the same period a year ago. Diluted EPS for this period, excluding unusual items, was US$0.94 in fiscal 2002 versus US$0.99 in fiscal 2001.
In May 2000, Sara Lee Corp announced a reshaping programme to focus the company’s operations on three business segments – Food and Beverage, Intimates and Underwear, and Household Products. As part of this, a number of non-core business units were sold or operations ceased during fiscal 2001 and fiscal 2002.
Excluding these divested businesses, sales increased 11% in the Q3 and grew 12% in the first nine months of fiscal 2002, largely reflecting the acquisition of The Earthgrains Company in August 2001. Also excluding divested businesses, operating income increased 4% in the Q3 but declined 4% for the first nine months. Currency had a minor negative impact on sales and operating income during both periods.
“We continue to make progress on the critical components of the reshaping programme,” said C. Steven McMillan, chairman, president and CEO of Sara Lee Corp: “We have exited companies that did not fit our tighter consumer products focus or that were not achieving growth and return targets. Having focused this company on high-quality, consumer packaged goods in the Food and Beverage, Intimates and Underwear, and Household Products categories, we are now capitalising on Sara Lee’s core competencies – innovative product development, brand marketing and cost-effective manufacturing.
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By GlobalData“In this quarter, reshaping activities, including facility closures and organizational restructuring, led to nearly US$24m in savings, and year-to-date savings exceed US$60m. We expect to achieve additional savings in the Q4 and throughout fiscal 2003 as we continue to leverage our global scale.
Sara Lee Meats
Q3 sales at Sara Lee Meats declined 1% but operating income rose 12%, reflecting lower average raw material costs and increased sales of high-margin new products. The company completed its test marketing of Jimmy Dean Fresh Taste. Fast! premium, pre-cooked sausages and began rolling out the product nationally during the quarter. Jimmy Dean meat snacks, another new product, enjoyed sales results considerably above expectations. Year-to-date media advertising and promotion spending for Sara Lee Meats increased 24%, with a significant portion targeted to these new product introductions.
Global unit volumes declined 2% in the Q3 and fell 1% for the first nine months. In both periods, increased unit sales for breakfast sausages, ham, breakfast sandwiches, cocktail sausages and Sara Lee deli meat and cheese products were offset by declines in smoked sausages and hot dogs, with the latter two categories particularly affected by higher selling prices at retail.
By geographic region, US unit volumes fell 3% in the Q3 and were down 1% through the first nine months of the fiscal year; European units also fell 3% in the Q3 and were down 5% year to date; and Mexican unit sales increased in both periods, up 5% in the third quarter and 8% through nine months.
Sara Lee Bakery
Sara Lee Bakery saw significant growth in sales and operating income after the acquisition of The Earthgrains Company in August 2001. This acquisition more than tripled the size of Sara Lee Bakery’s operations and substantially increased its profitability. McMillan explained: “The integration of Earthgrains with Sara Lee Bakery Group has resulted in improved sales productivity across our entire bakery line.”
Sara Lee branded fresh breads and sweet goods were expanded into new geographic markets through an extensive direct-store distribution system. These products, including bagels and pound cake, have enjoyed strong consumer acceptance. In the frozen category, the company continued to focus on its premium Sara Lee Bites, cheesecake and pie products.
Media advertising and promotion spending to support important new product and marketing initiatives for Sara Lee Bakery increased substantially during the Q3.
Beverages
Lower retail prices of coffee resulted in sales and operating income declines during both the Q3 and the first nine months of fiscal 2002. Global unit sales of coffee products fell 13% during the Q3. By product line, worldwide retail coffee volumes fell 16% while out-of-home and concentrate unit sales declined 5% in the US and fell 1% in Europe. The retail unit volume decline reflects significantly lower unit sales in the US and Brazil, with smaller declines in Europe. Through nine months, global unit volumes fell 6%.
Moving forward
By line of business in the Q4, management expects a low- to mid-single digit decrease in operating income for Sara Lee Meats, reflecting increased marketing spending behind new products. Sara Lee Bakery results will continue to benefit from the integration of the Earthgrains acquisition. In local currency terms, the Beverage group is likely to report a modest operating income decline, with improved trends relative to nine-month results.
For the FY, Sara Lee Meats operating income is expected to decline at a mid-single digit rate, and Sara Lee Bakery will continue to benefit from the acquisition of Earthgrains.
