Sara Lee CFO Mark Garvey has reinforced the US food maker’s belief that the company’s margins will improve in the second half of its fiscal year, with the business hoping price increases will help offset rising commodity costs.
Earlier this month, Sara Lee reported a slump in second-quarter profits as soaring raw material costs – particularly coffee, hogs and cattle – hit its bottom line.
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The US food group, which plans to split in two next year, booked net income from continuing operations of US$107m for its fiscal second quarter, which ended on 1 January. In the previous year’s second quarter, the figure stood at $298m.
On a reported basis, Sara Lee’s net income was $882m, up from $376m a year ago. However, this year’s figure included a gain on the sale of the company’s North American fresh bakery business, which it offloaded in November.
Speaking at the CAGNY investment conference in Florida yesterday (22 February), Garvey admitted Sara Lee expected commodity “headwinds” to continue but said the company hoped price increases would help improve margins.
“Although we anticipate further headwinds in the second half, particularly as we push through our new price increases, we do expect the increases that we have already taken will benefit our margins in the back half of the year,” Garvey said.
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By GlobalDataMeanwhile, CEO Marcel Smits used CAGNY to again defend the recent decision to split Sara Lee in two. By early next year, Sara Lee will become two entities: one, keeping the same name, will focus on the current company’s North American meats business. The other, as yet unnamed business, will look after Sara Lee’s coffee and international bakery operations.
Among his arguments, Smits said the two “pure-play” companies would benefit from separate executive teams being able to focus on different businesses.
“We strongly believe that experience shows that the closer the senior management of the company is to the market opportunity, the better the company does. As the CEO of Sara Lee, I have to divide my attention to bakery meats and coffee. I am pretty familiar with all but I can’t devote all of my time to a particular business,” Smits said.
“With two pure-plays, the CEO is able to have a laser focus on the specific business that he or she is running. Most of the time this leads to better and faster decisions, as well as a more proactive approach to dealing with the market and I am confident that this in our case will also lead to more growth.”
