Sara Lee has said that its first quarter results demonstrate that the company's restructuring efforts have begun to pay off, with long-awaited operational improvement shown across the board; however analysts reactions have been mixed.

For the first time in two years, sales rose in all businesses for the company. Net sales increased by 5% to US$2.9bn, with a particularly strong top-line performance in the North American retail bakery segment and international beverage business, both of which reported 8% gains.

Overall unit volumes rose 3%, with volume increases reported in all units except North American retail bakery, where stock-keeping unit rationalisation and the planned exit from unbranded businesses had a negative impact on volumes.

Sara Lee's operating segment income rose by 29% to $235m, reflecting double digit growth in all business segments except household and body care, which posted a significant gain from the sale of its sun care business in the comparable period last year. 

The food and consumer goods company was able to quadruple EPS from $0.13 per share in the first quarter of last year to $0.34 per share in this quarter, thanks to a favourable tax settlement and revenue increased in all business units. During the quarter, profits felt the impact of a $158m tax benefit related to the September spin-off of its branded apparel business as Hanesbrands Inc.

The company also noted that results were bolstered by the significant reduction in its marketing spend during the reporting period because of a decision to delay advertising campaigns for new product introductions.

"Sara Lee's first quarter of fiscal 2007 demonstrated the continuing progress that we have made in each line of business," said Brenda C. Barnes, Sara Lee's chairman and chief executive officer. "A strong array of new products and improved execution across the company delivered sales growth in every business and higher operating segment income in five of our six business segments."

New products bought to market included two lines of whole grain bread, Sara Lee Soft & Smooth and Hearty & Delicious, along with Jimmy Dean Breakfast Bowls and additional flavours of Hillshire Farm deli products and meats.

However, analysts' responses to the results have been mixed. In an investor note, David Nelson of Credit Suisse said that despite operational improvements, "the company is still years behind its peers in terms of systems and controls". While acknowledging that the company has improved in some areas, Nelson suggested that there is much work still to be done. "Progress has been made, but Sara Lee is not yet a fine-oiled machine operationally," he wrote.

Indeed, delivering the results Barnes noted the massive impact various one-off special items had on the quarter.

"While the first quarter was operationally quite strong, some of the benefit came from the timing of various investments, including incremental MAP, which will be spent later in the year. We still expect to realise improved performance in future quarters, though we will likely see some of the benefits of our stronger business tempered by necessary, productive investments. I am confident that we are well positioned to deliver all of our financial commitments this fiscal year," she concluded.

Sara Lee raised guidance for fiscal 2007 earnings slightly to reflect lower anticipated interest expense after paying down debt. Sara Lee expects fiscal 2007 earnings to be in the range of $0.86 to $0.92 cents, including one-time items, up $0.04-$0.06. The company expects net sales in 2007 to grow between 2% and 3%.

Following yesterday's (7 November) financial release, shares in the company dropped from an open of $16.50 to close at $16.29.