By Mike Hughlett | Buoyed by lower commodity prices and a cost cutting offensive, Sara Lee Corp. beat Wall Street profit expectations in its most recent quarter, and the Downers Grove-based packaged food maker Thursday raised its earnings guidance for the rest of the year.
The maker of Jimmy Dean sausages, Hillshire Farm deli meats and its namesake baked goods says profit for its fiscal second quarter totaled $371 million, or 53 cents per share, compared with a loss a year ago. Excluding one-time items and discountinued opertations, net income was 28 cents per share.
The company’s North American meat and its international coffee divisions did particularly well on the profit front, although some analysts pointed out that Sara Lee’s overall growth during the quarter — as measured by volume – was relatively anemic.
That topped analysts’ estimates of 23 cents per share, though Sara Lee’s revenues of $2.9 billion were a bit shy of Wall Street’s forecast of 3.1 billlion.
Also, Sara Lee posted a big gain in its adjusted operating profit margin, with that key financial guage rising to 11.2 percent during the quarter from 6.2 percent during the same time last year.
“We think the quarter was fantastic,” Sara Lee Chief Executive Brenda Barnes said in an interview with the Tribune. She said profitabily improvements were driven by a combination of lower commodity costs, an ongoing cost reduction plan known as Project Accelerate and investments in the company’s key brands.
But Erin Swanson, a stock analyst at Morningstar Inc., said Sara Lee’s results “are still being weighed down by low (sales) volume.” Growing sales volume is important for a company’s long-term health.
Sara Lee posted a one percent decrease in volue during the quarter compared to the same time last year. However, excluding the impact of meat businesses it plans to exit, sales volume increased .7 percent, and the second quarter was a marked improvement over Sara Lee’s first quarter in terms of volume trends.
Still, sales volume came in “below our expectations once again, Christopher Growe, an analyst at Stifel Nicolaus, wrote in a research note.
Sara Lee’s stock reacted relatively well to Thursday’s earnings news. It was down two cents or .16 percent in mid-day trading, while the broad market, as measured by the S & P 500, was down 2.33 percent.
Sara Lee’s North American retail business, which is anchored in its meat products, had a solid quarter its operating income up 67 percent over the same time last year. The company’s international beverage division, which is big in coffee, also had a strong quarter with a 35 percent increase in adjusted operating profit.
However, sales of its Sara Lee brand bread were relatively soft, falling 7.5 percent from the same time last year. Unit volume fell even though Sara Lee dropped prices on bread, a business currently in the midst of a price war of sorts.
Still, Sara Lee’s North American bakery division managed to post a year-over-year increase in adjusted operating profits due to lower commodity costs, lower advertising spending and operational cost cuts.
For the second consecutive quarter, Sara Lee increased its profit guidance, saying its full-year adjusted earnings per share are expected to range between $1 and $1.05. That’s an increase of 9 cents to 10 cents from the company’s previous guidance.
Expectations of improved operational performance account for 3 cents to 4 cents per share of that upward revision. Another two cents stems from a lower anticipated tax rate while four cents is due to the cessation of depreciation and amortization expenses for the firm’s household and body care operations, which Sara Lee is in the midst of selling.
Read transcript of call: seekingalpha.com
