Sara Lee swings to profit, but shares slide

By Emily Bryson York
Posted Aug. 12, 2010 at 10:53 a.m.

Sara Lee swung to a profit during its fourth quarter on higher sales and cost cuts, with a net income of $192 million for the Downers Grove-based maker of Jimmy Dean sausage and Senseo coffee, up from an $11 million loss a year ago.  Sales increased 4 percent to $2.77 billion for the fourth quarter. But the company fell short of analyst expectations by other measures, and shares fell in late morning trading.

“We delivered strong bottom line improvements, generally grew our market shares, reinvested in our brands and innovation to drive future results,” interim chief executive officer Marcel Smits said in a call with analysts. “And we did all of that in the face of recessions in most of our largest markets.”

The company pointed to particular success in the North American retail and international beverage segments despite the difficult consumer environment. Sara Lee increased its investment in marketing 75 percent during the fourth quarter and 20 percent for the full year, focusing on brands and innovation.

For the full year, sales fell less than 1 percent, to $10.8 billion. Income grew 39 percent to $527 million. Full-year earnings per share was 73 cents, and $1.08 adjusted on an adjusted basis.

Earnings per share were 28 cents, compared with a 2 cent loss a year ago.  Adjusted earnings per share, accounting for an extra week that fell during the quarter, was 19 cents. Analysts had been expecting earnings per share of 16 cents for the quarter, and revenue of $2.86 billion.

Downers Grove-based Sara Lee has been cutting costs by dropping low-margin business units in an overhaul led by former CEO Brenda Barnes, 56, before she stepped down to recover from a stroke suffered in May. Smits, the company’s chief financial officer, will continue to act as CEO until a replacement is named.

During the call with analysts, Smits thanked the community “for reaching out to Brenda or for writing nice things about her.”  “We’re all very sorry to see her go,” he said, adding optimism regarding her recovery. “Brenda has made enormous progress with Sara Lee and we’re saddened to see her leave just as everything she tirelessly worked for started to bear fruit.”

Looking forward, Smits said, “we continue to focus on what we’ve done since May. We have a plan, agreed with our Board in April and we have alignment with our Board on the strategic steps we would want to pursue.”

The company again declined to comment on widespread rumors surrounding a possible sale of its bread business. However, C.J. Fraleigh, chief executive officer of the company’s North American business, said the company will be focusing on three key areas: frozen bakery, branded meats, and coffee concentrates.

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