TIDMSRL
Sara Lee Corp. (NYSE: SLE):
-- Sara Lee announces divestiture of North American Fresh Bakery
business to Grupo Bimbo for $959 million
-- First quarter adjusted EPS¹ of $0.21, compared to $0.23 in year-ago
period; reported diluted EPS of $0.29 compared to $0.41 in
year-ago
period
-- Adjusted EPS from continuing operations of $0.13 in first quarter
versus $0.17 in year-ago period, reflecting increased
marketing
spending and higher commodity costs not fully priced through
yet
-- Strong top-line performance for company's two growth businesses,
North American Retail and International Beverage, with unit
volumes
and adjusted net sales both up
-- Guidance for adjusted EPS from continuing operations raised $0.04
to $0.92 - $0.99 per share due to stronger Euro and lower
interest expense
Sara Lee Corp. (NYSE: SLE) today reported lower operating income
and diluted earnings per share from continuing operations for the
first quarter of fiscal 2011, primarily due to higher commodity
costs net of pricing, increased marketing spending and receipt of
the final installment of contingent sale proceeds in the year-ago
quarter. First quarter results compare to a strong year-ago period,
when decreasing commodity costs provided a significant benefit to
the company. Net sales from continuing operations were slightly
down for the quarter on a reported basis, primarily due to the
weaker Euro, as adjusted net sales were up driven by strength in
the company's two growth businesses, North American Retail and
International Beverage.
The company also announced today that it has agreed to sell its
North American Fresh Bakery business to Grupo Bimbo for $959
million. The proposed deal, which is subject to customary closing
conditions and regulatory clearances, is anticipated to close in
the first half of calendar year 2011. The combination of Sara Lee's
North American Fresh Bakery business with Bimbo Bakeries USA
creates a leading national fresh bakery company in the United
States.
For additional information on the divestiture of the North
American Fresh Bakery business, please see the separate news
release that was published today and is posted on Sara Lee's
website (www.saralee.com).
"The sale of the North American Fresh Bakery business will allow
us to aggressively invest in our core protein and coffee
businesses. In both categories, we are a leading player, with
healthy margins and a strong track record of innovation. We are
actively pursuing growth here, organically and through
acquisitions," said Sara Lee Corp. interim chief executive officer
Marcel Smits.
"As anticipated, our first quarter operating income came in
below the prior-year period. We see our price increases coming
through across the board, but in the first quarter they still
lagged sharply increasing commodity prices. We are confident that
the additional price increases we have announced will mitigate
commodity inflation for the full year. We also continue to execute
against our capital plans with further share repurchases and the
successful refinancing of $800 million of debt at an attractive
rate in the first quarter."
"We are confident that the full year will reflect an
acceleration of growth in our top-line and a further bottom-line
improvement in our business, building on the past several strong
years," Smits concluded.
¹ The term "adjusted EPS" and other "adjusted" financial
measures are explained and reconciled to each item's most
comparable U.S. generally accepted accounting principles measure at
the end of this release.
First Quarter Review
Net Sales and Unit Volumes
Net sales for the first quarter of fiscal 2011 were $2.6
billion, down 0.5% versus the year-ago period as a favorable shift
in sales mix and higher prices were offset by lower unit volumes
and unfavorable foreign currency exchange rates. The company's
adjusted net sales rose 1.5% in the quarter. This increase was
driven by strong adjusted net sales growth in the North American
Retail (sales up 7.3%, volume up 4.4%, mix up 1.3%) and
International Beverage segments (sales up 4.6%, volume up 1.7%, mix
down 0.3%). The North American Fresh Bakery and International
Bakery segments saw sales and volume decline, while North American
Foodservice was impacted by the loss of a high volume, low margin
foodservice bakery contract in the third quarter of last year.
Overall, total Sara Lee unit volumes decreased 2.0% in the first
quarter of fiscal 2011, while sales mix improved 2.0%.
Operating Income
In the first quarter of fiscal 2011, operating income was $169
million, compared to $326 million in the year-ago period, a
decrease of 48.1%, primarily resulting from no longer receiving
EUR95 million ($133 million in the year-ago period) in contingent
sale proceeds in the first quarter, as well as lower operating
segment income. Adjusted operating income was $179 million,
compared to $209 million in the first quarter of fiscal 2010, a
decrease of $30 million, or 14.4%, despite a $28 million decline in
general corporate expenses, $17 million of favorable mark-to-market
variances on unrealized commodity derivatives and a favorable sales
mix shift. These positive factors could not fully offset the
negative impact of $62 million of higher commodity costs net of
pricing and $13 million of higher media advertising and promotion
(MAP) investment.
Operating income from discontinued operations was $58 million in
the first quarter, down $7 million, or 10.3%, versus the year-ago
period, entirely due to the impact of dispositions. Adjusted
operating income from discontinued operations was $69 million in
the quarter, up $17 million, or 35.5%. At the net income level,
discontinued operations reported income of $126 million in the
first quarter versus $96 million in the year-ago period, driven by
an $89 million net gain on the divestiture of the air care
business, partially offset by $52 million of higher income tax
expense.
Earnings Per Share
Diluted EPS as reported were $0.29 in the first quarter of
fiscal 2011, compared to $0.41 per share in the year-ago period.
Adjusted EPS were $0.21 in the first quarter, compared to $0.23 per
share in the year-ago quarter.
Reported and adjusted EPS for the first quarter can be
summarized as follows:
First Quarter
2011 2010
Diluted EPS as reported $0.29 $0.41
Less:
Total significant items 0.08 0.03
Contingent sale proceeds - 0.15
Adjusted EPS* $0.21 $0.23
Of which:
Adjusted EPS from continuing operations 0.13 0.17
Adjusted EPS from discontinued operations 0.07 0.06
* Amounts are rounded and may not add to the total.
For more detail on the impact of significant items and
contingent sale proceeds on diluted EPS, see "Significant Items
Analysis" and "Reconciliation of as Reported to Adjusted."
Cash from Operations
Net cash from operating activities was $28 million in the first
quarter of fiscal 2011, compared to $187 million in the prior year
period. The decrease was primarily due to lower operating income,
higher cash taxes and higher cash contributions to its pension
plans. The first quarter cash from operations reflects seasonality
in working capital outflow in line with the year-ago period,
despite higher commodity prices that impacted inventory levels in
the quarter. Sara Lee is targeting a substantial decrease in
average working capital in the fiscal 2010 - 2013 timeframe.
Various components of the working capital reduction program are
being implemented and results are in line with expectations.
Financial and Business Highlights
-- MAP spending increased $13 million, or 18%, in the first quarter of
fiscal 2011, driven by an increase in spending at the North
American
Retail and International Beverage segments. The North American
Retail
segment invested primarily behind two of its core retail brands,
Hillshire
Farm and Jimmy Dean, for the latter partly in support of
the new Jimmy D's product line. The International Beverage
segment supported important new products, such as L'OR
Espresso
in France and Douwe Egberts Aromettes in Belgium, and
invested
behind the CaféPilão brand in Brazil.
-- In the first quarter, commodity costs (excluding commodity
mark-to-market), increased by about $90 million, which included
$31
million of currency mark-to-market losses related to the
purchase of
commodities in the International Beverage segment. The $90
million
commodity cost increase was partially offset by approximately
$28
million in higher prices, resulting in a net unfavorable
commodity
cost impact of about $62 million in the first quarter.
-- Net interest expense was $30 million in the first quarter, compared to
$29 million in the year-ago period. In the quarter, the
company
successfully issued two $400 million bonds with a blended
interest
rate of 3.4%. The bonds were issued to help refinance Sara Lee's
6¼%
notes, which were due on September 15, 2011. The lower interest
rate
on the new bonds will reduce annual interest cost by
approximately $20
million. The company incurred $30 million of debt extinguishment
costs
in the first quarter related to the early redemption of the 6¼%
notes
and expects another $25 million of debt extinguishment costs in
the
second quarter.
-- General corporate expenses were $25 million in the first quarter
compared to $55 million in the year-ago period; a decrease of
$30
million. Excluding significant items, general corporate
expenses
decreased $28 million in the quarter, from $49 million to $21
million,
primarily driven by lower IT costs, lower employee benefit costs
and
several smaller items. For the full year, general corporate
expenses
excluding significant items are expected to decrease about $50
million
versus fiscal 2010.
-- Mark-to-market gains from unrealized commodity derivatives amounted to
$14 million in the first quarter; an improvement of $17
million
compared to losses of $3 million in the year-ago period.
-- The effective tax rate for continuing operations in the first quarter,
on an as reported basis, was 37.1%, compared to 35.5% in the
year-ago
quarter. The year-over-year increase in the tax rate was due to
impact
of the receipt of the final installment of tax-free contingent
sale
proceeds in the year-ago quarter and the impact of various
discrete
tax items in the current quarter, which are not material
individually
or in the aggregate. For further detail on the tax rate, see
"Reconciliation of as Reported to Adjusted." Sara Lee expects
that the
tax rate for continuing operations, excluding significant items,
will
be between 33% and 35% for fiscal 2011.
-- Project Accelerate is a company-wide cost savings and productivity
initiative focused on outsourcing actions, supply chain
efficiencies
and organizational simplification. The company expects
annualized
project benefits in continuing operations of $350 - $400 million
by
the end of fiscal 2012, and cumulative costs of $300+ million in
the
fiscal 2009 - 2012 timeframe. In the first quarter of fiscal
2011, the
project generated $29 million of additional benefits in
continuing
operations. The company expects cumulative project benefits of
$270 to
$290 million in fiscal 2011, compared to $180 million of
cumulative
savings at the end of fiscal 2010. The company expects
Project
Accelerate costs in fiscal 2011 to be approximately $30 to
$50
million; Project Accelerate costs were $10 million in the
first
quarter.
-- Progress toward divesting the international household and body care
businesses continues. In the first quarter, the company closed
on the
majority of the air care business being sold to Procter &
Gamble and
received $355 million of the total proceeds to be received on
the
sale. The company is working on the close of the proposed
transactions
of the global body care business to Unilever for EUR1.275
billion and
the non-Indian insecticides business to SC Johnson for EUR153.5
million.
Both proposed transactions are expected to close in calendar
year
2010, and are subject to customary closing conditions and
regulatory
clearances. Sara Lee is confident it will be able to
successfully
divest the remaining household businesses, primarily its global
shoe
care and Asian cleaning businesses, based on interest from
various
parties.
Capital Plan Initiatives
Sara Lee is in the process of executing a balanced capital plan
that focuses on share repurchases, dividend pay-out and the funded
status of the company's pension plans, while maintaining a solid
investment grade credit profile.
-- The company plans to buy back $2.5 to $3.0 billion of shares over a
three-year period. As a result of the divestiture of the
North
American Fresh Bakery business announced today, Sara Lee plans
to
accelerate its share repurchase program; the company now expects
to
complete the program by the end of fiscal 2012 (July 2012).
$500
million of the share repurchase was executed in fiscal 2010 and
the
expectation is to repurchase another $1.0 to $1.5 billion in
fiscal
2011. In the first quarter of fiscal 2011, Sara Lee bought
back
approximately 24 million shares of common stock in the open
market.
The total cost for share repurchases in the first quarter was
$373
million. Outstanding board authorizations for buybacks are
$2.1
billion in addition to a 13.5 million share authorization
remaining
under a prior program.
-- On Oct. 28, Sara Lee announced that it increased its quarterly
dividend by 4.5% to $0.115 per common share, payable on Dec. 31,
2010,
resulting in an annualized dividend of $0.46 per share. No
change in
Sara Lee's dividend amount is expected as a result of the
divestiture
of the North American Fresh Bakery business.
-- The company continues to evaluate the best opportunities for value
creation and investment of cash, including potential
acquisitions or
other investments in the company's growth.
CEO Position
Sara Lee's board is in the process of selecting a new chief
executive officer, to replace Brenda C. Barnes who stepped down for
health reasons on Aug. 9. The board is considering both internal
and external candidates for the CEO position. Pending the
appointment of a permanent CEO, Marcel Smits acts as the interim
chief executive officer, Mark Garvey as the interim chief financial
officer and James S. Crown, an independent director, as the
chairman of the board. Mr. Crown leads the Office of the Chairman,
comprised of Crown, Smits and CJ Fraleigh, chief executive officer
Sara Lee North America.
Business Performance Review
North American Retail
In line with expectations, higher commodity costs net of pricing
were a headwind for the North American Retail segment in the first
quarter of fiscal 2011. This year's quarter compares with a very
strong year-ago period when margins were above the trend line of
gradual improvement helped by a tailwind from lower commodity
costs. In addition, the North American Retail segment continued to
invest heavily behind two of its core retail brands, Hillshire Farm
and Jimmy Dean, the launch of new products and other
consumer-centric marketing programs. As a result, MAP increased by
$10 million, or 38% year over year. Lastly, investments were made
in the new Kansas City sliced meat plant that will become
operational in early calendar year 2011, as well as in the
implementation of the segment's ERP and trade optimization
systems.
In all, operating segment income decreased $17 million, or 20.6%
in the first quarter to $63 million, while adjusted operating
segment income decreased $19 million, or 23.0%. The impact of the
higher commodity costs net of pricing, and marketing and other
investments, were partially offset by a favorable sales mix shift
into higher-margin products, the strong volume performance of the
segment's core retail business and continuous improvement and
Project Accelerate savings.
Unit volumes increased 4.4% in the first quarter, driven by
growth for Jimmy Dean breakfast sandwiches and sausages and
Hillshire Farm lunchmeats and smoked sausage. Net sales of $707
million were up 7.3% in the first quarter, on a reported and
adjusted basis, driven by higher unit volumes, favorable sales mix
(up 1.3%), as well as higher prices. The segment successfully
launched various new products, such as a line of kids-focused Jimmy
Dean breakfast products under the Jimmy D's sub-brand, lower sodium
Hillshire Farm and Sara Lee lunch and deli meats and Hillshire Farm
lunch meat variety packs.
The retail business' competitive position continued to
strengthen with market share improvements in 10 of its 12 core
categories. Hillshire Farm smoked sausage, for example, increased
its market share by 1.6 points versus last year, strengthening its
number one market position to 29.1%, while Jimmy Dean protein
breakfast increased its leading market share by 3.7 points to 58.0%
(Information Resources, Inc. (IRI) share data, 12 weeks ending
Sept. 19, 2010).
The segment is taking specific pricing actions to allow it to
price through its higher input costs in fiscal 2011. As a result of
active monitoring of its cost and price positions, continued focus
on efficiency and good growth prospects the segment is forecast to
show improved bottom-line results for the year. First half fiscal
2011 operating income is expected to be below the year-ago period,
reflecting the impact of investment timing and commodity cost
increases which will not yet have been fully offset with pricing
actions.
North American Fresh Bakery
The segment's first quarter bottom-line results were impacted by
lower prices and decreased unit volumes. However, unit volumes for
Sara Lee branded fresh bakery products were up, resulting in a
favorable sales mix shift (up 1.0%) for the segment in the quarter.
Branded volumes increased following price recalibration actions in
the second half of fiscal 2010 and were helped by the successful
reformulation of certain top-selling Sara Lee brand breads. The
segment also improved its total branded fresh bakery share by 0.7
points to 9.6% (IRI share data, volume share, FDMx, 12 weeks,
ending Sept. 19, 2010).
Private label volume was down in the first quarter, but is
expected to improve going forward on the back of new business bids
won. Overall, unit volume in the first quarter was down 2.4%
compared to the prior year. It should be noted that the majority of
the volume decline is attributable to the timing of the 4th of July
holiday, as the 'sell in' week for the holiday fell in the fourth
quarter of fiscal 2010. Net sales decreased 4.6% to $516 million in
the first quarter, on a reported and adjusted basis, primarily due
to lower unit volumes and lower prices, partially offset by
favorable sales mix into branded business.
The segment reported an operating loss of $1 million in the
first quarter, compared to income of $14 million in the year-ago
period, a decrease primarily due to lower prices and volumes. These
factors were partially offset by lower commodity costs and a
decrease in operating costs driven by Project Accelerate
initiatives and other continuous improvement savings. The adjusted
operating segment income in the first quarter was nil versus $22
million of income in the year-ago period.
North American Foodservice
The North American Foodservice segment reported lower top- and
bottom-line results for the first quarter of fiscal 2011, compared
to a very strong year-ago period. As communicated previously, the
segment lost two accounts in the second half of fiscal 2010. The
first was a high volume, but low margin bakery contract, which will
impact unit volumes in the first half of fiscal 2011. The second
was a low volume, but high margin liquid coffee concentrate
contract, which will impact the segment's year-over-year
comparisons for most of fiscal 2011.
The foodservice segment reported operating segment income of $29
million in the first quarter compared to $38 million in the
year-ago period, a 23.2% decrease primarily due to the loss of the
above mentioned liquid coffee concentrate contract, market-driven
demand weakness and higher commodity costs. These impacts were
partially offset by higher prices, growth with key customers,
savings from Project Accelerate and continuous improvement
initiatives and a favorable sales mix shift (up 10.6%). Adjusted
operating segment income decreased by $7 million, or 20.1%, to $31
million in the first quarter.
Net sales decreased 2.6% to $445 million on a reported basis and
2.7% on an adjusted basis in the first quarter, primarily driven by
significantly lower unit volumes, which was partially offset by the
favorable sales mix shift and higher prices. The loss of the two
large contracts in fiscal 2010, as well as ongoing market driven
demand weakness, resulted in 17.6% lower unit volumes in the
quarter.
While foodservice industry trends are expected to remain
challenging for the foreseeable future, the business segment
anticipates having another year of bottom-line improvement in
fiscal 2011 behind new business with key customers, the impact of
strategic pricing actions, favorable sales mix and further
improvements in its cost structure.
International Beverage
The International Beverage segment reported good top-line
results for the first quarter of fiscal 2011, with unit volumes and
adjusted net sales both up. The segment successfully pushed through
price increases in all geographies to offset a part of the
unprecedented price increases in the coffee commodity markets. In
addition, MAP spending increased to support the launch of premium
innovations in France, Spain, the Netherlands and Belgium.
Reported operating segment income was $90 million, down $33
million, or 27.2% from $123 million in the first quarter of fiscal
2010. Adjusted operating segment income decreased $24 million, or
20.2%, to $92 million in the first quarter, driven by higher
commodity costs, which included $31 million in currency
mark-to-market losses related to the purchase of raw materials, as
well as business growth initiatives in Brazil and investments in
other growth projects. These negative impacts were partially offset
by higher unit volumes, higher prices and continuous improvement
and Project Accelerate savings.
Net sales decreased 0.9% to $728 million in the first quarter,
solely due to unfavorable foreign currency exchange rates. Adjusted
net sales were up 4.6%, primarily driven by higher unit volumes,
pricing actions and higher green coffee export sales, partially
offset by a slightly unfavorable sales mix shift (down 0.3%). Unit
volumes were up 1.7% in the first quarter, driven by volume growth
in Brazil and strong volumes for Senseo single-serve coffee pods
and L'OREspresso capsules in France, as well as higher volumes for
foodservice coffee in Europe and instant coffee in Australia and
Thailand.
The International Beverage segment will continue to invest in
its brands, innovation and international expansion in fiscal 2011
and the top-line is expected to show further acceleration of
growth. Adjusted operating income is expected to be down in fiscal
2011 as a result of the aforementioned investments, combined with
the impact of rising commodity costs, stranded overhead costs that
were previously shared with discontinued operations and the fact
that fiscal 2010 included a $30 million unrealized currency gain
related to the purchase of raw materials.
International Bakery
The International Bakery segment is still facing macro-economic
and competitive headwinds in its core Spanish fresh bakery market.
In this market, while unit volumes were still under pressure from
private label competition, the business continued to work
diligently on improving its cost structure and introduced various
value-added new products. The French refrigerated dough business
continued to perform well in the first quarter of fiscal 2011.
The segment reported operating segment income of $8 million in
the first quarter, up from $6 million in the year-ago period.
Adjusted operating segment income was $8 million, compared to $12
million in the prior-year quarter, or down 27.4%, largely due to
reduced prices and lower unit volumes, partially offset by Project
Accelerate and continuous improvement savings.
Net sales decreased 9.0% to $186 million in the quarter, due to
lower prices, unfavorable foreign currency exchange rates, lower
unit volumes and a slightly unfavorable sales mix (down 0.1%).
Adjusted net sales decreased 2.8%. Unit volumes declined 3.7% as
strong volumes for refrigerated dough products in France and strong
export volume to Italy and Scandinavia, could not fully offset
volume weakness in the Spanish bakery business.
Although the segment expects to benefit from the strong
performance of its European refrigerated dough and Australian
frozen bakery businesses, due to the still challenging Spanish
fresh bakery market, adjusted operating segment income is expected
to be flat in fiscal 2011.
Guidance Update
Fiscal 2011Guidance Fiscal 2010 (1)
Total diluted EPS $1.09 - 1.18/per share $0.73/per share
Diluted EPS from $0.89 - 0.96/per share $0.92/per share
continuing
operations
Diluted EPS from $0.21 - 0.23/per share $(0.19)/per share
discontinued
operations
Contingent sale proceeds - $0.19/per share
Total significant $0.08/per share $(0.57)/per share
items, net (2)
Significant items related $(0.03)/per share $(0.05)/per share
to continuing operations
Significant items $0.12/per share $(0.52)/per share
related to
discontinued operations
Impact of 53rd week - $0.03/per share
Impact of 53rd week in - $0.02/per share
continuing operations
Impact of 53rd week - $0.01/per share
in discontinued
operations
Adjusted EPS (2)(3) $1.01 - 1.10/per share $1.08/per share
Adjusted EPS from $0.92 - 0.99/per share $0.76/per share
continuing
operations
Adjusted EPS from $0.09 - 0.11/per share $0.32/per share
discontinued
operations
Net sales $11.8 - $12.1 billion $12.9 billion
Net sales from continuing $11.0 - $11.2 billion $10.8 billion
operations
Net sales from $0.8 - $0.9 billion $2.1 billion
discontinued
operations
Total operating income (4) $1,035 - $1,120 million $1,169 million
Operating income $965 - $1,030 million $918 million
from continuing
operations
Operating income from $70 - $90 million $251 million
discontinued
operations
Cash $600 - $700 million $952 million
flow from operations(incl.
discontinued ops.)
Capital expenditures $400 - $450 million $385 million
Interest expense, net $96 million $123 million
Tax rate, cont. 33% -35% 29.7%
operations,
excl. significant items
Dollar/Euro exchange rate $1.35 $1.39
(1) Fiscal 2010 had 53 weeks.
(2) Amounts are rounded and may not add to the total.
(3) "Adjusted EPS" and other "adjusted" financial measures are
explained in "Explanation of Non-GAAP Financial Measures."
(4) Fiscal 2011 operating income guidance includes a negative
impact of $21 million in net significant items reported in the
first quarter, of which $10 million was reported in continuing
operations and $11 million in discontinued operations, but does not
include any additional significant items that may occur during the
remainder of the fiscal year.
Sara Lee currently expects full-year fiscal 2011 total diluted
EPS to be in the range of $1.09 to $1.18 per share, which includes
a $0.08 per share net gain from significant items realized in the
first quarter of fiscal 2011, and compares to $0.73 per share in
fiscal 2010. This guidance does not include any additional
significant items that may occur during the remainder of the fiscal
year.
Adjusted EPS from continuing operations for fiscal 2011 is
expected to be $0.92 to $0.99 per share, compared to $0.76 per
share in fiscal 2010. The year-over-year increase is primarily
driven by $90 to $110 million in additional Project Accelerate
benefits, $1.0 to $1.5 billion of share repurchase, lower pension
expense (of which $20 million is part of Project Accelerate) and
$27 million in lower interest expense. Compared to the initial
fiscal 2011 guidance provided on Aug. 12, 2010, guidance for
adjusted EPS from continuing operations was raised by $0.04 per
share today to reflect lower net interest expense and the stronger
Euro. The company expects $25 million of debt extinguishment costs
in the second quarter.
Cash from operations is expected to decline from $952 million in
fiscal 2010 to $600 to $700 million in fiscal 2011. The decline is
primarily the result of lower income from discontinued operations,
higher cash restructuring payments to eliminate stranded overhead,
higher cash taxes related to gains from various household and body
care transactions and an increase in working capital due to
business growth and higher commodity market prices in fiscal 2011.
Positively, pension cash contributions will be lower in fiscal 2011
as a result of voluntarily contributing $200 million in fiscal
2010.
Sara Lee currently expects the North American Retail and
Foodservice segments to show an increase in adjusted operating
segment income in fiscal 2011. The North American Fresh Bakery and
International Bakery segments are expected to be flat and the
International Beverage segment is expected to be down in fiscal
2011. The company expects that general corporate expenses will
decline by approximately $50 million in fiscal 2011.
Actual results may differ from this guidance due to future
significant events that may occur, the nature, timing and financial
impact of which are not yet known. Also the timing of the close of
various International Household and Body Care transactions can have
an impact on guidance.
Webcast and Form 10-Q
Sara Lee Corporation's review of its results for the first
quarter and the announced divestiture of the North American Fresh
Bakery business will be broadcast live via the Internet today at
9:00 a.m. CST. The live webcast can be accessed in the Investor
Relations section on www.saralee.com and is anticipated to conclude
by 10:00 a.m. CST. For people who are unable to listen to the
webcast live, a recording will be available on the website two
hours following the completion of the webcast until Monday, May 9,
2011. Sara Lee Corporation will file a Form 10-Q for the first
quarter of fiscal 2011 with the Securities and Exchange Commission
on or before Friday, Nov. 12, 2010.
Forward-Looking Statements
This release contains forward-looking statements regarding Sara
Lee's business prospects and future financial results, including
statements contained under the heading "Guidance." In addition,
from time to time, in oral statements and written reports, the
corporation discusses its expectations regarding the corporation's
future performance by making forward-looking statements preceded by
terms such as "anticipates," "we are confident," "expects,"
"likely" or "believes." These forward-looking statements are based
on currently available competitive, financial and economic data and
management's views and assumptions regarding future events.
Forward-looking statements are inherently uncertain, and
investors must recognize that actual results may differ from those
expressed or implied in the forward-looking statements.
Consequently, the corporation wishes to caution readers not to
place undue reliance on any forward-looking statements. Among the
factors that could cause Sara Lee's actual results to differ from
such forward-looking statements are those described under Item 1A,
Risk Factors, in Sara Lee's most recent Annual Report on Form 10-K
and other SEC Filings, as well as factors relating to:
-- Sara Lee's share repurchase and other capital plans, such as (i)
future opportunities that the Board may determine present
greater
potential value to shareholders than the current capital plans
and
targets, including without limitation potential acquisitions,
joint
ventures or other corporate transactions, and investments in
Sara
Lee's business; (ii) future operating or capital needs that
require a
more significant outlay of cash than currently anticipated; or
(iii)
future changes in facts or circumstances that may impact the
anticipated accounting treatment of such activities;
-- Sara Lee's relationship with its customers, such as (iv) a significant
change in Sara Lee's business with any of its major customers,
such as
Walmart, its largest customer, including changes in how such
customers
manage their suppliers and the level of inventory these
customers
maintain; and (v) credit and other business risks associated
with
customers operating in a highly competitive retail
environment;
-- The consumer marketplace, such as (vi) significant competition,
including advertising, promotional and price competition;
(vii)
changes in consumer behavior due to economic conditions, such as
a
shift in consumer demand toward private label; (viii)
fluctuations in
the cost of raw materials, Sara Lee's ability to increase or
maintain
product prices in response to fluctuations in cost and the
impact on
Sara Lee's profitability; (ix) the impact of various food
safety
issues and regulations on sales and profitability of Sara
Lee
products; and (x) inherent risks in the marketplace associated
with
new product introductions, including uncertainties about trade
and
consumer acceptance;
-- Sara Lee's international operations, such as (xi) impacts on reported
earnings from fluctuations in foreign currency exchange
rates,
particularly the euro; (xii) Sara Lee's generation of a high
percentage of its revenues from businesses outside the United
States
and costs to remit these foreign earnings into the U.S. to fund
Sara
Lee's domestic operations, share repurchase plans, dividends,
debt
service and corporate costs; (xiii) the impact on Sara Lee's
business
of its receipt of binding offers to purchase a large portion of
its
H&BC business, its intent to divest the remainder of that
business and
any inability to complete these transactions or to divest
the
remaining H&BC businesses on favorable terms; and (xiv)
difficulties
and costs associated with complying with U.S. laws and
regulations,
such as Foreign Corrupt Practices Act, applicable to entities
with
overseas operations, and different regulatory structures and
unexpected changes in regulatory environments overseas,
including
without limitation potentially negative consequences from
changes in
anti-competition and tax laws; and (xv) Sara Lee's ability to
continue
to source production and conduct manufacturing and selling
operations
in various countries due to changing business conditions,
political
environments, import quotas and the financial condition of
suppliers;
-- Previous business decisions, such as (xvi) Sara Lee's ability to
generate margin improvement through cost reduction and
efficiency
initiatives, including Project Accelerate and the outsourcing
of
significant portions of our financial transaction processing,
global
IT, and global indirect procurement activities; (xvii) Sara
Lee's
ability to achieve planned cash flows from capital expenditures
and
acquisitions and the impact of changing interest rates and the
cost of
capital on the discounted value of those planned cash flows,
which
could impact future impairment analyses; (xviii) credit ratings
issued
by the three major credit rating agencies, the impact of Sara
Lee's
capital plans and targets on such credit ratings and the impact
these
ratings and changes in these ratings may have on Sara Lee's cost
to
borrow funds, access to capital/debt markets, and ability to
complete
the planned share repurchase; (xix) Sara Lee's plan to
refinance
significant outstanding indebtedness in the next two years and
the
impact of potential changes in the credit environment; (xx) Sara
Lee's
plan to repurchase a significant amount of its common stock and
the
impact of such repurchases on its earnings, cash flow and
credit
ratings; (xxi) the settlement of a number of ongoing reviews of
Sara
Lee's income tax filing positions in various jurisdictions
and
inherent uncertainties related to the interpretation of tax
regulations in the jurisdictions in which Sara Lee transacts
business;
and (xxii) changes in the expense for and contingent
liabilities
relating to multi-employer pension plans in which Sara Lee
participates; and
-- Uncertainty relating to the chief executive officer position and the
fact that Sara Lee's board has initiated a process to identify
a
permanent successor.
In addition, Sara Lee's results may also be affected by general
factors, such as economic conditions, political developments,
interest and inflation rates, accounting standards, taxes and laws
and regulations in markets where the corporation competes. Sara Lee
undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events
or otherwise.
About Sara Lee Corporation
Each and every day, Sara Lee (NYSE: SLE) delights millions of
consumers and customers around the world. The company has one of
the world's best-loved and leading portfolios with its innovative
and trusted food and beverage brands, including Ball Park, Douwe
Egberts, Hillshire Farm, Jimmy Dean, Sara Lee and Senseo.
Collectively, our brands generate nearly $11 billion in annual net
sales. Sara Lee has approximately 33,000 employees in its
continuing operations worldwide. Please visit www.saralee.com for
the latest news and in-depth information about Sara Lee and its
brands.
SARA LEE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the Quarter ended October 2,
2010 and September 26, 2009
(In millions, except per
share data - Unaudited)
Quarter ended
October 2, September 26,
2010 2009
Continuing operations
Net sales $ 2,575 $ 2,588
Cost of sales 1,663 1,619
Selling, general and administrative 738 763
expenses
Net charges for exit activities, 5 13
asset and business dispositions
Contingent sale proceeds - (133 )
Operating income 169 326
Interest expense 36 35
Interest income (6 ) (6 )
Debt extinguishment costs 30 -
Income from continuing operations 109 297
before income taxes
Income tax expense 41 106
Income from continuing operations 68 191
Discontinued operations:
Income from discontinued operations,
net of tax expense (benefit) 37 96
of $21 and $(31)
Gain on sale of discontinued
operations, net of
tax expense of $166 and nil 89 -
Net income from discontinued operations 126 96
Net income 194 287
Less: Income from noncontrolling
interests, net of tax
Continuing operations 2 1
Discontinued operations - 2
Net income attributable to Sara Lee $ 192 $ 284
Amounts attributable to Sara Lee:
Net income from continuing operations $ 66 $ 190
Net income from discontinued operations 126 94
Earnings per share of common stock:
Basic
Income from continuing operations $ 0.10 $ 0.27
Net income $ 0.29 $ 0.41
Average shares outstanding 653 697
Diluted
Income from continuing operations $ 0.10 $ 0.27
Net income $ 0.29 $ 0.41
Average shares outstanding 655 698
Cash dividends declared per $ - $ -
share of common stock
SARA LEE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
at October 2, 2010 and July 3, 2010
(In millions - Unaudited)
October 2, July 3,
2010 2010
Assets
Cash and equivalents $ 1,125 $ 955
Trade accounts receivable, less allowances 1,229 1,187
Inventories
Finished goods 497 406
Work in process 35 31
Materials and supplies 408 309
940 746
Current deferred income taxes 225 262
Other current assets 332 370
Assets held for sale 270 260
Total current assets 4,121 3,780
Property, net of accumulated depreciation 2,100 2,070
of $2,945 and $2,822, respectively
Trademarks and other identifiable intangibles, net 501 504
Goodwill 1,297 1,261
Deferred income taxes 243 225
Other noncurrent assets 174 164
Noncurrent assets held for sale 818 832
$ 9,254 $ 8,836
Liabilities and Equity
Notes payable $ 111 $ 47
Accounts payable 979 1,005
Income taxes payable and current deferred taxes 14 8
Other accrued liabilities 1,254 1,255
Current maturities of long-term debt 473 16
Liabilities held for sale 291 253
Total current liabilities 3,122 2,584
Long-term debt 2,432 2,718
Pension obligation 513 530
Deferred income taxes 617 548
Other liabilities 1,052 931
Noncurrent liabilities held for sale 3 10
Equity
Sara Lee common stockholders' equity 1,486 1,487
Noncontrolling interest 29 28
Total Equity 1,515 1,515
$ 9,254 $ 8,836
SARA LEE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended October
2, 2010 and September 26, 2009
(In millions - Unaudited)
Three Months ended
October 2, September 26,
2010 2009
Operating activities -
Net income $ 194 $ 287
Less: Cash received from - (133 )
contingent sale proceeds
Adjustments to reconcile
net income to net cash
from operating activities:
Depreciation 82 99
Amortization 21 27
Net (gain) loss on business dispositions (255 ) -
Pension contributions, net of expense (17 ) 28
Increase in deferred income taxes 77 -
for unremitted earnings
Debt extinguishment costs 30 -
Other 21 24
Changes in current assets
and liabilities, net of
businesses acquired and sold:
Trade accounts receivable 35 (30 )
Inventories (140 ) (80 )
Other current assets (64 ) (2 )
Accounts payable 9 (44 )
Accrued liabilities (47 ) (37 )
Accrued taxes 82 48
Net cash from operating activities 28 187
Investment activities -
Purchases of property and equipment (66 ) (59 )
Purchases of software and other intangibles (7 ) (5 )
Dispositions of businesses and investments 355 -
Cash received from contingent sale proceeds - 133
Cash received from derivative transactions 26 34
Sales of assets 7 6
Net cash received from investment activities 315 109
Financing activities -
Issuances of common stock 1 -
Purchases of common stock (373 ) -
Borrowings of other debt 890 8
Repayments of other debt (708 ) (35 )
Net change in financing with (22 ) 62
less than 90-day maturities
Payments of dividends (73 ) (78 )
Net cash used in financing activities (285 ) (43 )
Effect of changes in foreign 112 51
exchange rates on cash
Increase (decrease) in cash and equivalents 170 304
Add: Cash balances of discontinued - 8
operations at beginning of year
Less: Cash balances of discontinued - (12 )
operations at end of period
Cash and equivalents at beginning of year 955 951
Cash and equivalents at end of quarter $ 1,125 $ 1,251
Supplemental cash flow data:
Cash paid for restructuring actions $ 25 $ 36
Cash contributions to pension plans 30 5
Cash paid for income taxes 68 26
Sara Lee Corporation
and Subsidiaries
Segment Analysis
- as reported
(in millions
- Unaudited)
Quarter ended
October 2, September 26, Change
2010 2009 Dollars %
Continuing
Operations:
Net sales:
North American Retail $ 707 $ 659 $ 48 7.3 %
North American Fresh Bakery 516 541 (25 ) (4.6 )
North American Foodservice 445 457 (12 ) (2.6 )
International Beverage 728 734 (6 ) (0.9 )
International Bakery 186 204 (18 ) (9.0 )
Intersegment (7 ) (7 ) -
Total net sales $ 2,575 $ 2,588 $ (13 ) (0.5 )%
Operating income (loss):
North American Retail $ 63 $ 80 $ (17 ) (20.6 )%
North American Fresh Bakery (1 ) 14 (15 ) NM
North American Foodservice 29 38 (9 ) (23.2 )
International Beverage 90 123 (33 ) (27.2 )
International Bakery 8 6 2 48.2
Operating segment income 189 261 (72 ) (27.5 )
General corporate expenses (25 ) (55 ) 30
Mark-to-market derivative gain/(loss) 14 (3 ) 17
Amortization (11 ) (11 ) -
Adjustment for noncontrolling interest 2 1 1
Contingent sale proceeds - 133 (133 )
Total operating income $ 169 $ 326 $ (157 ) (48.1 )%
Operating Margin:
North American Retail 8.9 % 12.1 % (3.2 )%
North American Fresh Bakery (0.2 ) 2.7 (2.9 )
North American Foodservice 6.6 8.3 (1.7 )
International Beverage 12.3 16.8 (4.5 )
International Bakery 4.5 2.7 1.8
Total Sara Lee 6.6 % 12.6 % (6.0 )%
Discontinued
Operations:
Net sales $ 408 $ 521 $ (113 ) (21.7 )%
Operating segment income 58 69 (11 ) (17.1 )
Operating income 58 65 (7 ) (10.3 )
Operating Margin 14.1 % 13.3 % 0.8 %
Sara Lee Corporation
and Subsidiaries
Segment Analysis
- as adjusted
(in millions
- Unaudited)
Quarter ended
October 2, September 26, Change
2010 2009 Dollars %
Continuing
Operations:
Adjusted net sales:
North American Retail $ 707 $ 659 $ 48 7.3 %
North American Fresh Bakery 516 541 (25 ) (4.6 )
North American Foodservice 445 457 (12 ) (2.7 )
International Beverage 728 696 32 4.6
International Bakery 186 191 (5 ) (2.8 )
Intersegment (7 ) (7 ) -
Adjusted net sales $ 2,575 $ 2,537 $ 38 1.5 %
Adjusted operating income (loss):
North American Retail $ 64 $ 83 $ (19 ) (23.0 )%
North American Fresh Bakery - 22 (22 ) NM
North American Foodservice 31 38 (7 ) (20.1 )
International Beverage 92 116 (24 ) (20.2 )
International Bakery 8 12 (4 ) (27.4 )
Adjusted operating segment income 195 271 (76 ) (28.0 )
General corporate expenses (21 ) (49 ) 28
Mark-to-market derivative gain/(loss) 14 (3 ) 17
Amortization (11 ) (11 ) -
Adjustment for noncontrolling interest 2 1 1
Adjusted operating income $ 179 $ 209 $ (30 ) (14.4 )%
Adjusted Operating Margin:
North American Retail 9.0 % 12.6 % (3.6 )%
North American Fresh Bakery 0.0 4.1 (4.1 )
North American Foodservice 7.0 8.5 (1.5 )
International Beverage 12.7 16.6 (3.9 )
International Bakery 4.6 6.1 (1.5 )
Total Sara Lee 6.9 % 8.2 % (1.3 )%
Discontinued
Operations:
Adjusted net sales $ 408 $ 409 $ (1 ) (0.2 )%
Adjusted operating segment income 69 56 13 23.3
Adjusted operating income 69 52 17 35.5
Adjusted operating margin 17.0 % 13.7 % 3.3 %
* Adjusted net sales, adjusted operating income and adjusted
operating margin % are non-GAAP measures.
See "Explanation of Non-GAAP Financial Measures" for a detailed
explanation of these and other non-GAAP measures used in this
release.
Sara Lee Corporation and Subsidiaries
Net Sales Bridge
For the First Quarter ended October 2, 2010
(Unaudited)
The following table illustrates the components of the change in net sales versus the prior year for each of the five reported business segments.
First Quarter ended October 2, 2010
Adjusted Total
Unit Net Sales* Foreign Net Sales
Volume + Mix + Price + Other = Change + Exchange = Change
North American Retail (1) 4.4 % 1.3 % 2.3 % (0.7 )% 7.3 % 0.0 % 7.3 %
North American Fresh Bakery (2.4 ) 1.0 (3.4 ) 0.2 (4.6 ) 0.0 (4.6 )
North American Foodservice (17.6 ) 10.6 4.5 (0.2 ) (2.7 ) 0.1 (2.6 )
International Beverage 1.7 (0.3 ) 2.3 0.9 4.6 (5.5 ) (0.9 )
International Bakery (3.7 ) (0.1 ) (2.9 ) 3.9 (2.8 ) (6.2 ) (9.0 )
Total Continuing Business (1) (2.0 )% 2.0 % 1.1 % 0.4 % 1.5 % (2.0 )% (0.5 )%
*Adjusted net sales is a non-GAAP measure that excludes the impact of foreign currency exchange rates and acquisitions/dispositions.
See "Explanation of Non-GAAP Financial Measures" for a detailed explanation of this and other non-GAAP measures in this release.
(1) Volume data excludes the impact of commodity hog volumes as the corporation has exited nearly all of its commodity hog contracts.
Sara
Lee
Corporation
and
Subsidiaries
Significant
Items
Analysis
(Unaudited)
Quarter ended Oct. 2, 2010 Quarter ended Sept. 26, 2009
Diluted Diluted
Pretax Net EPS Pretax Net EPS
(In millions Impact Income Impact (1) Impact Income Impact (1)
except
per share
data)
Continuing
Operations:
Business $ (3 ) $ (2 ) $ - $ (5 ) $ (3 ) $ -
outsourcing
costs
Severance (5 ) (3 ) (0.01 ) (13 ) (9 ) (0.01 )
Accelerated (2 ) (1 ) - - - -
depreciation
Total Project (10 ) (6 ) (0.01 ) (18 ) (12 ) (0.01 )
Accelerate
Pension - - - (7 ) (5 ) (0.01 )
partial
withdrawal
liability
charge
Debt (30 ) (19 ) (0.03 ) - - -
extinguishment
costs
Impact (40 ) (25 ) (0.04 ) (25 ) (17 ) (0.02 )
of
significant
items on
income
from
continuing
operations
before income
taxes
UK - - - - 6 0.01
net operating
loss
utilization
Tax - 4 0.01 - 1 -
audit
settlement/reserve
adjustments
Tax valuation - - - - (25 ) (0.04 )
allowance
adjustment
Impact (40 ) (21 ) (0.03 ) (25 ) (35 ) (0.05 )
of
significant
items on
income
from
continuing
operations
Discontinued
operations:
Professional (4 ) (3 ) (0.01 ) (4 ) (3 ) -
fees/other
Project (7 ) (5 ) (0.01 ) - - -
Accelerate
charges
Gain on the 255 89 0.14 - - -
sale
of
discontinued
operations
Valuation - - - - 47 0.07
allowance
adjustment
Tax - 2 - - 11 0.02
basis
difference
adjustment
Tax - (5 ) (0.01 ) - (5 ) (0.01 )
on unremitted
earnings
Impact 244 78 0.12 (4 ) 50 0.08
of
significant
items on
income
from
discontinued
operations
Impact $ 204 $ 57 $ 0.08 $ (29 ) $ 15 $ 0.03
of
significant
items on net
income
Impact
of
significant
items on
income
from
continuing
operations
before income
taxes
Cost of sales $ (2 ) $ (1 )
Selling, (3 ) (11 )
general
and
administrative
expenses
Exit and (5 ) (13 )
business
dispositions
Debt (30 ) -
extinguishment
costs
Total $ (40 ) $ (25 )
Notes:
(1)
EPS amounts
are rounded
to
the nearest
$0.01 and may
not add
to the
total.
Sara Lee Corporation and Subsidiaries
Reconciliation of as Reported to Adjusted
Quarter ended October 2, 2010
Amounts in millions, except per share data
(Unaudited)
Impact of Significant Items
As Continuing Discontinued
Reported Operations Operations Adjusted (1)
Continuing operations:
Income (loss) from continuing operations
before income taxes $ 109 $ (40 ) $ - $ 149
Income tax (benefit) expense 41 (19 ) - 60
Income (loss) from continuing operations 68 (21 ) - 89
Discontinued operations:
Income (loss) from discontinued operations, net of tax 37 - (11 ) 48
Gain on sale of discontinued operations, net of tax 89 - 89 -
Net income from discontinued operations 126 - 78 48
Net income (loss) 194 (21 ) 78 137
Less: Income from noncontrolling interests, net of tax
Continuing operations 2 - - 2
Discontinued operations - - - -
Net income (loss) attributable to Sara Lee $ 192 $ (21 ) $ 78 $ 135
Amounts attributable to Sara Lee:
Net income (loss) from continuing operations $ 66 $ (21 ) $ - $ 87
Net income (loss) from discontinued operations 126 - 78 48
Earnings per share of common stock:
Diluted
Income from continuing operations $ 0.10 $ (0.03 ) $ - $ 0.13
Net income (loss) $ 0.29 $ (0.03 ) $ 0.12 $ 0.21
Effective tax rate - continuing operations 37.1 % 39.8 %
(1) Represents a non-GAAP financial measure. See "Explanation of Non-GAAP Financial Measures" for a detailed explanation of these and other non-GAAP measures.
Sara
Lee Corporation
and
Subsidiaries
Reconciliation
of as
Reported to
Adjusted
Quarter ended
September
26, 2009
Amounts in
millions,
except
per share data
(Unaudited)
Impact of Significant Items Contingent
As Continuing Discontinued Sale
Reported Operations Operations Proceeds Adjusted (1)
Continuing
operations:
Income (loss)
from
continuing
operations
before income $ 297 $ (25 ) $ - $ 133 $ 189
taxes
Income tax 106 10 - 30 66
(benefit)
expense
Income (loss) 191 (35 ) - 103 123
from
continuing
operations
Discontinued
operations:
Income (loss) 96 - 50 - 46
from
discontinued
operations,
net of tax
Gain on sale of - - - - -
discontinued
operations,
net of tax
Net income from 96 - 50 - 46
discontinued
operations
Net income 287 (35 ) 50 103 169
(loss)
Less: Income
from
noncontrolling
interests,
net of tax
Continuing 1 - - - 1
operations
Discontinued 2 - - - 2
operations
Net income $ 284 $ (35 ) $ 50 $ 103 $ 166
(loss)
attributable
to Sara Lee
Amounts
attributable
to Sara Lee:
Net income $ 190 $ (35 ) $ - $ 103 $ 122
(loss)
from
continuing
operations
Net income 94 - 50 - 44
(loss)
from
discontinued
operations
Earnings per
share
of common
stock:
Diluted
Income from $ 0.27 $ (0.05 ) $ - $ 0.15 $ 0.17
continuing
operations
Net income $ 0.41 $ (0.05 ) $ 0.08 $ 0.15 $ 0.23
(loss)
Effective 35.5 % 35.1 %
tax rate
- continuing
operations
(1) Represents
a non-GAAP
financial
measure.
See "Explanation
of
Non-GAAP
Financial
Measures" for
a detailed
explanation of
these and
other
non-GAAP
measures.
Explanation of Non-GAAP Financial Measures
Management measures and reports Sara Lee's financial results in
accordance with U.S. generally accepted accounting principles
("GAAP"). In this release, Sara Lee highlights certain items that
have significantly impacted the corporation's financial results and
uses several non-GAAP financial measures to help investors
understand the financial impact of these significant items.
"Significant items" are income or charges (and related tax
impact) that management believes have had or are likely to have a
significant impact on the earnings of the applicable business
segment or on the total corporation for the period in which the
item is recognized, are not indicative of the company's core
operating results and affect the comparability of underlying
results from period to period. Significant items may include, but
are not limited to: charges for exit activities; transformation
program and Project Accelerate costs; impairment charges; pension
partial withdrawal liability charges; benefit plan curtailment
gains (losses); debt extinguishment costs; tax charge on deemed
repatriated earnings; tax costs and benefits resulting from the
disposition of a business; impact of tax law changes; changes in
tax valuation allowances and favorable or unfavorable resolution of
open tax matters based on the finalization of tax authority
examinations or the expiration of statutes of limitations.
Management highlights significant items to provide greater
transparency into the underlying sales or profit trends of Sara Lee
or the applicable business segment or discontinued operations and
to enable more meaningful comparability between financial results
from period to period. Additionally, Sara Lee believes that
investors desire to understand the impact of these factors to
better project and assess the longer term trends and future
financial performance of the corporation.
"Contingent sale proceeds" are contingent proceeds from the sale
of the company's tobacco business in fiscal 1999. Under the sales
agreement, Sara Lee received cash payments annually so long as
tobacco continued to be a legal product in the specified countries.
Our last cash payment was received on July 15, 2009. Contingent
sale proceeds are not "significant items," but are identified
separately because the income is not generated by the company's
underlying business and has a finite term.
"Impact of 53rd week" is the financial impact to Sara Lee, in
terms of additional sales, expense or income, resulting from fiscal
2010 having 53 weeks as compared to 52 weeks in the comparable
fiscal years.
This release contains certain non-GAAP financial measures that
exclude from a financial measure computed in accordance with GAAP
the impact of the significant items, the receipt of contingent sale
proceeds, the impact of acquisitions and dispositions, the impact
of the 53rd week and changes in foreign currency exchange rates.
Management believes that these non-GAAP financial measures reflect
an additional way of viewing aspects of Sara Lee's business that,
when viewed together with Sara Lee's financial results computed in
accordance with GAAP, provide a more complete understanding of
factors and trends affecting Sara Lee's historical financial
performance and projected future operating results, greater
transparency of underlying profit trends and greater comparability
of results across periods. These non-GAAP financial measures are
not intended to be a substitute for the comparable GAAP measures
and should be read only in conjunction with our consolidated
financial statements prepared in accordance with GAAP.
In addition, investors frequently have requested information
from management regarding significant items and the impact of the
contingent sale proceeds. Management believes, based on feedback it
has received during earnings calls and discussions with investors,
that these non-GAAP measures enhance investors' ability to assess
Sara Lee's historical and project future financial performance.
Management also uses certain of these non-GAAP financial measures,
in conjunction with the GAAP financial measures, to understand,
manage and evaluate our businesses, in planning for and forecasting
financial results for future periods, and as one factor in
determining achievement of incentive compensation. Two of the three
performance measures under Sara Lee's annual incentive plan are net
sales and operating income, which are the reported amounts as
adjusted for significant items and possibly other items. Operating
income, as adjusted for significant items, also may be used as a
component of Sara Lee's long-term incentive plans. Many of the
significant items will recur in future periods; however, the amount
and frequency of each significant item varies from period to
period.
Management also has received inquiries from investors seeking to
better understand and project the corporation's tax rate, which can
be complex given the multiple foreign jurisdictions in which Sara
Lee operates and the numerous tax rules with which it must comply.
The information contained in the tables "Reconciliation of as
Reported to Adjusted" for each fiscal period includes certain
non-GAAP financial measures, and is intended to help investors
better understand Sara Lee's effective tax rate.
The following is an explanation of the non-GAAP financial
measures presented in this release.
In the "Reconciliation of as Reported to Adjusted" table, the
Adjusted amounts equal each of "income before taxes," "tax
(expense) benefit," "net income" and "effective tax rate," computed
in accordance with GAAP less the impact of significant items
recognized in the fiscal period presented. Each item in the
"Adjusted" column of that table equals the indicated financial
measure computed in accordance with GAAP less the impact of both
significant items and contingent sale proceeds recognized in the
fiscal period presented.
"Adjusted EPS" excludes from diluted EPS, as reported, for total
Sara Lee, for continuing operations or for discontinued operations,
as indicated, the per share impact of significant items and
contingent sale proceeds, and the per share impact of the 53rd week
recognized in the fiscal period presented. The line item title or
the context of its use in this release and in other communications
indicates whether "Adjusted EPS" refers to total Adjusted EPS for
all of Sara Lee, Adjusted EPS from continuing operations or
Adjusted EPS from discontinued operations.
"Adjusted net sales" for continuing operations or discontinued
operations, as indicated in this release, excludes from applicable
net sales the impact of businesses acquired or divested after the
start of the fiscal period and the impact of the 53rd week, and
also presents fiscal 2010 results at fiscal 2011 currency exchange
rates.
"Adjusted operating income" for continuing operations or
discontinued operations, as indicated in this release, excludes
from applicable operating income the impact of significant items
and contingent sale proceeds, if any, the impact of the 53rd week
and businesses acquired or divested after the start of the fiscal
period, and also presents fiscal 2010 results at fiscal 2011
currency exchange rates.
"Adjusted operating margin" for continuing operations, a
specified business segment or discontinued operations, as indicated
in this release, is a non-GAAP financial measure that equals
adjusted operating income for the applicable portion of the
business divided by adjusted net sales of the corporation (in the
case of computing adjusted operating margin for continuing
operations) or adjusted operating segment income for a business
segment or discontinued operations divided by adjusted net sales
for that business segment or discontinued operation (in the case of
computing adjusted operating margin for a specific business segment
or discontinued operations).
"Adjusted operating segment income" for continuing operations, a
specified business segment or discontinued operations, as indicated
in this release, excludes from the operating segment income from
continuing operations, of a specified business segment or from
discontinued operations the impact of significant items and the
impact of the 53rd week recognized by that portion of the business
during the fiscal period and businesses acquired or divested after
the start of the fiscal period, and also presents fiscal 2010
results at fiscal 2011 currency exchange rates.
"Adjusted income or adjusted net income" for continuing
operations, discontinued operations or total Sara Lee, as indicated
in this release, excludes from applicable net income the after tax
impact of significant items, contingent sale proceeds and the after
tax impact of the 53rd week, if any. The amount does not include
any adjustment for businesses acquired or divested after the start
of the fiscal period and presents each fiscal year's results at
that fiscal year's currency exchange rates.
Sara Lee Corporation
and Subsidiaries
Operating Results by
Business Segment*
(in millions - Unaudited)
Dollar Percent
First Quarter Change Change
2011 2010
North American Retail
Net sales $ 707 $ 659 $ 48 7.3 %
Adjusted net sales* $ 707 $ 659 $ 48 7.3 %
Operating segment income $ 63 $ 80 $ (17 ) (20.6 )%
Operating margin % 8.9 % 12.1 % (3.2 )%
Less: increase/(decrease)
in operating
segment income from:
Project Accelerate charges $ (1 ) $ (3 ) $ 2
Adjusted operating $ 64 $ 83 $ (19 ) (23.0 )%
segment income*
Adjusted operating margin %* 9.0 % 12.6 % (3.6 )%
North American Fresh Bakery
Net sales $ 516 $ 541 $ (25 ) (4.6 )%
Adjusted net sales* $ 516 $ 541 $ (25 ) (4.6 )%
Operating segment income (loss) $ (1 ) $ 14 $ (15 ) NM
Operating margin % (0.2 )% 2.7 % (2.9 )%
Less: increase/(decrease)
in operating
segment income from:
Project Accelerate charges $ (1 ) $ (1 ) $ -
Pension partial withdrawal - (7 ) 7
liability charge
Adjusted operating $ - $ 22 $ (22 ) NM
segment income*
Adjusted operating margin %* 0.0 % 4.1 % (4.1 )%
North American Foodservice
Net sales $ 445 $ 457 $ (12 ) (2.6 )%
Adjusted net sales* $ 445 $ 457 $ (12 ) (2.7 )%
Operating segment income $ 29 $ 38 $ (9 ) (23.2 )%
Operating margin % 6.6 % 8.3 % (1.7 )%
Less: increase/(decrease)
in operating
segment income from:
Accelerated depreciation $ (2 ) $ - $ (2 )
Adjusted operating $ 31 $ 38 $ (7 ) (20.1 )%
segment income*
Adjusted operating margin %* 7.0 % 8.5 % (1.5 )%
* Adjusted net sales, adjusted
operating segment income and
adjusted operating margin
% are non-GAAP measures.
See "Explanation of
Non-GAAP Financial
Measures" for a detailed
explanation
of these and other
non-GAAP measures
used in this release.
Sara Lee Corporation
and Subsidiaries
Operating Results by
Business Segment*
(in millions - Unaudited)
Dollar Percent
First Quarter Change Change
2011 2010
International Beverage
Net sales $ 728 $ 734 $ (6 ) (0.9 )%
Less: increase/(decrease)
in net sales from:
Changes in foreign currency $ - $ 38 $ (38 )
exchange rates
Adjusted net sales* $ 728 $ 696 $ 32 4.6 %
Operating segment income $ 90 $ 123 $ (33 ) (27.2 )%
Operating margin % 12.3 % 16.8 % (4.5 )%
Less: increase/(decrease)
in operating
segment income from:
Changes in foreign currency $ - $ 9 $ (9 )
exchange rates
Project Accelerate charges (2 ) (2 ) -
Adjusted operating $ 92 $ 116 $ (24 ) (20.2 )%
segment income*
Adjusted operating margin %* 12.7 % 16.6 % (3.9 )%
International Bakery
Net sales $ 186 $ 204 $ (18 ) (9.0 )%
Less: increase/(decrease)
in net sales from:
Changes in foreign currency $ - $ 13 $ (13 )
exchange rates
Adjusted net sales* $ 186 $ 191 $ (5 ) (2.8 )%
Operating segment income $ 8 $ 6 $ 2 48.2 %
Operating margin % 4.5 % 2.7 % 1.8 %
Less: increase/(decrease)
in operating
segment income from:
Changes in foreign currency $ - $ 1 $ (1 )
exchange rates
Project Accelerate charges - (7 ) 7
Adjusted operating $ 8 $ 12 $ (4 ) (27.4 )%
segment income*
Adjusted operating margin %* 4.6 % 6.1 % (1.5 )%
* Adjusted net sales, adjusted
operating segment income and
adjusted operating margin
% are non-GAAP measures.
See "Explanation of
Non-GAAP Financial
Measures" for a detailed
explanation
of these and other
non-GAAP measures
used in this release.
Sara Lee Corporation
and Subsidiaries
Operating Results by
Business Segment*
(in millions - Unaudited)
Dollar Percent
First Quarter Change Change
2011 2010
Total Sara Lee
Net sales - total operating $ 2,582 $ 2,595 $ (13 )
segments
Intersegment (7 ) (7 ) -
Net sales $ 2,575 $ 2,588 $ (13 ) (0.5 )%
Less: increase/(decrease)
in net sales from:
Changes in foreign currency $ - $ 51 $ (51 )
exchange rates
Adjusted net sales* $ 2,575 $ 2,537 $ 38 1.5 %
Total operating segment income $ 189 $ 261 $ (72 ) (27.5 )%
Less: increase/(decrease)
in operating
segment income from:
Changes in foreign currency $ - $ 10 $ (10 )
exchange rates
Project Accelerate charges (4 ) (13 ) 9
Accelerated depreciation (2 ) - (2 )
Pension partial withdrawal - (7 ) 7
liability charge
Total adjusted operating $ 195 $ 271 $ (76 ) (28.0 )%
segment income*
Total operating segment income $ 189 $ 261 $ (72 ) (27.5 )%
General corporate expenses (25 ) (55 ) 30
Mark-to-market derivative 14 (3 ) 17
gains (losses)
Amortization of trademarks (11 ) (11 ) -
and other intangibles
Adjustment for noncontrolling 2 1 1
interest
Contingent sales proceeds - 133 (133 )
Operating income $ 169 $ 326 $ (157 ) (48.1 )%
Operating margin % 6.6 % 12.6 % (6.0 )%
Less: increase/(decrease) in
operating income from:
Contingent sale proceeds $ - $ 133 $ (133 )
Changes in foreign currency - 9 (9 )
exchange rates
Project Accelerate charges (8 ) (18 ) 10
Accelerated depreciation (2 ) - (2 )
Pension partial withdrawal - (7 ) 7
liability charge
Adjusted operating income* $ 179 $ 209 $ (30 ) (14.4 )%
Adjusted operating margin %* 6.9 % 8.2 % (1.3 )%
* Adjusted net sales, adjusted
operating income and adjusted
operating margin % are
non-GAAP measures.
See "Explanation of
Non-GAAP Financial
Measures" for a detailed
explanation
of these and other
non-GAAP measures
used in this release.
Sara Lee Corporation
and Subsidiaries
Operating Results
For Discontinued
Operations
(in millions - Unaudited)
Dollar Percent
First Quarter Change Change
2011 2010
International Household and
Body Care Businesses
Net sales $ 408 $ 521 $ (113 ) (21.7 )%
Less: increase/(decrease)
in net sales from:
Changes in foreign currency $ - $ 20 $ (20 )
exchange rates
Disposition - 92 (92 )
Adjusted net sales* $ 408 $ 409 $ (1 ) (0.2 )%
Operating segment income $ 58 $ 69 $ (11 ) (17.1 )%
Operating margin % 14.1 % 13.3 % 0.8 %
Less: increase/(decrease)
in operating
segment income from:
Changes in foreign currency $ - $ 3 $ (3 )
exchange rates
Exit activities and business (7 ) - (7 )
dispositions
Professional fees/Other (4 ) (4 ) -
Dispositions - 14 (14 )
Adjusted operating $ 69 $ 56 $ 13 23.3 %
segment income*
Adjusted operating margin %* 17.0 % 13.7 % 3.3 %
Operating segment income $ 58 $ 69 $ (11 ) (17.1 )%
Amortization expense - (4 ) 4
Operating income $ 58 $ 65 $ (7 ) (10.3 )%
Less: increase/(decrease) in
operating income from:
Changes in foreign currency $ - $ 3 $ (3 )
exchange rates
Exit activities and business (7 ) - (7 )
dispositions
Professional fees/Other (4 ) (4 ) -
Dispositions - 14 (14 )
Adjusted operating income $ 69 $ 52 $ 17 35.5 %
Operating income $ 58 $ 65 $ (7 ) (10.3 )%
Interest income (expense) - - -
Income before income taxes 58 65 (7 )
Income taxes expense 21 (31 ) 52
(benefit)
Income from discontinued 37 96 (59 ) (61.7 )%
operations
Adjustment for noncontrolling - (2 ) 2
interests
Income from discontinued 37 94 (57 ) (61.0 )%
operations
attributable to Sara Lee
Gain on sale of discontinued 89 - 89
operations, net of tax
Net income from discontinued $ 126 $ 94 $ 32 33.5 %
operations
attributable to Sara Lee
* Adjusted net sales,
adjusted
operating segment income and
adjusted operating margin
% are non-GAAP measures.
See "Explanation of
Non-GAAP Financial
Measures" for a detailed
explanation
of these and other
non-GAAP measures
used in this release.
Sara Lee Corp.Media: Jon Harris, +1.630.598.8661Analysts: Aaron
Hoffman, +1.630.598.8739
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