TIDMSRL
Sara Lee Corp. (NYSE: SLE) today reported earnings for the first
quarter and updated the progress of the spin-off of the company's
international coffee & tea business.
First Quarter Highlights (continuing operations):
-- Adjusted net sales1 increased 6% and adjusted operating
income increased 4%; reported net sales increased 13% while
reported
operating income declined 29%
Meat2 adjusted net sales declined 0.6% and adjusted
operating segment income declined 4%; reported net sales
increased
2% and reported operating segment income declined 17%
Coffee & Tea adjusted net sales increased 14% and
adjusted
operating segment income increased 20%; reported net sales
and
operating segment income increased 27% and 26%, respectively
-- Total MAP spend up 27%, with both Meat and Coffee & Tea showing
significant increases
-- Adjusted EPS increased $0.06 to $0.18; reported EPS decreased $0.15 to
$(0.06)
-- Reaffirm full year adjusted EPS guidance of $0.89 - $0.95, despite
headwinds from unfavorable foreign currency exchange rates and
the
reclassification of N.A. Foodservice Beverage as a
discontinued
operation
Key Financial Data, Continuing Operations
First Quarter
($ millions, except per share) 2012 2011 % Change
Sales Adjusted 1,900 1,798 5.7
Reported 1,943 1,727 12.5
OperatingIncome Adjusted 182 175 4.1
Reported 111 157 (29.4)
EPS Adjusted 0.18 0.12 50.0
Reported Diluted (0.06) 0.09 NM
1 The term "adjusted net sales" and other "adjusted" financial
measures are explained and reconciled to comparable GAAP measures
at the end of this release.
2 Meat is the summation of the N.A. Retail and N.A. Foodservice
& Specialty Meats segments
Perspectives from Executive Chairman & Chief Executive
Officer
"We are moving forward aggressively, preparing our Meat and
Coffee & Tea businesses for strong futures as independent
pure-play companies," said Sara Lee Executive Chairman, Jan
Bennink. "Within the past month we have closed the sale of North
American refrigerated dough to Ralcorp and announced the sales of
Spanish bakery to Grupo Bimbo and the majority of the North
American foodservice beverage operations to J.M. Smucker. We have
also gained DOJ approval on the North American Fresh Bakery sale to
Grupo Bimbo. These actions demonstrate our progress toward the
creation of two focused entities that are poised for long-term
growth. Meanwhile, we are increasing our investment in the future,
with strong support behind core brands and new product development.
The solid performance of our base business and our exciting
pipeline of innovation give me great confidence that both companies
are positioned for successful futures."
Chief Executive Officer Marcel Smits added, "We're pleased with
the solid top and bottom line performances of our businesses while
facing the challenge of managing volume and margins in an
environment of commodity inflation and weak macroeconomic
conditions. The Coffee & Tea business showed strong progress,
with double-digit top and bottom line growth and margin expansion
despite a healthy increase in marketing investment. In North
America, we've invested heavily behind new product launches,
implemented organizational changes and achieved further cost
reductions. For Sara Lee as a whole, we are on track to achieve our
goal of $180 to $200 million in cost savings. All of these
initiatives taken together give us confidence for the remainder of
the year and allow us to maintain our EPS guidance despite a
currency headwind and the exclusion of our N.A. Foodservice
Beverage business from continuing operations."
Fiscal 2012 Guidance
The company reaffirms the following guidance:
-- Adjusted EPS of $0.89 - $0.95, despite headwinds from unfavorable
foreign currency exchange rates and the reclassification of
N.A.
Foodservice Beverage as a discontinued operation
-- Adjusted operating income (including acquisitions) of $875 - $930
million
-- Tax rate of 33.4%
The company updates the following guidance:
-- Net sales of $7.9 - $8.15 billion, now reflecting unfavorable foreign
currency exchange rates and the reclassification of N.A.
Foodservice
Beverage as a discontinued operation
-- Year-end cash of $300 million (unchanged) and year-end debt of $2.1
billion
-- Net interest expense of $80 million
-- Dollar/Euro exchange rate at $1.39
Meat
The Meat business implemented cost reductions and
reorganizations largely driven by the company's numerous portfolio
changes. The newly acquired Aidells business was integrated with
Sara Lee's Gallo business and is now reported under Foodservice and
Specialty Meats.
($ millions) Q1 FY12 Q1 FY11 % Change
Retail Foodserv. /Spec. Meats Total Total
Sales Adjusted 684 280 964 969 (0.6)
Reported 684 307 991 969 2.3
MAP 42 5 47 39 22.5
Operating Adjusted 56 27 83 86 (4.0)
segmentincome
Reported 42 27 69 83 (17.4)
North American Retail
The Retail segment reported a 2% decline in adjusted and
reported net sales to $684 million, as the positive effect of
higher prices was more than offset by volume declines. In the prior
year, the first quarter showed strong volume growth partially
driven by heavy promotional expenditure. During the first quarter
of this year, the company launched several new products under the
Hillshire Farm brand, including Grilled Essentials, Gourmet
Creations and Deli Carvers. These innovations resulted in start-up
and marketing expenses in the first quarter of this year, but will
have a positive impact on performance from the second quarter
through the remainder of the year.
Adjusted operating segment income declined 9% to $56 million as
volume declines and higher marketing investment offset SG&A
savings and efficiencies from the implementation of SAP across all
meat plants. MAP spending was 13% higher behind the launch of new
products and support of the core brands. Pricing actions along with
cost savings more than offset continued increases in commodity
costs. Reported operating segment income declined $18 million.
Looking forward, the segment will increasingly benefit from a
number of factors, including the positive impact of innovation and
selective pricing actions to improve volume softness. Meanwhile,
the lapping of price increases and the increasing benefits of cost
initiatives taken in recent quarters will contribute to the bottom
line.
North American Foodservice & Specialty Meats
The newly-named North American Foodservice & Specialty Meats
segment is comprised of the North American foodservice meats and
bakery businesses (the beverage business is now reported as a
discontinued operation) and the company's specialty meats business,
currently consisting of Aidells and Gallo. The results for Aidells
and Gallo previously had been included in North American
Retail.
The North American Foodservice & Specialty Meats segment
reported another quarter of solid top-line growth. Adjusted net
sales increased 2% to $280 million, driven largely by pricing
actions taken across the portfolio, while volumes increased 2%,
including the contribution from the Aidells acquisition. Excluding
Aidells, volumes declined 2% versus a strong prior year quarter
driven by soft restaurant traffic and declines in foodservice
bakery. Reported net sales grew by 12%, largely driven by strong
performance from Aidells, which outperformed expectations with
double-digit volume and sales growth.
Adjusted operating segment income increased 7% to $27 million
driven by manufacturing and SG&A savings. The adjusted
operating margin expanded 40 basis points over the prior year to
9.6%. Reported operating segment income grew 16% while the reported
operating margin also increased 40 basis points to 8.9%.
Coffee & Tea
($ millions) Q1 FY12 Q1 FY11 %Change
Sales Adjusted 906 793 14.3
Reported 922 728 26.6
MAP 41 31 31.8
Operatingsegment income Adjusted 121 101 19.5
Reported 114 90 26.3
The Coffee & Tea segment made a broad-based rebound versus
the fourth quarter of fiscal 2011, evidencing a strong start to the
year. Adjusted net sales increased 14%, to $906 million versus the
prior year, supported by an increase in MAP spending of 32%. The
increase in adjusted net sales was driven by pricing and mix growth
of 14% and 4%, respectively. The company's strategic choice to
phase out private label production in France contributed to a
volume decline of 3%.
The success of the L'OR EspressO capsules, continued good
performance of Senseo in Spain and France, and the termination of
private label production in France each contributed to positive mix
growth. Price increases were enacted in multiple markets to offset
commodity price increases in fiscal 2011. Barring any unforeseen
spikes in green coffee prices from current levels, price increases
and cost savings are expected to offset higher commodity prices
from the second quarter of fiscal 2012 onwards. Reported net sales
increased 27% to $922 million.
Although the Western Europe businesses continue to operate in a
challenging environment, these operations showed a marked
improvement compared to the fourth quarter of fiscal 2011. Spain,
the Netherlands and Denmark improved volume trends compared to the
preceding quarter. In the Netherlands, the company increased its
value share in each of the last 4 months. L'OR EspressO continues
to perform well in France, the Netherlands, Belgium and most
notably in Spain where it commands 10.6% value share of the total
retail coffee market only 20 weeks post-launch.
Businesses in the rest of the world delivered strong volume and
sales performance, led by Brazil, Australia and Poland. Australia
continued to gain market share in the retail instant coffee market,
aided by increased MAP spending and the introduction of Moccona
Café Classics Frappé, a unique offer in the cold instant coffee mix
segment.
Despite the increase in MAP spend to $41 million, adjusted
operating segment income increased 19% to $121 million. The
adjusted operating margin of 13.3% was supported by positive mix
and pricing to offset peak levels of green coffee commodity costs
experienced during the quarter. Reported operating segment income
increased 26% to $114 million and the reported operating margin was
12.3%.
Additional Information
Australian Bakery
The former International Bakery segment is now made up of only
Australian Bakery as the operations in Spain and France have been
moved to discontinued operations.
Corporate Expenses
($ millions, excluding significant items) Q1 FY12 Q1 FY11
General corporate expenses (10 ) (23 )
Commodity MTM gains/(losses) (11 ) 12
Amortization of trademarks and intangibles (3 ) (3 )
Total corporate expenses (24 ) (14 )
The company continues to make good progress in reducing
corporate expenses while ensuring all the necessary actions are
executed prior to the spin-off. Excluding significant items,
general corporate expenses were $10 million for the quarter, a
decline of $13 million from the prior year. The reduction was
primarily due to lower corporate headcount costs and pension
expenses.
Commodity Costs (including Currency Mark to Market)
For the first quarter, the company's total commodity costs
increased by $153 million (net of an $11 million currency
mark-to-market gain in the first quarter versus a $27 million loss
in the prior year - the $38 million year-over-year benefit is
included in the Coffee and Tea results), offset by $160 million in
higher prices.
Cash from Operations
Net cash from operating activities was an outflow of $220
million in the first quarter, compared to an inflow of $28 million
in the prior year quarter. The decrease was primarily due to a
one-time EUR60 million payment to the Netherlands pension plan,
increased working capital due to higher commodity costs, and a
significant decline in the cash generated by discontinued
operations.
Restructuring Activities
The company confirms the following projections from its fourth
quarter fiscal 2011 release dated August 11:
-- Cost reduction opportunities of $180 - $200 million, compared to the
fiscal 2011 base and achievable within fiscal 2012 and 2013.
These
savings are a result of downsizing corporate resources,
reducing
overhead in the Meat and Coffee & Tea businesses and
completing
Project Accelerate initiatives.
-- $50-$60 million in stranded overhead costs from business divestitures
The company expects fiscal 2012 significant items, excluding
impairment charges and gains or losses on the sale of businesses,
to be $450-$475 million. Included in this amount are estimated
charges as a result of further anticipated actions following the
sale and restructuring within North American Beverage.
Timing of Payment of the $3.00 Special Dividend
The company expects to declare and pay the $3.00 special
dividend in the first half of calendar 2012 before completion of
the spin-off.
Diluted Earnings Per Share
First Quarter
Continuing Operations Total Company
2012 2011 2012 2011
Diluted EPS as reported $(0.06 ) $0.09 $(0.37 ) $0.29
Less:
Gain on sale of - - 0.16 0.14
discontinued
operations
Tax related items (0.15 ) 0.01 (0.07 ) -
Other significant items (0.09 ) (0.04 ) (0.67 ) (0.05 )
Adjusted EPS* $0.18 $0.12 $0.21 $0.21
* Amounts are rounded
and may
not add to the total.
Impairment Charge
A $371 million impairment charge has been recognized in
discontinued operations in the quarter relating to the Spanish and
French bakery businesses.
Webcast and Form 10-K
Sara Lee Corporation's review of its results for the first
quarter will be broadcast live via the Internet today at 10:00 a.m.
CDT. The live webcast can be accessed in the Investor Relations
section on www.saralee.com and is anticipated to conclude by 11:00
a.m. CDT. For people who are unable to listen to the webcast live,
a recording will be available on the website at 7:00 p.m. on the
day of the webcast until May 3, 2012. Sara Lee has also provided
slides containing additional information that will be reviewed
during its first quarter webcast. The slides can be accessed in the
Investor Relations section on www.saralee.com under Investor News
and Events.
Amounts included in the release are preliminary, pending Sara
Lee Corporation's filing of its Form 10-Q with the Securities and
Exchange Commission on or before November 10, 2011. The Form 10-Q
will be available in the Investor Relations section (Financial/SEC
Information page) on www.saralee.com.
About Sara Lee Corporation
Sara Lee Corp. (NYSE: SLE) and it's leading portfolio of food
and beverage brands, including Ball Park, Douwe Egberts, Hillshire
Farm, Jimmy Dean, Pickwick Teas, Sara Lee and Senseo, generate
nearly $9 billion in annual net sales from continuing operations
and employ approximately 20,000 people worldwide. In January 2011,
Sara Lee Corp. announced that it will divide the company into two
pure-play publicly-traded companies, one focused on the
international coffee and tea market and the other on North American
meats. For more information on the company, please visit
www.saralee.com.
Forward-Looking Statements
This release contains forward-looking statements regarding Sara
Lee's business prospects and future financial results and metrics,
including statements contained under the heading "Fiscal 2012
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 and are inherently
uncertain.
Investors must recognize that actual results may differ from
those expressed or implied in the forward-looking statements, and
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 proposed spin-off plans and the special dividend announced
on Jan. 28, 2011, such as (i) unanticipated developments that
delay or
negatively impact the proposed spin-off and capital plans; (ii)
Sara
Lee's ability to obtain an IRS tax ruling and any other
customary
approvals; (iii) Sara Lee's ability to generate the
anticipated
efficiencies and savings from the spin-off including a lower
effective
tax rate for the spin-off company; (iv) the impact of the
spin-off on
Sara Lee's relationships with its employees, major customers
and
vendors and on Sara Lee's credit ratings and cost of funds;
(v)
changes in market conditions; (vi) future opportunities that the
Board
may determine present greater potential value to shareholders
than the
spin-off and special dividend; (vii) the inability to complete
the
sale of Sara Lee's North American Fresh Bakery business, a
condition
to the payment of the special dividend; (viii) disruption to
Sara
Lee's business operations as a result of the spin-off; (ix)
future
operating or capital needs that require a more significant
outlay of
cash than currently anticipated; and (x) the ability of the
businesses
to operate independently following the completion of the
spin-off;
-- Sara Lee's relationship with its customers, such as (i) a significant
change in Sara Lee's business with any of its major customers,
such as
Walmart, its largest customer; and (ii) credit and other
business
risks associated with customers operating in a highly
competitive
retail environment;
-- The consumer marketplace, such as (i) intense competition, including
advertising, promotional and price competition; (ii) changes
in
consumer behavior due to economic conditions, such as a shift
in
consumer demand toward private label; (iii) fluctuations in
raw
material costs, Sara Lee's ability to increase or maintain
product
prices in response to cost fluctuations and the impact on Sara
Lee's
profitability; (iv) the impact of various food safety issues
and
regulations on sales and profitability of Sara Lee products; and
(v)
inherent risks in the marketplace associated with product
innovations,
including uncertainties about trade and consumer acceptance;
-- Sara Lee's international operations, such as (i) impacts on reported
earnings from fluctuations in foreign currency exchange
rates,
particularly the euro; (ii) 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, dividends, debt service and corporate costs;
(iii)
difficulties and costs associated with complying with U.S. laws
and
regulations, such as Foreign Corrupt Practices Act, applicable
to
global corporations, and different regulatory structures and
unexpected changes in regulatory environments overseas; and (iv)
Sara
Lee's ability to continue to source production and conduct
operations
in various countries due to changing business conditions,
political
environments, import quotas and the financial condition of
suppliers;
-- Previous business decisions, such as (i) Sara Lee's ability to
generate margin improvement through cost reduction and
efficiency
initiatives; (ii) Sara Lee's credit ratings, the impact of Sara
Lee's
capital plans on such credit ratings and the impact these
ratings and
changes in these ratings may have on Sara Lee's cost to borrow
funds
and access to capital/debt markets; (iii) 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 (iv) changes in the expense for
and
contingent liabilities relating to multi-employer pension plans
in
which Sara Lee participates.
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.
Financial
Summary
For
the
Quarters
ended
Oct.
1, 2011
and
Oct.
2, 2010
(in
millions,
except
per
share
data
-
unaudited)
Quarter ended Quarter ended
As Reported As Adjusted
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
2011 2010 Change 2011 2010 Change
Continuing
Operations:
Net
sales:
N.A. $ 684 $ 695 (1.6 )% $ 684 $ 695 (1.6 )%
Retail
N.A. 307 274 12.0 280 274 2.0
FS
&
Specialty
Meats
Coffee 922 728 26.6 906 793 14.3
& Tea
Australian 38 36 5.4 38 42 (9.1 )
Bakery
Intersegment (8 ) (6 ) (8 ) (6 )
Total net $ 1,943 $ 1,727 12.5 % $ 1,900 $ 1,798 5.7 %
sales
Operating
income/(loss)
N.A. $ 42 $ 60 (30.4 )% $ 56 $ 61 (8.5 )%
Retail
N.A. 27 23 16.2 27 25 6.8
FS
&
Specialty
Meats
Coffee 114 90 26.3 121 101 19.5
& Tea
Australian 2 2 8.0 2 2 ( 10.1 )
Bakery
Operating 185 175 5.3 % 206 189 8.4 %
segment
income
General (60 ) (27 ) (10 ) (23 )
corporate
expenses
Mark-to (11 ) 12 (11 ) 12
market
derivatives
gains/(losses)
Amortization (3 ) (3 ) (3 ) (3 )
of
trademarks
&
intangibles
Total $ 111 $ 157 (29.4 )% $ 182 $ 175 4.1 %
operating
income
Income/(loss) $ (34 ) $ 61 NM $ 108 $ 81 34.5 %
from
continuing
operations
Net $ (215 ) $ 194 NM $ 129 $ 137 (5.9 )%
Income/(loss)
Net
Income/(loss)
attributable
to Sara
Lee:
Continuing $ (34 ) $ 61 NM $ 108 $ 81 34.5 %
operations
Discontinued $ (183 ) $ 131 NM $ 19 $ 54 (66.7 )%
operations
Diluted
earnings
per
share:
Income/(loss) $ (0.06 ) $ 0.09 NM $ 0.18 $ 0.12 50.0 %
from
continuing
operations
Net $ (0.37 ) $ 0.29 NM $ 0.21 $ 0.21 0.0 %
Income/(loss)
Operating
Margin:
N.A. 6.1 % 8.7 % (2.6 )% 8.1 % 8.7 % (0.6 )%
Retail
N.A. 8.9 8.5 0.4 9.6 9.2 0.4
FS
&
Specialty
Meats
Coffee 12.3 12.3 0.0 13.3 12.7 0.6
& Tea
Australian 6.4 6.2 0.2 6.2 6.2 0.0
Bakery
Total 5.7 % 9.1 % (3.4 )% 9.6 % 9.7 % (0.1 )%
Sara
Lee
NM
=
Not
meaningful
Consolidated Statements
of Income
For the Quarters ended Oct. 1, 2011 and Oct. 2, 2010
(in millions, except per share data - unaudited)
Quarter ended
October 1, October 2,
2011 2010
Continuing operations
Net sales $ 1,943 $ 1,727
Cost of sales 1,327 1,157
Selling, general and administrative expenses 455 409
Net charges for exit activities, asset and business dispositions 32 4
Impairment charges 18 -
Operating income 111 157
Interest expense 30 34
Interest income (9 ) (5 )
Debt extinguishment costs - 30
Income from continuing operations before income taxes 90 98
Income tax expense 124 37
Income/(loss) from continuing operations (34 ) 61
Discontinued operations:
Income (loss) from discontinued operations,
net of tax expense (benefit) of $(62) and $25 (273 ) 44
Gain on sale of discontinued operations, net of
tax expense of $170 and $166 92 89
Net income/(loss) from discontinued operations (181 ) 133
Net income/(loss) (215 ) 194
Less: Income from noncontrolling interests, net of tax
Discontinued operations 2 2
Net income/(loss) attributable to Sara Lee $ (217 ) $ 192
Amounts attributable to Sara Lee:
Net income/(loss) from continuing operations $ (34 ) $ 61
Net income/(loss) from discontinued operations (183 ) 131
Earnings per share of common stock:
Basic
Income/(loss) from continuing operations $ (0.06 ) $ 0.09
Net income/(loss) $ (0.37 ) $ 0.29
Average shares outstanding 591 653
Diluted
Income/(loss) from continuing operations $ (0.06 ) $ 0.09
Net income/(loss) $ (0.37 ) $ 0.29
Average shares outstanding 591 655
Cash dividends declared per share of common stock $ - $ -
Net Sales Bridge
For the Quarter ended Oct. 1, 2011 (unaudited)
The following table illustrates the components of the change in net sales versus the prior year for each of the four reported business segments
First Quarter ended October 1, 2011
Adjusted Total
Unit Net Sales* Acq./ Foreign Net Sales
Volume Mix + Price + Other = Change + Disp. + Exchange = Change
N.A. Retail (7.3 )% 0.0 % 6.3 % (0.6 )% (1.6 )% 0.0 % 0.0 % (1.6 )%
N.A. FS and Specialty Meats (2.5 ) (0.5 ) 5.4 (0.4 ) 2.0 9.9 0.1 12.0
Coffee & Tea (3.1 ) 3.8 13.7 (0.1 ) 14.3 1.9 10.4 26.6
Australian Bakery (12.6 ) (1.6 ) 5.0 0.1 (9.1 ) 0.0 14.5 5.4
Total Continuing Business (4.7 )% 1.4 % 9.3 % (0.3 )% 5.7 % 2.4 % 4.4 % 12.5 %
*Adjusted net sales is a non-GAAP measure that excludes the impact of foreign currency exchange rates and acquisitions/dispositions. See detailed explanation of this and other non-GAAP measures in this release.
Condensed Consolidated Balance Sheet Data
At Oct. 1, 2011 and July 2, 2011 (in millions - unaudited)
October 1, July 2,
2011 2011
Assets
Cash and equivalents $ 1,685 $ 2,066
Trade accounts receivable, less allowances 766 778
Inventories 1,025 884
Current deferred income taxes 43 42
Other current assets 297 259
Receivable for proceeds on disposition 552 -
Assets held for sale 511 555
Total current assets 4,879 4,584
Property, net of accumulated depreciation 1,321 1,380
of $2,028 and $2,057, respectively
Trademarks and other identifiable intangibles 258 282
Goodwill 597 624
Deferred income taxes 185 260
Other noncurrent assets 583 497
Noncurrent assets held for sale 1,229 1,906
$ 9,052 $ 9,533
Liabilities and Equity
Notes payable $ 439 $ 238
Accounts payable 740 826
Income taxes payable and current deferred taxes 439 468
Other accrued liabilities 1,299 1,566
Current maturities of long-term debt 443 473
Liabilities held for sale 533 551
Total current liabilities 3,893 4,122
Long-term debt 1,935 1,935
Pension obligation 206 216
Deferred income taxes 362 179
Other liabilities 726 807
Noncurrent liabilities held for sale 294 300
Equity
Sara Lee common stockholders' equity 1,607 1,945
Noncontrolling interest 29 29
Total Equity 1,636 1,974
$ 9,052 $ 9,533
Consolidated Statements of Cash Flows
For the Three Months Ended Oct. 1, 2011 and
Oct. 2, 2010 (in millions - unaudited)
Three Months ended
Oct. 1, Oct. 2,
2011 2010
Operating activities -
Net income/(loss) $ (215 ) $ 194
Adjustments to reconcile net
income/(loss) to net cash
from operating activities:
Depreciation 61 82
Amortization 12 21
Impairment charges 389 -
Net (gain) loss on business dispositions (262 ) (255 )
Pension contributions, net of expense (117 ) (17 )
Increase in deferred income taxes 8 77
for unremitted earnings
Increase in deferred income taxes (118 )
for tax basis differences
Debt extinguishment costs - 30
Other (6 ) 21
Changes in current assets
and liabilities, net of
businesses acquired and sold:
Trade accounts receivable (32 ) 35
Inventories (221 ) (140 )
Other current assets (59 ) (64 )
Accounts payable 27 9
Accrued liabilities 26 (47 )
Accrued taxes 287 82
Net cash from (used in) operating activities (220 ) 28
Investing activities -
Purchases of property and equipment (55 ) (66 )
Purchases of software and other intangibles (1 ) (7 )
Dispositions of businesses and investments (16 ) 355
Cash received from derivative transactions 18 26
Sales of assets 1 7
Net cash received from (used (53 ) 315
in) investing activities
Financing activities -
Issuances of common stock 29 1
Purchases of common stock - (373 )
Borrowings of other debt 30 890
Repayments of other debt and derivatives (162 ) (708 )
Net change in financing with 187 (22 )
less than 90-day maturities
Purchase of noncontrolling interest (10 ) -
Payments of dividends (68 ) (73 )
Net cash from ( used in) 6 (285 )
financing activities
Effect of changes in foreign (114 ) 112
exchange rates on cash
Increase (decrease) in cash and equivalents (381 ) 170
Add: Cash balances of discontinued - -
operations at beginning of year
Less: Cash balances of discontinued - -
operations at end of period
Cash and equivalents at beginning of year 2,066 955
Cash and equivalents at end of quarter $ 1,685 $ 1,125
Supplemental cash flow data:
Cash paid for restructuring actions $ 66 $ 25
Cash contributions to pension plans 115 30
Cash paid for income taxes 56 68
Operating Results by
Business Segment
For the Quarters ended Oct. 1, 2011 and Oct.
2, 2010 (in millions - unaudited)
Changes in
Foreign
Currency
As Exchange Acquisitions/ As
Reported Rates Dispositions Adjusted
First Quarter 2012
Net sales:
N.A. Retail $ 684 $ - $ - 684
N.A. FS & Specialty Meats 307 - 27 280
Coffee & Tea 922 - 16 906
Australian Bakery 38 - - 38
Intersegment (8 ) - - (8 )
Total net sales $ 1,943 $ - $ 43 1,900
First Quarter 2011
Net sales:
N.A. Retail $ 695 $ - $ - 695
N.A. FS & Specialty Meats 274 - - 274
Coffee & Tea 728 (66 ) 1 793
Australian Bakery 36 (6 ) - 42
Intersegment (6 ) - - (6 )
Total net sales $ 1,727 $ (72 ) $ 1 1,798
Changes in
Foreign HBI
Currency Settlement/
First Quarter 2012 As Exchange Acquisitions/ Restructuring Impairment Tax As
Reported Rates Dispositions Actions Charges Indemnification Adjusted
Operating income:
N.A. Retail $ 42 $ - $ - $ (14 ) $ - $ - $ 56
N.A. FS & Specialty Meats 27 - 1 (1 ) - - 27
Coffee & Tea 114 - 2 (9 ) - - 121
Australian Bakery 2 - - - - - 2
Total operating segment income 185 - 3 (24 ) - - 206
General corporate expenses (60 ) - - (50 ) (18 ) 18 (10 )
Mark-to-market derivative (11 ) - - - - - (11 )
gains/(losses)
Amortization (3 ) - - - - - (3 )
of trademarks/intangibles
Operating income $ 111 $ - $ 3 $ (74 ) $ (18 ) $ 18 $ 182
First Quarter 2011
Operating income:
N.A. Retail $ 60 $ - $ - $ (1 ) $ - $ - $ 61
N.A. FS & Specialty Meats 23 - - (2 ) - - 25
Coffee & Tea 90 (9 ) - (2 ) - - 101
Australian Bakery 2 - - - - - 2
Total operating segment income 175 (9 ) - (5 ) - - 189
General corporate expenses (27 ) (1 ) - (3 ) - - (23 )
Mark-to-market derivative 12 - - - - - 12
gains/(losses)
Amortization (3 ) - - - - - (3 )
of trademarks/intangibles
Operating income $ 157 $ (10 ) $ - $ (8 ) $ - $ - $ 175
Significant
Items
Quarters ended Oct. 1, 2011 and Oct. 2, 2010 (in
millions, except per share data - unaudited)
Quarter ended Oct. 1, 2011 Quarter ended Oct. 2, 2010
Diluted Diluted
Pretax Net EPS Pretax Net EPS
(In millions except per share data) Impact Income/(loss) Impact (1) Impact Income/(loss) Impact (1)
Continuing Operations:
Restructuring actions:
Severance/ retention costs $ (28 ) $ (19 ) $ (0.03 ) $ (4 ) $ (2 ) -
Lease and contractual obligation exit costs (6 ) (4 ) (0.01 ) - - -
Consulting/advisory costs (34 ) (27 ) (0.05 ) (2 ) (2 ) -
Accelerated depreciation (6 ) (4 ) (0.01 ) (2 ) (1 ) -
Total restructuring actions (74 ) (54 ) (0.09 ) (8 ) (5 ) (0.01 )
Gain on HBI tax settlement 15 10 0.02 - - -
Impairment charges (18 ) (11 ) (0.02 ) - - -
Tax indemnification accrual adjustment 3 2 - - - -
Debt extinguishment costs - - - (30 ) (19 ) (0.03 )
Impact of significant items on income/(loss) from continuing operations before income taxes (74 ) (53 ) (0.09 ) (38 ) (24 ) (0.04 )
Tax on unremitted earnings - (84 ) (0.14 ) - - -
Tax audit settlement/reserve adjustments - 70 0.12 - 4 0.01
Tax valuation allowance adjustment - (75 ) (0.13 ) - - -
Impact of significant items on income/(loss) from continuing operations (74 ) (142 ) (0.24 ) (38 ) (20 ) (0.03 )
Discontinued operations:
Restructuring actions:
Severance/ retention costs (1 ) (1 ) - (10 ) (7 ) (0.01 )
Consulting/advisory costs (7 ) (5 ) (0.01 ) (3 ) (2 ) -
Impairment charges (371 ) (336 ) (0.57 ) - - -
Gain on the sale of discontinued operations 262 92 0.16 255 89 0.14
Tax basis differences - 118 0.20 - 2 -
Tax on unremitted earnings - (70 ) (0.12 ) - (5 ) (0.01 )
Impact of significant items on income/(loss) from discontinued operations (117 ) (202 ) (0.34 ) 242 77 0.12
Impact of significant items on net income/(loss) $ (191 ) $ (344 ) $ (0.58 ) $ 204 $ 57 $ 0.08
Impact of significant items on income from continuing operations before income taxes
Cost of sales $ (6 ) $ (2 )
Selling, general and administrative expenses (18 ) (2 )
Exit and business dispositions (32 ) (4 )
Impairment charges (18 ) -
Debt extinguishment costs - (30 )
Total $ (74 ) $ (38 )
Notes:
(1) EPS amounts are rounded to the nearest $0.01 and may not add to the total.
EPS Reconciliation - Reported to Adjusted
Quarters ended Oct. 1, 2011 and Oct. 2, 2010 (in
millions, except per share data - unaudited)
Quarter ended October 1, 2011 Quarter ended October 2, 2010
Impact of Impact of
As Significant As Significant
Reported Items Adjusted (1) Reported Items Adjusted (1)
Continuing operations:
Income/(loss) from continuing operations
before income taxes $ 90 $ (74 ) $ 164 $ 98 $ (38 ) $ 136
Income tax expense (benefit) 124 68 56 37 (18 ) 55
Income/(loss) from continuing operations (34 ) (142 ) 108 61 (20 ) 81
Discontinued operations:
Income/(loss) from discontinued (273 ) (294 ) 21 44 (12 ) 56
operations, net of tax
Gain on sale of discontinued 92 92 - 89 89 -
operations, net of tax
Net income/(loss) from discontinued operations (181 ) (202 ) 21 133 77 56
Net income/(loss) (215 ) (344 ) 129 194 57 137
Less: Income from noncontrolling
interests, net of tax
Discontinued operations 2 - 2 2 - 2
Net income/(loss) attributable to Sara Lee $ (217 ) $ (344 ) $ 127 $ 192 $ 57 $ 135
Amounts attributable to Sara Lee:
Net income/(loss) from continuing operations $ (34 ) $ (142 ) $ 108 $ 61 $ (20 ) $ 81
Net income/(loss) from discontinued operations (183 ) (202 ) 19 131 77 54
Earnings per share of common stock:
Diluted
Income/(loss) from continuing operations $ (0.06 ) $ (0.24 ) $ 0.18 $ 0.09 $ (0.03 ) $ 0.12
Net income/(loss) $ (0.37 ) $ (0.58 ) $ 0.21 $ 0.29 $ 0.08 $ 0.21
Effective tax rate - continuing operations 137.1 % 33.8 % 38.0 % 40.6 %
(1) Represents a non-GAAP financial measure. See detailed explanation
of these and other non-GAAP measures at end of this release.
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; consulting and
advisory costs, transformation program and Project Accelerate
costs; impairment charges; pension partial withdrawal liability
charges; debt extinguishment costs; spin-off related costs; tax
charge on deemed repatriated earnings; tax costs and benefits
resulting from the disposition of a business; impact of tax law
changes; gains on the sale of discontinued operations; 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.
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 and the impact of acquisitions
and dispositions, 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 the impact of significant items.
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 "EPS Reconciliation of as Reported to Adjusted" tables
each item in the "Adjusted" column of that table equals the
indicated financial measure computed in accordance with GAAP less
the impact of significant items 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 recognized
in the fiscal period presented.
"Adjusted net sales" for continuing operations or discontinued
operations, as indicated, excludes from applicable net sales the
impact of businesses acquired or divested after the start of the
fiscal period and also presents fiscal 2011 results at fiscal 2012
currency exchange rates.
"Adjusted operating income" for continuing operations or
discontinued operations, as indicated, excludes from applicable
operating income the impact of significant items and businesses
acquired or divested after the start of the fiscal period, and also
presents fiscal 2011 results at fiscal 2012 currency exchange
rates.
"Adjusted operating margin" for continuing operations, a
specified business segment or discontinued operations, as
indicated, 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, excludes from the applicable operating segment income
measure the impact of significant items recognized by that portion
of the business during the fiscal period presented and the results
of businesses acquired or divested after the start of the fiscal
period presented, and also presents fiscal 2011 results at fiscal
2012 currency exchange rates.
"Adjusted operating income (including acquisitions)" for
continuing operations excludes from operating income from
continuing operations the impact of significant items recognized
during the fiscal period presented and also presents fiscal 2011
results at fiscal 2012 currency exchange rates; this measure does
not exclude the results of businesses acquired or divested after
the start of the fiscal period presented.
Sara Lee Corporation
Media: Jon Harris, +1.630.598.8661
Analysts: Melissa Napier, +1.630.598.8739
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