Sara Lee profits plunge as transformation continues

By Lorraine Heller

- Last updated on GMT

Related tags Sara lee Profit

Leading US bakery Sara Lee yesterday reported a decline in sales in
its first quarter, with net income hit hard as the company enters
the ninth month in its five-year transformation strategy to shed
unprofitable businesses.

Unit volume sales were down throughout the company's global bakery divisions, though a moderate low single digit sales growth was recorded in the international bakery segment as a result of retail price hikes. Earnings for the quarter plunged 81 per cent to $67m, compared to last year's $352m, due in large to the effects of the company's transformation activities. In February this year Sara Lee embarked on a strategic plan to transform the company and tighten its focus on food, beverage and household and body care. The plan involves divesting activities that account for almost 40 per cent of income, slashing 2,000 jobs. This quarter's discontinued operations included Sara Lee's international cosmetics business, its European branded apparel business and its US coffee business. Costs relating to the transformation plan negatively impacted the operating profit for all the company's remaining food businesses by 29 per cent to 148 percent, with the US retail bakery business being hardest hit. This segment reported a $4m loss for the quarter, compared to a profit of $9m for the same period last year. But despite the negative impacts of the divestitures, Sara Lee's performance was also dragged down by a decline in sales. Turnover for the quarter was down 2 per cent to $4.3bn, compared to $4.4bn last year. This was partly as a result of disappointing US bakery results due to "softness in traditional white breads, planned exits from low-margin regional bread business and weakness in the Earth Grains brand," according to the company. Sara Lee's chief executive officer Brenda Barnes said she was "still not satisfied with our business performance," but added that "our ongoing transformation initiatives are building the momentum needed to drive improvement. The organization is fully in place, focused on driving the top line with new products, marketing innovation and customer focus." "Efforts behind procurement, process improvement and IT also are well underway to improve our overall efficiencies," she said. But getting back on track may take a while. The company currently forecasts earnings per share for its second quarter to fall to between $.25 and $.30, compared to $.41 in the same period last year. However, it added that "the company currently expects base business profitability to improve over the course of the fiscal year for each of its business segments." External links to companies or organisations mentioned in thisstory: Sara Lee

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