Sara Lee Q1 profits plunge

By Charlotte Eyre

- Last updated on GMT

Related tags: Cent, Sara lee, Marketing, Currency, Revenue

Rising commodity costs and increased media and promotional spend
have led to a massive 40 per cent drop in profits for US food giant
Sara Lee.

Net income declined by 39.94 per cent to $200m (€136m), compared to $333m (€227m), the year before. The company blamed the decline on "a very challenging cost environment",​ as commodity prices for wheat, poultry, pork and green coffee had all increased compared to earlier years. The company raised consumer prices in the face of historically high commodity bills, said chairman and chief executive officer Brenda Barnes, but the move failed to cover costs. Sara Lee forked out 21 per cent more on ad spending for the period, which added to the firm's costs but also helped boost sales eight percent to reach $3.1bn (€2.1bn). The company, which is over half way through a five year 'transformation strategy', has reported a strained performance for several years now. In a turnaround plan announced in 2005, the firm said it would tighten its focus on food, beverage and household and body care. The strategy involved divesting activities that accounted for almost 40 per cent of income, cutting 2,000 jobs. In this vein, the company has slashed a number of its businesses since 2005, including cosmetics, apparel, coffee, meat and bakery operations. However, despite the challenges faced, the firm appears upbeat. Barnes expressed confidence in the strength of Sara Lee brands to withstand consumer price increases. In a conference call with analysts, she said the firm will be able to offset commodity price increase during the course of the year. In the quarter ended September 29 2007, the Sara Lee saw net sales in its international bakery segment increase 10.2 per cent to $221m (€151m). Sales volumes were weak in the Australian bakery business, the company said, although they were offset by growth in the European refrigerated dough and Spanish fresh bakery business. However, a large driver to increased sales was price hikes at the consumer level, while volume sales actually decreased in the period, particularly for non-branded fresh bakery and frozen bakery products. Rising corn prices, which have sent costs for livestock feed skyrocketing, have also left their mark on the firm's meat business. Sales of meat in North America were marginally up in the quarter, but profits plunged a massive 39.5 per cent. In regards to the company's drinks arm, net sales for the International beverage division hit $706m (€401m), an increase of 25.4 per cent, attributed to strong volume sales, higher prices and favourable foreign currency exchange rates. Operating profit increased 30.6 per cent to $121m (€82.4m), while adjusted operating profit grew 23.8 per cent to $124m (€84.5m).

Related topics: Grupo Bimbo, Markets

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