Sara Lee Corp.
) reported third-quarter 2012 adjusted earnings of 20 cents per
share, below the prior-year earnings of 22 cents as well as the
Zacks Consensus Estimate of 25 cents. Lukewarm revenues and margin
declines led to the earnings miss in the quarter.
Consolidated Revenue and Margins
Sara Lee's quarterly adjusted net sales (excluding acquisitions)
climbed 3.0% to $1,861 million with the Tea and Coffee business as
well as the Meat business registering positive top-line growth.
Revenues, however, missed the Zacks Consensus Estimate of $1,948
On a year-over-year basis, consolidated adjusted operating
income (excluding restructuring expenses) decreased 4.7% to $195.0
million due to higher commodity costs. Management hinted that it is
slowly seeing stabilization of coffee costs, the impact from which
will be felt in the next few quarters.
Packaged food maker Sara Lee is on track to split the company
into two publicly traded companies: an international coffee and tea
business and a North American retail, foodservice and specialty
meats business. Sara Lee will name its international coffee and tea
business D.E Master Blenders 1753. The spin-off is expected to be
completed by June this year. Henceforth, the two prospective
companies have beenreferred to as Tea and Coffee Co. and the Meat
The Tea and Coffee Co. reported a 4.6% increase in adjusted
sales to $929 million as the mix improved (6.5%) and volumes
continued to decline (7.3%). Volume growth was affected by floods
in Thailand and lower sales in small countries due to aggressive
All business segments -- Western Europe, Rest of the World and
Out-of-Home -- registered growth in the quarter. The segment
reported adjusted operating income of $120 million, down 8.7% over
the prior-year quarter due to higher selling, general &
administrative (SG&A) expenses.
The Meat Co., which will retain the Sara Lee name, recorded
revenue of $906.0 million, up 1.3% over the prior-year quarter
driven by better pricing in all segments (retail, foodservice and
Speciality meats) and improved volume growth. Volumes, though
slightly down from prior-year levels, were better than a 3.5%
decline witnessed in the sequentially preceding quarter, driven by
higher turkey sales during the Easter holidays.
Within the Meat Co., the North American retail business recorded
revenue growth of 0.8% to $675 million whereas the foodservice and
specialty meats business was up 2.9% to $231 million; both
businesses being driven by better pricing. The Meat Co. recorded an
adjusted operating income of $96.0 million, down 7.1% over the
For fiscal 2012, Sara Lee expects to generate earnings at the
midpoint of the previously provided guidance range of $0.89-$0.95
per share. Additionally, Sara Lee expects total revenue and
adjusted operating income to lie on the lower ends of their
previously provided guidance range.
Total net sales guidance range from $7.9 billion to $8.15
billion, whereas the adjusted operating income guidance is in the
band of $875 million to $930 million. The tax rate is expected to
be 33.4% versus approximately 33% expected before. The company
expects to end the year with a cash balance of $300 million and
debt of $2.4 billion (versus $1.7 billion previously).
Post spin-off, the international coffee and tea business will be
domiciled in the Netherlands and will move its headquarters to
Amsterdam in the second half of 2012. Its operations will be spread
across Europe, Brazil, Australia and Thailand and will include
popular tea and coffee brands such as Douwe Egberts, Senseo, L'OR
EspressO, Marcilla, Pilão, Moccona, Pickwick and Hornimans.
The spin-off is part of Sara Lee's plan to trim its portfolio in
order to provide the best foundation for a strong and focused
business. Sara Lee has been shedding its redundant units one by one
to focus on its most profitable food and beverage businesses.
Among the latest deals, in early January this year, Sara Lee
completed the sale of the majority of its North American
Foodservice coffee and tea operations to
The J.M. Smucker Company
) in an all-cash transaction. In December 2011, Sara Lee had
divested its fresh bakery business in Spain and Portugal to
Mexico's Grupo Bimbo S.A.B. de C.V. Per the terms of the
transaction Sara Lee shed its fresh bakery brands in Spain and
Portugal as well as seven manufacturing facilities.
We currently have a Neutral recommendation on Sara Lee
Corporation. The stock carries a Zacks #3 Rank (short-term Hold
SMUCKER JM (SJM): Free Stock Analysis Report
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