Sara Lee Earnings: Core Businesses Pick Up as Company Readies For Split

SLE: Sara Lee logo
Sara Lee

Sara Lee’s (NYSE:SLE) core meat business showed a marked improvement in volume and mix trends last quarter, even though the bakery categories lagged. The Coffee and Tea beverage segment also continued to perform well in its key European markets. The company is on track to complete the spin-off into two separate, pure-play International Beverage and North American Meat companies after divesting its non-core businesses by mid-2012, having appointed CEO and CFO for each of them and closed all announced business divestitures. By splitting into two and selling its non-core assets, the company hopes to better market the meat and international beverages businesses, go for acquisitions to improve the market share and unlock cost synergies. The company competes with major food and consumer companies like Kraft Foods (NYSE:KFT) and Nestle (NYSE:NESN).

See our full analysis for Sara Lee

Meat Business Improves With Slowing Volume Decline And Selective Pricing

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The Meats business improved in Q2 as selective pricing and mix helped reverse volume loss trends, with a 3.5% decline in Q2, compared to 5.7% decline in Q1. This improvement in performance was, however, diluted by weak performance in bakery categories.

While overall North American Retail Q2 sales were flat, Foodservice sales grew 4%. Pricing and mix offset 5% volume decline in the retail segment and the quarter-over-quarter volume/mix improved by 390 bps (from -7.3% in Q1 to -3.4% in Q2). Operating income increased 5% with lower SG&A, MAP costs and improved productivity, even though commodity price increases were not fully recovered. The Foodservice segment showed mixed results as strong sales and mid-single-digit volume growth in meats were offset by mid-single-digit volume declines in bakery. The specialty meats business performed well, driven by the strong performance of Aidells. The segment’s margins declined 20% as price increases lagged commodity cost increases.

International Beverage

Coffee and Tea continued its strong performance in Western Europe (especially the Netherlands, France and Spain) in Q2. Sales grew in double digits, driven by pricing and strong mix, partially offset by volume declines in Thailand (due to massive flooding) and France (withdrawal from private label business).

Pricing helped cover input inflation and operating margin increased to 15%. The company has also recently launched richer variants of espresso-type products within the Sanseo line. Sara Lee now also has full control over its leading Senseo single-serve coffee’s trademark and will work with Philips to leverage Senseo’s strong brand equity into new products and geographic market expansion.

We have a $21 Trefis price estimate for Sara Lee, 5% ahead of the current market price.

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