Sara Lee achieves strong second-quarter earnings

by Bryan Salvage
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DOWNERS GROVE, ILL. — Sara Lee Corp. announced net income was $66 million in the second quarter for fiscal 2010. This compares to $23 million in the year-ago period.

Diluted earnings per share (EPS) were $0.53 per diluted share in the second quarter compared to a loss of $(0.02) in the year-ago period. Net sales were $2.9 billion, unchanged compared to the year-ago period as favorable foreign currency exchange rates were offset by the impact of divestitures, slightly lower unit volumes and lower selling prices.

The North American Retail segment delivered another strong quarter, building on the past two years of business improvements, the company said. Operating segment income increased significantly in the first half of fiscal 2010 despite some unit volume softness at the start of the year. Over the course of the second quarter, targeted consumer and customer spending led to attractive price points for high-quality products, which drove unit volume growth (excluding commodity and kosher meat exits).

In the second half of the year, volumes are likely to continue to improve, while operating segment income comparisons will be less robust due to strong year-over-year comparisons, increasing commodity costs and further reinvestment to fuel future growth. Operating margins reached a relatively high level in the second quarter of fiscal 2010 and are likely to contract in the short-term as the retail segment reinvests and laps very favorable commodity costs.

Operating segment income was $122 million in the second quarter, compared to $73 million in the year-ago period, an increase of 66.6%; adjusted operating segment income rose at a similar pace. The increase was primarily the result of favorable supply-chain performance, Project Accelerate and continuous improvement savings, lower input costs and strong performance from the segment’s core retail business. These factors were partially offset by higher M.A.P. spending in support of campaigns for the Jimmy Dean and Hillshire Farm brands.

Unit volumes declined 2.7% in the second quarter due to significantly lower volumes for commodity meats, which the company is exiting, and the impact of the exit of the kosher meats business. Excluding these planned exits, unit volumes for the core retail business were up 3.3% in the second quarter.

Net sales of $745 million were flat in the quarter on a reported and adjusted basis, as favorable sales mix into higher-margin products was offset by the impact of trade spending and the exits of commodity and kosher meats. The retail segment’s key brands continued to show generally positive market share trends and maintained their premium pricing in the quarter.

The Jimmy Dean brand increased its share of the frozen protein breakfast category by 2.4 points to 54.3%, according to Information Resources Inc., while the Hillshire Farm brand increased its share in lunchmeats by 1.0 points to 13.3%.

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