Sara Lee Can't Cut the Mustard

The baker and meat maker blames its disappointing quarter on higher commodity costs.
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Higher commodity costs cut

Sara Lee's

(SLE)

third-quarter earnings in half and disappointed Wall Street, the company announced Tuesday.

The baked goods chain and deli meat maker said it earned $189 million, or 24 cents a share, in the three months ended April 2, down from $376 million, or 47 cents a share, in the same quarter last year.

The results include a tax charge of $51 million, or 6 cents a share, related to the planned fourth-quarter repatriation of $928 million earned abroad as part of the American Jobs Creation Act of 2004. Also, reorganization plans reduced earnings by 1 cent a share, offset by gains from business dispositions that added 2 cents a share.

The company blamed the rest of its shortfall on rising commodity costs. Analysts were expecting earnings of 31 cents a share, according to consensus estimates reported by Thomson First Call. Shares of Sara Lee were recently down $1.20, or 5.5%, to $20.66.

"While strategic investment brands such as Sara Lee, Senseo, Jimmy Dean and Hillshire Farm continue to be strong, our overall results need to improve," the company said in a statement.

While Sara Lee said it had a plan to reverse its disappointing performance, the company said it expects challenging market conditions to continue, due largely to higher raw material costs and a difficult European retail environment. It expects fourth-quarter earnings to range between 30 cents and 32 cents a share, compared with 44 cents in last year's period, which included an extra week. Analysts were expecting 36 cents a share for the quarter.

The company's sales rose 1% in the quarter to $4.8 billion. However, it said unit volumes decreased 4%, citing softness in regional bakery businesses, and softness in its beverage, household products and branded apparel businesses.