Sara Lee Changes Its Mix

The bakery giant will shed its apparel business.
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Seeking to sharpen its focus, Sara Lee (SLE) set plans Thursday to dispose of several businesses that contribute nearly 40% of its revenue.

As part of the restructuring, Brenda Barnes will take over as CEO. Steven McMillan will remain chairman till October 2005.

The diversified consumer products company said it will sell its entire apparel business, deal its meat business in Europe and unload a large part of its U.S. retail coffee unit. These businesses brought in $8.2 billion in sales last year. The company's branded apparel business, boasting popular names like Hanes and Just My Size, alone raked in revenue of $4.5 billion.

"This plan will transform the enterprise into a tightly focused food, beverage and household products business," Barnes said in a statement.

Morningstar analyst Mark Hugh Sam was surprised at the scale of Sara Lee's divestiture plan but said it made sense. "The company is left with some of the better businesses, making it much more focused and integrated," he said.

To improve coordination, the company plans to put its North American food and beverage businesses with its corporate staff in Chicago. Sara Lee International will continue to be based in Utrecht, the Netherlands.

The cost for this restructuring could run up to $800 million, including employee transition costs of $250 million. The company hopes to save $575 million-$800 million annually.

Sara Lee also said it will increase its marketing and research and development spending by $250 million or so.

The company said the plans won't affect earnings guidance for the rest of fiscal 2005, which ends July 2. Management expects diluted earnings per share of 29-34 cents for the third quarter.

Wall Street welcomed the plan, pushing the stock up 95 cents to $23.92.