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Sara Lee Corporation F4Q10 (Qtr End 07/03/10) Earnings Call Transcript

Sara Lee Corporation F4Q10 (Qtr End 07/03/10) Earnings Call Transcript

Sara Lee Corporation (SLE)

F4Q10 (Qtr End 07/03/10) Earnings Call Transcript

August 12, 2010 10:00 am ET


Aaron Hoffman – VP, IR

Marcel Smits – Interim CEO

C.J. Fraleigh – EVP and CEO, North American Retail & Foodservice

Mark Garvey – Interim CFO


Chris Growe – Stifel Nicolaus

Robert Moskow – Credit Suisse

Eric Katzman – Deutsche Bank

Bryan Spillane – Bank of America

Ken Zaslow – BMO Capital Markets

Vincent Andrews – Morgan Stanley

Judy Hong – Goldman Sachs

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John Baumgartner – Telsey Advisory Group

Alexia Howard – Sanford Bernstein

Andrew Lazar – Barclays Capital

Tim Ramey – D.A. Davidson

Andy Simon – Meridian



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Good morning, and welcome to Sara Lee’s fourth quarter earnings conference call for fiscal 2010. Your lines have been placed on a listen only mode. This call is being recorded. If you have any objections, please disconnect at this time.

I would now like to turn the call over to Aaron Hoffman, Vice President of Investor Relations for Sara Lee Corporation. Thank you. Aaron, you may begin.

Aaron Hoffman

Thank you, Candy. Good morning and welcome to Sara Lee’s fourth quarter and year end 2010 earnings conference call. Joining me for today’s call are Marcel Smits, our Interim CEO; C.J. Fraleigh, our CEO of our North American businesses; and Mark Garvey, our Interim CFO.

Our fourth quarter 2010 results were released at 6.30 Central Time this morning via a press release that you can find on our Web Site at If you have any problems accessing the release, please call Jeannie Williams at 630-598-8100. Our 10-K will be filed in several weeks.

To begin, I will caution you that our remarks this morning contain forward-looking statements about Sara Lee’s future operations, financial performance, and business conditions. These forward-looking statements are based on currently available competitive, financial, and economic data as well as management’s views and assumptions regarding future events.

Such forward-looking statements are inherently uncertain and investors must recognize that actual results may differ from those expressed or implied in these statements. Consequently I need to caution you not to place undue reliance on forward-looking statements.

We’ve provided additional information in our current press release and fiscal 2009 Form 10-K that I encourage you to review concerning factors that could cause actual results to differ materially from these forward-looking statements. This morning we are providing slides to go with our prepared remarks. You can find the slides on the webcast portion of our Web Site in the Investor Relations’ section.

And as a reminder, all adjusted numbers we discuss on today’s call exclude the impact of significant items, contingent sale proceeds, acquisitions, divestitures, the effects of currency changes and the impact of the 53rd week that occurred in 2010. The release contains a reconciliation of reported to adjusted numbers. Now let me turn the time over to Marcel.

Marcel Smits

Thank you, Aaron, and good morning to everybody joining us today. We appreciate your interest and your time. Let me start by reflecting for a moment on the announcements earlier this week that Brenda will not be coming back to Sara Lee. I’d like to thank many of you for reaching out to Brenda or for writing nice things about her tenure at Sara Lee, and that really resonates with everything that we hear from our staff, our suppliers, and our customers.

We are all very sorry to see her go. That said we are optimistic that she will recover quite well over time, and I guess, that’s the merrier note. Brenda has made enormous progress with Sara Lee and we’re saddened to see her leave just as everything she tirelessly worked for started to bear fruit.

Looking to the future as senior management team we continue to focus on what we’ve done since May. We have a plan agreed with our Board in April and we have alignment with our Board on the strategic steps we would want to pursue, and you’ll be pleased to hear that we work well together complementing each other where required.

Sara Lee Board has now turned a page and is currently thinking about an appropriate successor. And this will be done in a timely manner, whatever the action will be it will be for the greater good of Sara Lee, and we all feel a personal commitment to make it a success.

I trust that you’ll understand and respect that at this point this is all we have to say about this subject. With that said I’d like to take a moment and look back on a very good year for Sara Lee. We delivered strong bottom line improvements, generally grew our market shares, reinvested in our brands and innovations to drive future results, and we did all of that in the face of recessions in most of our largest markets.

As a reminder, we increased our earnings per share guidance three times since initially providing it about one year ago. And in the end we exceeded the top end of our most recent adjusted EPS range. In line with what we told you three months ago, the fourth quarter came in with adjusted operating income below the prior year.

The primary reason for this decline was a reinvestment that we had planned for and that we communicated. Marketing spend was up 75% in the quarter and for the full year we’re showing a robust 20% MAP increase with every segment up.

In each of the last three quarters of the year, MAP was up. Hence we’re confident that we are well positioned to deliver further meaningful growth in fiscal 2011 and beyond. In fiscal 2010, we also made a giant leap in portfolio management. We are well on our way to divesting our Household and Body Care segments.

To-date, we’ve announced four transactions. As you can see, the sale of our share of the Indian Insecticide joint venture and the sale of Air Care have both been closed. Meanwhile, we’re working through the regulatory approvals for a binding offer to sell Body Care to Unilever for €1.275 billion or about $1.7 billion at our hedged euro-dollar rate of $1.35. We expect the review of this transaction by the EU to be completed later this year in time for a closing prior to calendar year end.

The fourth announced transaction is the sale of our non-Indian Insecticides business to SC Johnson for €153 million, which is also expected to close by the end of the calendar year. We are actively negotiating to sell the remaining businesses, which include Shoe Care and our Asia Pacific cleaning products business. We’re pleased with how the process is progressing.

Now let me just remind you what we have said about the use of proceeds. At the CAGNY Conference in February, we talked about buying back $2.5 billion to $3 billion of stock over a two-to-three year time horizon. Of that, we committed to repurchase between $1 billion and $1.3 billion by the end of calendar 2010.

We’re well on our way to accomplishing that goal having repurchased $500 million through an accelerated share repurchase in fiscal ‘10. The ASR has been completed, and meanwhile, we’re now back in the market.

Today, we are further specifying our repurchase guidance to cover all of fiscal 2011. We expect to repurchase another $1 billion to $1.5 billion of stock this fiscal year and the implication is that we’d buy back between $500 million and $800 million in the first half of fiscal ‘11, and the remainder in the back half to hit the guidance given at CAGNY what we’ve just announced.

The next item we talked about in February was maintaining our $0.44 per share annual dividends. We may extend that statement to tell you that we intend to gradually increase our dividend over time and the Board is slated to take a decision in October.

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