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Sara Lee Slices Outlook

The restructuring food conglomerate posts a big loss and sets a stock buyback plan.
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Sara Lee


guided toward weaker-than-expected fiscal 2006 earnings and said it would buy back stock as it pursues a wide-ranging restructuring.

The news came as the Chicago food congolmerate posted a fourth-quarter loss weighed down by charges from the

so-called transformation plan, unveiled in February, and pledged to maintain an "attractive dividend yield relative to its food peers."

For the fourth quarter ended July 2, Sara Lee swung to a loss of $148 million, or 19 cents a share, from the year-ago profit of $354 million, or 43 cents a share. The latest quarter included $350 million of impairment charges and $127 million worth of business-exit costs, up from $37 million a year ago. The items reduced latest-quarter earnings by 55 cents a share.

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Revenue fell 5.3% from a year ago to $4.75 billion, as the company sold and closed unprofitable units and saw weak sales in its regional white breads brands.

"Although our business results are in line with what we anticipated, they are not where we want them to be, underscoring the need for the Transformation plan we announced in February," said CEO Brenda C. Barnes.

Sara Lee said it intends to maintain its annual 79-cent dividend next year as it disposes of some businesses, and during its five-year restructuring may increase its payout ratio beyond the targeted 40% to 50%, excluding revamp costs.

Sara Lee plans to buy back $1 billion worth of stock in the next year and another billion after that, and the company said it expects to use divestiture proceeds and cash from operations to reduce total debt by at least $1.5 billion.

For fiscal 2006, the company expects to post sales flat to down compared with 2005's $19.3 billion, and earnings of around $1.29 a share. That compares with a Wall Street estimate of $1.51 a share on revenue of $20.3 billion. Sara Lee expects to make 22 to 27 cents a share for its first quarter, well short of the 43-cent Thomson First Call estimate.

On Thursday, Sara Lee was flat at $20.35.