Sara Lee's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Sara Lee (SLE)

Q2 2012 Earnings Call

February 02, 2012 11:00 am ET

Executives

Melissa Napier - Senior Vice President of Investor Relations

Jan Bennink - Executive Chairman and Member of Finance Committee

Marcel H. M. Smits - Chief Executive Officer

Mark A. Garvey - Chief Financial Officer and Executive Vice President

Analysts

Eric Serotta - Wells Fargo Securities, LLC, Research Division

Christopher Growe - Stifel, Nicolaus & Co., Inc., Research Division

Eric R. Katzman - Deutsche Bank AG, Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Jason English - Goldman Sachs Group Inc., Research Division

Andrew Lazar - Barclays Capital, Research Division

Robert Moskow - Crédit Suisse AG, Research Division

Alexia Howard - Sanford C. Bernstein & Co., LLC., Research Division

Robert Dickerson - Consumer Edge Research, LLC

Unknown Analyst

Kenneth B. Zaslow - BMO Capital Markets U.S.

Erin Swanson Lash - Morningstar Inc., Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Priya Ohri-Gupta - Barclays Capital, Research Division

Presentation

Operator

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Good morning, and welcome to Sara Lee's Second Quarter Earnings Conference Call for Fiscal 2012. [Operator Instructions] This call is being recorded. [Operator Instructions] I would now like to turn the call over to Melissa Napier, Senior Vice President of Investor Relations for Sara Lee Corporation. Thank you, Melissa. You may begin.

Melissa Napier

Thank you, Julie, and good morning to everyone. Welcome to our earnings call. I'm joined today by Jan Bennink, our, Executive Chairman; Marcel Smits, our CEO; and Mark Garvey, our CFO.

Our second quarter results were released at 6:30 a.m. this morning, and you can find that release along with the slides that we'll be reviewing today posted to our website. We're expecting to file our second quarter form 10-Q on or February 9. Before I turn the call over to Jan, I'd just like to refer you to the forward-looking statements currently displayed and remind you that during today's call, we may make forward-looking statements about future operations, financial performance and business conditions. Actual results may differ from those expressed or implied in those statements and all explanations of non-GAAP financial measures are included in our release.

We'll take your questions after management prepared remarks conclude. To ensure adequate time is available for all questions, we do request that you limit yourself to one and we do our best answer to concisely. Jan?

Jan Bennink

Thank you, Melissa. Good morning, ladies and gentlemen. Welcome to the Sara Lee Q2 earnings call. And first before going to the presentation, I'd like to take you through the agenda of this morning. I'll start up with an update of the spin, so the pure play progress. Then we have a deep dive in the 2 companies, the Coffee and Tea Co., which will be done by myself and then Marcel will give you a deep dive into Meat Co., followed by the financial overview of Mark and, then as Melissa already said, the Q&As.

So starting with the pure play progress. I mean streamlined portfolio. As you can see, all the divestitures are completed. The only surprise you see on this page is the Bakery Australia, which we have decided to retain. We have decided to retain it and put it and not sell this before the spin and put it together with our U.S. business and make it a kind of a combined bakery business so it falls under the Meat Co. in the future. So Sara Lee sweet bakery is an entity within the Meat Co. business.

Going then to the next one, which is the acquisitions. I mean, we've made 4 acquisitions if you go from now on until today. First one is Aidells. I mean, it has been integrated into the business as of July from this year. Completed, doing very well, Marcel will come back to that later in more detail, but it's doing extremely well and everything is completed. 3 acquisitions made in Coffee, small ones but important ones in order to enhance our growth profile. We made a out-of-home acquisition in Scandinavia to strengthen our business up in the north. We made an acquisition of a Coffee Co., which is a retail chain in Coffee in Holland. I don't expect that we're going to retail. I mean, this is just an acquisition to strengthen in our position in Holland where we have some cafés, Starbucks is not present and we'll see it more as a laboratory of growth to get more knowledge about young consumers and making sure that we are very well set for the future in terms of what we don't want to do in terms of innovations.

Tea forte, again a small acquisition in the premium tea segment our normal tea is more in the mainstream to lower priced. This will be a first entrance into the higher-margin and high-growth premium tea segment. We will learn the very entrepreneurial spirit. We'll leave it separate completely in the beginning and we'll try and learn from them as much as possible. You can see them a lot in more upscale hotels. So they're out-of-home-based and then perhaps there's possibility to move them back into the retail. So that is in terms of acquisitions.

Then moving to a deal with announced last Thursday. Now a lot of people have asked what exactly is different now versus what you've had in the past. I think there is a significant difference as what we've had in the past than what we have now. The deal which we made with Philips is a mutual, exclusive deal on all machines that we produce. So we move from only the pods, which we've had and the Senseo machine will go into all segments, meaning beans, meaning cups, meaning liquid, meaning instants, so there is -- everything was goes to consumer market will go together. There is an incredible possibility to do more in terms of geographical expansion and innovation within that segment of Coffee. And we're both very committed to that.

Now another big difference is that before it was kind of 4-company deal, we have put a the board in place, which is run by -- I mean, if you'll head on our side and Peter Notam [ph] which is the head of the consumer goods for Philips on the other side. So our board which will meet, make sure that the probe is done, that the innovations are happening and if there's any conflict between the 2 companies that they're being resolved on the highest level, so speed, innovation, geographical expansion and new machines.

Now in order to do that, Senseo which is owned -- was previously owned 50-50 by Philips and by us. We have decided to acquire that, because having full control over the brand equity, I think, we thought it critical. Definitely, we have big plans with this brand, so we paid in total of $170 million for, one, making the acquisition of the trademark, as well as making sure that all the contracts or parts were finished. So that's Philips. I think we expect a lot from this deal, and it will not happen that in the last, last we seen, the last 9 years when there was only one innovation in the last 9 years. We'll have innovations coming up every year.

So next thing, organizational structure. Also there, importantly, I mean, both of the 2 -- the CEO and CFO have started as of the 1st of December last year. So Michiel and Michel, don't confuse the 2 because they look very similar in terms of names, but very different in terms of personality. So they have started since the 1st of December, made already significant progress in the business, very well accepted and with a high-speed in terms of innovations and making sure that the company is completely ready by spin and hopefully in great place afterwards.

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