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Sara Lee Swings to Profit, Just Misses Estimates

The packaged foods company posts an increase in earnings and sales, but EPS falls short of targets.

Sara Lee

(SLE)

suffered from ballooning commodity costs this past quarter even as this perceived all-American foodmaker, much like many of its consumer-goods compatriots, saw a significant surge in foreign sales.

All in all, the Downers Grove, Ill., company swung to a fiscal second-quarter profit of $182 million, or 25 cents a share, compared with a continuing-operations loss of $57 million, or 8 cents a share, a year earlier. Revenue was up 9.7% to $3.49 billion, topping the $3.43 billion average analyst estimate from Thomson Financial.

But adjusted earnings -- 22 cents a share -- were still 2 cents short of Wall Street targets.

Turning in the weakest sales growth was the company's North American retail meats segment, which encompasses such products as Ball Park hot dogs and Jimmy Dean sausages. Revenue here rose just 0.9%, though this segment was also the only one to book gains in its adjusted operating income: The figure climbed 9% to $50 million.

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Sara Lee's North American foodservice business, for instance, saw adjusted operating income drop 8% amid declining unit volumes and mounting ingredient costs and inflation. The segment's sales rose just 1.7%. Over in the North American retail bakery, revenue was up 9.2% and unit volume added 2.8%, but that wasn't enough to keep adjusted operating income from falling 12.5%.

For both of those segments, the company did attempt leavening the hurtful commodity-cost hikes with higher product pricing. CEO Brenda Barnes commented that Sara Lee's "strategic approach to pricing, combined with the impact of procurement and continuous improvement savings, helped offset significantly increased input costs."

On the higher end of the sales spectrum were the company's overseas units -- international bakery and the coffee-dominated international beverage -- the top lines of which surged 17.6% and 21.7%, respectively, largely thanks to favorable currency-exchange rates. Excluding those effects, sales still gained 4.3% and 7.7%, respectively. But, on an adjusted basis, operating income respectively slipped some 0.1% and 1.6%.

Also deriving most of its revenue growth from foreign-currency effects was Sara Lee's household and body-care business, which had a 14.3% sales climb overall.

Sara Lee updated its fiscal 2008 profit guidance today, as well, but only to add in one-off gains that aren't typically counted in analyst estimates. "Core" earnings should still range between 82 cents and 88 cents a share. The company also added $200 million to its sales outlook at $13.4 billion. The consensus is calling for 96 cents a share on $13.22 billion in revenue.

Sara Lee shares were falling 19 cents, or 1.4%, to $13.78, in recent trading.