Sara Lee

(SLE)

posted a drop in first-quarter earnings Thursday and provided mixed second-quarter and full-year guidance.

The company cited a decline in underwear sales, higher costs for raw materials and lower inventory levels from its retail customers.

In the quarter ended Sept. 27, Sara Lee earned $230 million, or 29 cents a share, compared with $308 million, or 38 cents a share, a year ago. Analysts were expecting 26 cents a share.

Revenue was $4.7 billion, up 3%, and four of its five business lines -- meats, bakery, beverage and household products -- had revenue increases. Intimates and underwear, however, had lower sales.

"We are beginning to see the benefits of recent restructuring initiatives at bakery, and we anticipate ongoing performance improvements for that business," said C. Steven McMillan, chief executive. "In intimates and underwear, sales were lower as our retail customers continue to reduce inventory levels compared to a very robust first quarter of last year, but we expect inventories to normalize and our sales to increase in the coming six to nine months."

Total media advertising and promotion spending rose 7% in the quarter, including a 10% increase in media advertising and a 4% increase in other advertising and promotions, the company said.

In the second quarter, earnings are seen at 35 cents to 40 cents a share, compared with analysts' projections of 41 cents a share. The company earned 42 cents in the year-ago period. Full-year fiscal 2004 earnings are forecast at $1.51 to $1.61 a share, compared with $1.50 a share in fiscal 2003. Analysts are calling for $1.55 a share.

Shares of the Chicago-based company were up 15 cents, or 0.8%, at $18.83 in morning trading.