Sara Lee Misses on Higher Food Costs

DOWNERS GROVE, Ill. ( TheStreet) -- Sara Lee ( SLE) missed quarterly expectations by a penny per share due to higher food costs, though the company more than doubled its profits in the period.

Sara Lee's net income rose 137% to $880 million, or $1.37 per share, compared with $371 million, or 53 cents per share, in the year-earlier quarter.

Sara Lee

Sara Lee's adjusted quarterly earnings fell to 24 cents per share, from 27 cents, when excluding one-time items, including an 84-cent gain related to the sale of its global body care and European detergents businesses in December and a 35-cent tax benefit related to the sale of its North American Fresh Bakery business.

Despite the adjustments, bottom-line results missed expectations for earnings of 25 cents per share. Analysts typically exclude such extraordinary items when forecasting estimates.

Top-line sales of $2.35 billion, down slightly year-over-year from revenue of $2.36 billion, also missed expectations even as Sara Lee saw strength in its core North American retail and international beverage units.

Disappointed investors bid Sara Lee shares 0.5% lower to $16.84 in early trading Tuesday, though the company reaffirmed its 2011 earnings and revenue guidance.

Sara Lee said its weaker-than-expected results in the recent quarter reflected higher food costs, which offset higher prices.

A number of consumer goods companies have also reported adverse effects from rising food costs in recent weeks.

Food products and supplies distributor Sysco ( SYY) CEO Bill DeLaney said Monday that "accelerating and significant food cost inflation negatively impacted our customers' purchasing budgets, contributed to increased gross margin pressure and meaningfully increased our selling expense."

Hershey ( HSY), Kellogg ( K), Colgate-Palmolive ( CL) and Procter & Gamble ( PG) each cautioned last week their margins would remain under pressure as a still-weak economy will lead them to carry the higher costs since raising prices could dissuade already-choosy consumers.

Appliance maker Whirlpool ( WHR), on the other hand, said it plans to pass rising raw material costs onto its customers.

Late in January Sara Lee announced it plans to split itself into two separate companies following unsatisfactory takeover bids.

Sara Lee intends to spin off its North American retail and food service business, a company that will trade publicly and retain the Sara Lee name. That business includes brands such as Hillshire Farm lunch meat, Ball Park hot dogs and Jimmy Dean sausages. The other company, Sara Lee's remaining international bakery and beverages businesses, which includes Douwe Egberts and L'Or brands, was as yet unnamed but referred to as CoffeeCo and could be based overseas.

Sara Lee did say it could still be acquired before then however. The split is expected to be complete in 2012.

-- Written by Miriam Marcus Reimer in New York.

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