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UPDATE 3-Sara Lee to put more money in bread
September 14, 2010 / 3:16 PM / 7 years ago

UPDATE 3-Sara Lee to put more money in bread

* Investing in N.American bread unit; plans higher prices

* Looking at internal, external CEO candidates

* Some 390 jobs to be lost over next 3 yrs

* Shares down 1.6 percent (Adds more executive comments)

By Martinne Geller

NEW YORK, Sept 14 (Reuters) - Sara Lee Corp SLE.N is planning to spend more on its North American bakery business and raise some prices as it looks to improve performance in that lagging business.

The maker of Sara Lee bread, Jimmy Dean sausages and other packaged foods, also plans to reduce the number of products it sells in the bakery business, Christopher J. (CJ) Fraleigh, CEO of Sara Lee North America, said on Tuesday at a meeting with analysts.

“Our performance has been flat ... we don’t find it acceptable,” Fraleigh said about the unit, which has $2.1 billion in net sales, but an operating margin of only 3 percent. By contrast, the corresponding units of rivals Flowers Foods Inc (FLO.N) and Mexico’s Grupo Bimbo (BIMBOA.MX) have margins closer to 9 percent, he said.

“We didn’t have good discipline on pricing,” Fraleigh said of the business, which sells some 2 billion pounds of baked goods. “A penny is worth $20 million to the bottom line.”

Sara Lee shares closed down 1.6 percent at $13.88 after it said it would pour more resources into the ailing business, which analysts expected might be sold.

The unit has faced stiff price competition in a market that is tied closely to wheat prices. In July, sources said Sara Lee was quietly seeking buyers for the unit. [ID:nN21175927]

Company executives would not comment about a possible sale, but Fraleigh said he planned to invest more with a keen focus on raising prices for the products it sells.

“There are value-creating opportunities to be had there,” he said.

But he also made clear the unit was still Sara Lee’s third priority behind the North American meat business, which includes the Hillshire Farm and Ball Park brands, and the global coffee business, which includes the Senseo brand that will soon launch in Brazil.

The weak global economy has hurt Sara Lee’s business, but interim Chief Executive Officer Marcel Smits said he was feeling better about the recovery than he did six months ago.

“As a management team, we are guardedly optimistic that in Europe, the worst is behind us,” he told reporters after the meeting.

STREAMLINING FOR GROWTH

Sara Lee has sold off parts of its European household and body care business to focus on food and coffee. It said on Tuesday that, as a result of recent divestitures, 390 back office jobs would be lost in the next three years.

Also on Tuesday, Sara Lee reaffirmed its 2011 financial outlook. Smits said Sara Lee still expects 2011 operating earnings in the range of 88 cents to 95 cents a share, and sales from continuing operations of $10.7 billion to $10.9 billion.

Analysts polled by Thomson Reuters I/B/E/S were expecting 2011 operating earnings of 94 cents per share and sales of $10.96 billion.

Smits added that the company is going through a selection process of internal and external candidates for the CEO job since former CEO Brenda Barnes resigned last month to recover from a stroke she suffered in May.

Fraleigh and Smits are seen as two top internal candidates for the job.

Smits also said Sara Lee expects share buybacks among other things to boost earnings per share in fiscal 2012 by 15 cents to 20 cents per share, although he declined to give a specific forecast.

Interim Chief Financial Officer Mark Garvey said Sara Lee still expects to deliver cumulative annual cost-savings of $350 million to $400 million by 2012.

Last month, Sara Lee reported lower-than-expected quarterly sales and forecast an earnings range for 2011 that was largely below analysts’ estimates as the company invests more to market its brands in what remains a tough environment for food makers due to weak consumer spending.

The company expects to raise prices this year across most of its portfolio to make up for an expected 15 percent increase in the cost of ingredients. (Additional reporting by Ben Klayman in Detroit; editing by Robert MacMillan, Gunna Dickson and Andre Grenon)

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