Sara Lee Corp. (SLE) reported strong operating income growth for the second quarter of fiscal 2011, driven by significant improvement in operating segment income across the company, particularly in the North American Retail and International Beverage business segments and lower corporate expenses.
Adjusted earnings for the quarter were 24 cents a share compared to 27 cents during the same period of fiscal 2010. Earnings were also a penny below the Zacks Consensus Estimate of 25 cents.
Quarterly Sales
Net sales for the quarter were almost flat year-over-year at $2.3 billion, declining 0.4% as favorable sales mix and higher prices were offset by lower unit volumes and unfavorable foreign currency. Total unit volumes for the quarter decreased by 5.8% year-over-year due to innovative new products, successful trade spending and strategic pricing initiatives.
Segments
The North American Retail segment adjusted net sales were $754 million, up 1.2% year over year due to favorable sales mix into higher-margin products which was partially offset by the impact of trade spending and the exit from commodity and kosher meat businesses.
The North American Foodservice segment sales decreased 2.4% to $517 million, due to the loss of two large customer contracts in fiscal 2010, a high-volume, low-margin bakery contract lost in the third quarter and a low-volume, high-margin liquid coffee contract lost in the fourth quarter.
International Beverage sales increased 6.7% year-over at $896 million, largely due to unfavorable foreign currency exchange rate gains.
The International Bakery segment sales decreased 7.2% to $185 million, due to continued macro-economic headwinds and competitive pressures.
Gross margin for the quarter contracted 279 basis points (bps) to 34.0% versus 34.8% in the comparable prior-year quarter. The company recorded an operating profit of $206 million compared to a profit of $269 million in the prior-year quarter. During the quarter, commodity costs increased by approximately 127 million, while marketing, advertising and promotional spending increased 2% during the quarter.
Cash and Balance Sheet
Cash and cash equivalents for the quarter were $2.1 million and long term debt for the quarter was $2.3 million while shareholders equity was 2.0 million.
Concurrent with the earnings release, management reaffirmed guidance for fiscal 2011. Earnings for the year are expected to be in the range of 85 cents to 89 cents per share. Net sales for the year are expected to grow in the range of $11.9 billion to $12.1 billion. Cash flow from operating activities is expected to increase in the range of $400 million to $500 million. Capital expenditures for the year are expected to be in the rage of $400 million to $425 million.
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