Sara Lee Corp.'s aggressive strategy for growth continues to prove profitable despite the challenging economic environment. The company reported that its fiscal 2003 third quarter sales increased 4% to $4.4 billion, or $0.33 per share, and nine-month sales also rose 4% to $13.7 billion, or $1.13 per share.
Total operating segment income rose 3% in the third quarter to $469 million and increased 29% to $1.5 billion through the first nine months, impelled by restructuring and business disposition activities and foreign-currency benefit.
Excluding these significant items, total operating segment income fell 5% in the third quarter, reflecting significantly higher marketing expenditures to support key brands and new product introductions, as well as challenging market conditions in the foodservice sector and weakness among some retail customers.
Through the first nine months, operating segment income grew 3%, reflecting incremental savings from the company's restructuring activities and increased sales of higher-margin products in the wake of strengthened marketing initiatives.
"Sara Lee's businesses continue to benefit from incremental cost savings and increased productivity related to previous restructuring activities," said Steven C. McMillan, chairman, president and chief executive officer. "In addition, our heightened investment in new product initiatives and our strategy to increase marketing support for our largest, most important brands are together driving higher growth rates for our key brands.
"In recent months, we have seen some of these benefits offset by slower retail sales and a weaker environment for foodservice products,' McMillan added; "but we continue to focus our resources to provide convenient, everyday items that look, feel or taste terrific."
Sales for the Beverage division rose 18% in the third quarter and increased 8% through the first nine months. Global unit sales of roasted coffee and concentrate products were flat for the third quarter. By channel, retail unit sales increased 1% globally, led by gains in Europe and Brazil, while out-of-home sales fell 3% as gains in Europe were offset by declines in the U.S. On a geographical basis, volumes increased 3% in Europe, rose 7% in Brazil and declined 8% in this country. For the first nine months, global unit volumes fell 2%.
Third-quarter sales for Sara Lee Meats were flat, and year-to-date sales fell 1%. U.S. branded retail volumes fell 1%. By major category, Sara Lee Meats enjoyed increased unit sales for hot dogs, breakfast sausages, luncheon meats, corn dogs and breakfast sandwiches. "Jimmy Dean Fresh Taste. Fast!" breakfast sausages and sandwiches continue to drive growth in the sausage category, and the new "Jimmy Dean" frozen croissant sandwich style reportedly is becoming one of the top-selling convenience sandwich products in the market areas where they're distributed.
U.S. deli volumes grew 12%, reflecting continued consumer acceptance of the company's "Sara Lee Deli" lunch meat and sandwich products.
Foodservice volumes in the U.S. declined 8% in the quarter, in response to lower customer demand. For the first nine months, global unit volumes grew 1% with flat sales in both the U.S. and Europe, but a 6% increase in Mexico.
Sara Lee Bakery's third quarter sales declined 1%, as lower volumes in regional fresh bread brands and foodservice in the U.S. offset increased sales in Europe and Australia, as well as U.S. refrigerated dough and the company's key U.S. brands. Through nine months, Sara Lee Bakery's sales grew to $2.5 billion, compared with $2.2 billion last year.
U.S. frozen units in the Bakery segment fell 13% during the quarter, including a 4% decline in retail volumes and a 17% decline in foodservice volumes. Refrigerated dough units rose 2% in the U.S. For the nine-month period, global bakery unit volumes were down 2%.
Sara Lee intends to eliminate 60 small regional fresh bread brands and to close three U.S. fresh bakery manufacturing facilities during the fourth quarter of 2003, as part of its efforts to improve margins and profit growth and streamline its manufacturing network.
In Household Products, sales grew 10% in the third quarter and 2% for the nine-month period. Intimate Apparel and Underwear sales were flat in both the third quarter and first nine months.
Both media advertising and other promotions increased 23% in the quarter, with the company reporting increased marketing spending in all five lines of business: Meats, Bakery, Beverage, Intimate and Underwear.
By line of business, Sara Lee's management anticipates increased operating segment income in the fourth quarter for Sara Lee Meats, propelled by higher retail and deli products sales as well as by savings from the company's restructuring program. Sara Lee Bakery income is expected to increase too, benefiting from cost-reduction actions implemented earlier in the year as well as by higher net prices. The Beverage group is expected to show lower operating segment income, as operating results and restructuring activities in the U.S. offset continued strong results in Europe.