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Issue Date: Vol. 43, No. 2 / February 25, 2003 - March 24, 2003, Posted On: 2/25/2003


Sara Lee Corp.

Sara Lee Corp. continued its pattern of strong financial momentum for the second quarter of 2003, ending December 28, 2002, with earnings per share up 110% for the quarter, and cash flow from operations climbing 40% though the first half of fiscal 2003, according to the company's recently released financial report.

Sara Lee reported that sales for the second quarter of fiscal 2003 increased 2% to $4.8 billion, compared with $4.7 billion, in the prior year's quarter. For the fiscal six months, sales increased 4% to $9.3 billion, compared with $8.9 billion a year earlier.

Diluted earnings per share were $.42 for the second quarter of fiscal 2003, versus $.20 a year ago. In the second quarter of fiscal 2002, costs associated with restructuring and business dispositions reduced diluted earnings per share by $.17. For the first six months of fiscal 2003, diluted earnings per share were $.80, compared with $.49 for the first half of fiscal 2002.

Unit volumes were up 1% during the second quarter, with gains in the company's Meats and Household Products operations partially offset by declines in the Beverage and Bakery businesses.

"Our increased investment in media advertising and new product development is starting to accelerate the growth of key brands," said C. Steven McMillan, chairman, president and chief executive officer of Sara Lee Corp. "We are especially pleased with the strong consumer acceptance of a wide range of new products." These rollouts include "Sara Lee" fresh breads, "Hillshire Farm" ultra-thin deli meats, "Jimmy Dean Fresh Taste Fast!" sausage and bacon, and the "Senseo" coffee system in European markets.

"In addition, our restructuring initiatives to reduce costs while consolidating and strengthening our operational capabilities continued to show good progress," added McMillan. "Through the first six months of fiscal 2003, we estimate that these efforts generated incremental savings of $65 million over the prior year."

For the second quarter and first six months of fiscal 2003, Sara Lee Meats declined 2% from year-ago levels, as unit volume gains were offset by the impact of lower pricing due to commodity costs and more aggressive trade promotion support.

Global unit volumes for Meats increased 2% in the second quarter. U.S. branded retail volumes increased 2% and U.S. deli volumes grew 8%, reflecting the continued positive consumer response to Sara Lee's "Red Wave" marketing program. Foodservice volumes in the U.S. were flat in the second quarter. Media advertising and promotion for Meats declined 13% during the quarter and promotion spending was flat for the first six months, but is expected to rise, versus the prior year.

Sara Lee Bakery's second quarter sales grew 1% as a decline in U.S. fresh bread sales was offset by higher sales in all other Bakery businesses. For the first six months, Bakery sales grew to $1.7 billion, compared with $1.4 billion for last year.

Sara Lee Bakery's operating income for the second quarter of fiscal 2003 increased to $21 million from $5 million last year, and for the first six months it increased to $66 million versus $38 million as a result of restructuring.

U.S. fresh bakery volumes fell 3% as strength in the high-margin premium and super-premium sector, led by "Sara Lee" breads, was offset by declines in domestic private label and regional brands. "Sara Lee" breads were launched systemwide during the second quarter, and this product line is already Sara Lee Bakery's number-one selling domestic bread brand. Unit volumes for the U.S. frozen operations rose 4% in the second quarter as both foodservice and retail sales volumes increased. Refrigerated dough unit sales for the quarter increased 3% in the U.S. For the six-month period, global bakery unit volumes were down 1%.

Media advertising and promotion spending for Bakery in the second quarter increased to 6% over last year to support the launch of the new products and 17% in the first six months.

Sara Lee Beverage sales increased 7% in the second quarter and 4% for the first six months. Business trends continued to be mixed in the quarter with positive results in Europe offset by weakness in the U.S. and Brazil.

Global unit sales of roasted coffee and coffee concentrate products fell 2% during the quarter as a 3% decline in retail volumes offset a 1% increase in out-of-home sales volumes. Unit volumes were flat in the U.S. during the quarter. For the first six months, global unit volumes decreased 3%.

Media advertising and promotion spending for Sara Lee Beverage was up 69% in the second quarter and 43% for the first six months with considerable funds devoted to the rollout of the "Senseo" retail coffee product into new European markets following its launch in Germany in October with good introductory results.


Topic: Vic Lavay: Report from Wall Street

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