Diluted earnings per share of $0.41, compared to $0.32 in the prior year first quarter
Company raises guidance for fiscal 2010 Adjusted EPS¹ by $0.06 ($0.90 to $0.96 per share)
Adjusted operating income increased 79.2%; operating income up 10.7%
Cash flow from operations of $187 million, an increase of $225 million
DOWNERS GROVE, Ill. (Nov. 5, 2009) – Sara Lee Corp. (NYSE: SLE) today reported significant operating income growth for the first quarter of fiscal 2010, primarily driven by strong performance in the North American business segments and lower corporate expenses. Net sales fell as a result of unfavorable foreign
currency exchange rates, volume declines and strategic business exits. Cash from operations was very strong, driven by higher operating income, favorable working capital and lower pension contributions.
“I’m very pleased with our first quarter performance, which demonstrates substantial bottom-line improvement,” said Sara Lee Corp. chairman and chief executive officer Brenda C. Barnes. “A number of factors contributed to our results, including lower input costs, Project Accelerate cost savings and pricing discipline. At the same time, we’re increasing or maintaining our market share positions in many of our key categories behind important new products such as Hillshire Farm Family Size lunchmeat tubs, Jimmy Dean
D-Lights breakfast sandwiches and various new Senseo coffee pods in our international markets. The combination of these factors allows us to both raise our EPS guidance for fiscal 2010 and to increase our investment in a full pipeline of growth opportunities. We continue to spend more toward our consumers and expect MAP spending to be up for the year.”
Barnes added, “During the quarter, we announced that we received a binding offer of €1.275 billion from Unilever for our global body care and European detergents businesses. This enables us to focus on our core food and beverage businesses. We are confident that we will soon divest the remainder of the segment.”
Financial Review
Net Sales from Continuing Operations
Net sales from continuing operations for the first quarter of fiscal 2010, ending Sept. 26, 2009, were $2.6 billion, a 7.4% decrease over the comparable period last year. The decline in net sales was primarily driven by unfavorable foreign currency exchange rates, the impact of divestitures and planned business exits made during the past year and lower unit volumes. The company’s adjusted net sales from continuing operations decreased 3.3% in the first quarter as a result of lower volumes and planned business exits.
Operating Income from Continuing Operations
Sara Lee reported operating income from continuing operations of $325 million for the first quarter, up $32 million, or 10.7%, compared to the prior year period. Adjusted operating income from continuing operations
increased $95 million in the first quarter, despite a $15 million increase in pension costs. The improvement in adjusted operating income was comprised of a $50 million increase in total adjusted operating segment income for all continuing business segments, $32 million of favorable mark-to-market variances on commodity derivatives and $13 million of lower corporate costs.
¹ The term “adjusted EPS” and other “adjusted” financial measures are explained and reconciled to each item’s most comparable U.S. generally accepted accounting principles measure at the end of this release.
Results from Discontinued Operations
Net sales for the international household and body care businesses, which are now being reported as discontinued operations, were $521 million in the first quarter of fiscal 2010, compared to $555 million in the prior year period, a 6.1% decrease due to unfavorable foreign currency exchange rates. Adjusted net sales were up 1.1%, primarily driven by unit volume growth and pricing. Operating segment income in the first quarter was $69 million, up 13.3% compared to the year-ago period, driven by continuous improvement
savings and lower MAP spending, partially offset by unfavorable foreign currency exchange rates and a nonrecurring gain in the prior year. Adjusted operating segment income was up 36.7%. Net income from discontinued operations was $94 million in the first quarter versus $39 million in the year-ago period,
primarily due to the recognition of $53 million of net tax benefits in the first quarter of 2010.
Earnings Per Share
Diluted EPS as reported were $0.41 per share in the first quarter compared to $0.32 per share in the year-ago period. The increase was driven by discontinued operations. Diluted EPS from continuing operations were
unchanged at $0.27 per share. In both continuing and discontinued operations, results were influenced by taxrelated significant items associated with the anticipated sale of the international household and body care
businesses as follows:
Income from continuing operations includes $19 million of net tax charges related to the establishment of valuation allowances in Belgium and utilizing current year United Kingdom net operating losses. This tax charge accounted for 5.6 percentage points of the increase in the effective tax rate from 28.6% to 35.7%, and reduced diluted EPS from continuing operations by $0.03 per share. Excluding these significant items, the effective tax rate would have been 30.1%.
Income from discontinued operations benefited from a net $53 million from discrete tax items, principally from the release of valuation allowances in the United Kingdom, which increased diluted EPS from discontinued operations by $0.08 per share.
These tax items are the result of classifying the international household and body care businesses as discontinued operations. The net of these two items was a benefit of $34 million, or $0.05 per share in diluted EPS as reported. For more detail on the impact of significant items on diluted EPS see page 17 of this release.
Cash from Operations
Net cash from operating activities was $187 million in the first quarter, compared to $38 million of net cash used in operating activities in the comparable period last year. The $225 million increase was primarily
driven by higher operating income, lower working capital at the business segments and lower pension contributions.
Guidance
Sara Lee currently expects full-year fiscal 2010 diluted EPS to be in the range of $1.12 to $1.18 per share, which includes $0.19 per share of contingent sale proceeds received in the first quarter of fiscal 2010 from the
sale of its tobacco business in fiscal 1999, and a $0.03 per share net gain from significant items realized in the first quarter of fiscal 2010. Full-year 2010 diluted EPS, excluding contingent sale proceeds and significant
items, is expected to be in the range of $0.90 - $0.96 per share, compared to $0.82 in fiscal 2009. EPS guidance includes anticipated benefits from a 53rd week and favorable currency exchange rates in addition to underlying
business improvements. These factors are partially offset by substantive investments in the business and a comparison against one-time benefits in general corporate expenses in the prior year. Guidance does not
include any additional significant items that may occur during the remainder of fiscal 2010, such as one-time expenses related to Project Accelerate.
Looking at the business segments, Sara Lee currently expects four out of the five continuing business segments, as well as the discontinued international household and body care operations, to show an increase in adjusted
operating segment income in fiscal 2010. The company continues to be cautious about the North American Foodservice segment, as market trends remain weak. Actual results may differ from this guidance due to future significant events that may occur, the nature, timing and financial impact of which are not yet known.
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