Sara Lee Corporation
Sara Lee Sales and Earnings Increased in Third Quarter of Fiscal 2004
Sales grew in all five lines of business; Diluted earnings per share increased
by 42% to $.47 for the third quarter; net income up 40%; Corporate unit volumes
rose 1% during the third quarter
Sara Lee Corporation today announced that net sales for the third quarter of
fiscal 2004, ending March 27, 2004, were $4.7 billion, up 9% compared to $4.4
billion in the prior year's third quarter. Diluted earnings per share (EPS) were
$.47 for the third quarter, an increase of 42% compared to $.33 for last year's
third quarter.
For the first nine months of fiscal 2004, sales were $14.4 billion, up 6% over
the same period a year ago. Diluted EPS for the first nine months were $1.15 in
fiscal 2004 versus $1.13 in fiscal 2003, an increase of 2%.
During the third quarter, sales benefited from organic growth in all five lines
of business: Meats, Bakery, Beverage, Household Products and Branded Apparel,
and favorable foreign currency exchange rates, particularly the strong euro.
Cash flow from operations for the third quarter was just over $350 million,
contributing to a record nine-month level of $1.4 billion for the company.
In January 2004, the corporation received a cash payment of $119 million as a
portion of the contingent requirements associated with the sale of a business in
fiscal 1999 was satisfied. This amount was recognized in the corporation's
earnings in the third quarter of fiscal 2004.
Total media advertising and promotion (MAP) spending decreased 7% in the third
quarter, resulting from a 17% decrease in media advertising, partially offset by
a 2% increase in other advertising and promotions. For the first nine months of
fiscal 2004, MAP spending was flat, with a 1% decrease in media advertising,
offset by a 2% increase in other advertising and promotions.
Corporate unit volumes increased 1% during the third quarter. Through the first
nine months of fiscal 2004, corporate unit volumes decreased 1%.
"We are pleased to have achieved sales growth during the third quarter in all of
Sara Lee's five lines of business. Our strategy of concentrating our marketing
investment and new product development behind our Strategic Investment brands,
such as Senseo, Hillshire Farm and Sara Lee, is beginning to bear fruit," said
C. Steven McMillan, chairman, president and chief executive officer of Sara Lee
Corporation. "In addition, we are encouraged by the recent improvement in
apparel sales at our retail customers, which contributed to Branded Apparel's
top line growth versus the same quarter last year.
"Our cash flow for the first nine months of the year reached a record $1.4
billion, as our dedication to aggressive cost management and selective
investment continues to increase the cash productivity of our business. These
efforts will continue in the fourth quarter as we also look forward to the
results from a number of new product introductions across Sara Lee's lines of
business that will build on the momentum of the successful launches this year."
Performance Review
A performance review for each line of business follows. All dollar amounts are
in millions. Unit volumes exclude acquisitions and divestitures.
MEATS
Sara Lee Meats is a leader in the branded packaged meats business in the United
States, Europe and Mexico.
Third Quarter Highlights
-- Net sales increased significantly on the strength of new convenient
products, favorable pricing/product mix and foreign currency effects
-- Pound volumes decreased slightly, but dollar and profit rates per pound
continued to climb with the emphasis on new value-added convenient
products
-- Raw material costs continued to climb and reached near record levels
-- Operating segment income rose significantly due to favorable mix, margin
improvement, lower MAP spending and currency effects
Third Nine Months
Quarter Change Change
--------------------------------------------------
In millions 2004 2003 $ % 2004 2003 $ %
----------------------------------------------------------------------
Net Sales $976 $871 $105 12.0 $3,054 $2,770 $284 10.2
----------------------------------------------------------------------
Increase /
(decrease) in net
sales
from:
Changes in foreign
currency
exchange rates $- $(38) $38 $- $(106) $106
Dispositions - - - - 4 (4)
----------------------------------------------------------------------
----------------------------------------------------------------------
Operating segment
income $97 $72 $25 32.1 $313 $275 $38 13.7
----------------------------------------------------------------------
Increase /
(decrease) in
operating segment
income from:
Changes in foreign
currency
exchange rates $- $(5) $5 $- $(13) $13
Exit activities and
business
dispositions (2) (1) (1) 3 7 (4)
Unit volume change vs. 2003
Third Nine
Quarter Months
2004 2004
------------- ------------
Global unit volume (2) % 0 %
U.S. 0 % 0 %
Retail (1) % 0 %
Deli 5 % 8 %
Foodservice 1 % (2) %
Europe 0 % (1) %
Mexico (13) % (5) %
Overview
-- Net sales for the third quarter rose 12%, driven by higher net average
selling prices in connection with increased raw material costs as well
as by new products, favorable product mix and the impact of the
strengthening euro. Year-to-date, sales were up 10%.
-- Operating segment income for the quarter was up 32%, driven by higher
sales, favorable product mix, lower MAP expense and a favorable currency
effect, partially offset by higher raw material costs. Operating segment
income for the first nine months was up 14%.
-- MAP expense decreased 21% in the quarter, due to a 12% decline in media
advertising spending and a 34% decrease in promotion and other
advertising expense, the latter primarily due to timing.
Retail
-- U.S. retail unit volumes were down 1% compared with last year's third
quarter levels, mainly as a result of the higher net average selling
prices. The continuing shift in volume to new, value-added products such
as Hillshire Farm Deli Select Ultra Thin sliced meats and Jimmy Dean
breakfast sandwiches largely offset volume softness in other categories.
Similarly in deli, four new bold-tasting chicken varieties were
launched, which contributed to volume growth of 5% in the third quarter.
Year-to-date, deli volumes were up 8%.
-- The European meats business showed flat unit volumes, but sales and
profits were up in the quarter supported by the strengthening of the
euro. In Mexico, volumes declined due to the negative effect of both
higher commodity costs and the reduced availability of raw materials.
Foodservice
-- Net sales in the quarter were up due to higher pricing to cover
increased raw material costs and lower promotion expense. Profits also
were up, primarily due to a favorable product mix, improved margins and
lower selling and administrative costs. Foodservice unit volumes in the
United States were up 1% in the quarter.
BAKERY
Sara Lee Bakery is a leader in the U.S. fresh baked goods market, and holds
important positions in the U.S. and European refrigerated dough and European
fresh bread markets. Sara Lee Bakery also enjoys leading positions in frozen
baked goods in both the United States and Australia.
Third Quarter Highlights
-- Net sales increased, driven by new products, higher pricing and
favorable currency effects
-- Sara Lee brand sales grew significantly, primarily driven by strong
performance of the Sara Lee fresh bakery breads
-- Total branded U.S. fresh baked goods sales were up, but regional U.S.
fresh baked goods sales were down
-- Operating segment income increased substantially, resulting from
continued cost reductions, improved foodservice results, positive mix
and growth in Europe
Third Nine Months
Quarter Change Change
-------------------------------------------------
In millions 2004 2003 $ % 2004 2003 $ %
----------------------------------------------------------------------
Net Sales $810 $767 $43 5.7 $2,517 $2,451 $66 2.7
----------------------------------------------------------------------
Increase / (decrease)
in net sales
from:
Changes in foreign
currency
exchange rates $- $(27) $27 $- $(78) $78
----------------------------------------------------------------------
----------------------------------------------------------------------
Operating segment
income $26 $11 $15 144.0 $121 $77 $44 57.4
----------------------------------------------------------------------
Increase / (decrease)
in operating segment
income from:
Changes in foreign
currency
exchange rates $- $(2) $2 $- $(7) $7
Exit activities and
business
dispositions (4) - (4) (4) (18) 14
Accelerated
depreciation (3) - (3) (5) - (5)
Unit volume change vs. 2003
Third Nine
Quarter Months
2004 2004
------------- --------------
Global unit volume (3) % (3) %
U.S. (4) % (4) %
Fresh baked goods (5) % (5) %
Refrigerated dough (2) % (4) %
Frozen retail 7 % 17 %
Foodservice 5 % (6) %
Europe 6 % 2 %
Fresh 5 % 3 %
Refrigerated 10 % 2 %
Overview
-- Net sales for the quarter increased 6% as strong sales for Sara Lee
fresh breads and frozen retail baked goods in the United States, higher
refrigerated dough sales in the United States and Europe, increased
sales at the Spanish fresh bread division and favorable currency trends
more than offset softness in the U.S. regional fresh bread business. For
the first nine months of fiscal 2004, net sales were up 3%.
-- Operating segment income more than doubled compared with the quarter a
year ago, primarily driven by cost savings resulting from prior
restructuring actions. Improved results at bakery foodservice in the
United States, positive pricing and product mix in the U.S. refrigerated
dough business, increased sales for Bimbo crustless bread in Spain and
favorable foreign currency exchange rates also contributed to the profit
increase. Sara Lee Bakery realized these gains in the face of escalating
prices for a number of key commodities.
-- Sara Lee branded bakery sales continued to grow, up more than 60%
compared with the year-ago period, primarily driven by the success of
the new Sara Lee Delightful breads that were launched at the end of the
second quarter.
-- MAP spending rose 28% for the quarter and was up 21% year-to-date,
primarily due to increased media advertising spending on the Sara Lee
and Bimbo brands.
Fresh Baked Goods
-- Further extending the Sara Lee fresh bread line, four new Sara Lee
breads were successfully launched in the United States at the end of the
second quarter: Delightful White and Delightful Wheat, fresh breads with
fewer carbohydrates and fewer calories; Heart Healthy Multi-Grain bread;
and Country Potato bread. Only 18 months after the initial launch of
Sara Lee fresh breads, the Sara Lee brand has emerged as America's No. 1
fresh bakery brand in the combined bread, bun and bagel category.
-- In the third quarter, substantial sales growth for fresh bakery products
sold under the Sara Lee brand in the United States drove increased total
branded domestic bread sales and an improved product mix for the U.S.
fresh business. Regional fresh bread sales, especially in white breads,
remained soft and private label sales declined.
-- European baking achieved sales and profit growth in the quarter,
primarily driven by the continued success of Bimbo crustless breads in
Spain and favorable foreign currency effects.
Refrigerated Dough
-- Results for the U.S. refrigerated dough business benefited from improved
pricing, favorable mix and cost savings in the third quarter, more than
offsetting weak category and volume trends.
-- The European refrigerated dough business, EuroDough, increased sales and
profits in the third quarter through further geographic expansion and
favorable foreign currency effects.
Frozen Baked Goods
-- For the third quarter, unit volumes and sales increased for U.S. frozen
retail baked goods, mostly due to strong pie sales.
-- In the United States, foodservice bakery unit volumes and sales were up
in the third quarter. Profits for the business improved substantially
compared to a weak third quarter last year.
BEVERAGE
Beverage is one of the largest producers of roast and ground coffee in the
world, competing in both retail and foodservice categories. Its primary markets
are Europe, the United States and Brazil.
Third Quarter Highlights
-- Net sales were up significantly, driven by higher volumes, pricing and
currency
-- Unit volumes were up, primarily due to increases in Brazil and the
United States
-- Senseo volumes increased dramatically with growth in all markets
-- Operating segment income growth was primarily driven by improvements in
Europe and Brazil, and favorable currency effects
Third Nine Months
Quarter Change Change
-------------------------------------------------
In millions 2004 2003 $ % 2004 2003 $ %
----------------------------------------------------------------------
Net Sales $801 $706 $95 13.4 $2,314 $2,056 $258 12.6
----------------------------------------------------------------------
Increase / (decrease)
in net sales
from:
Changes in foreign
currency
exchange rates $- $(77) $77 $- $(211) $211
----------------------------------------------------------------------
----------------------------------------------------------------------
Operating segment
income $140 $119 $21 18.3 $361 $326 $35 11.0
----------------------------------------------------------------------
Increase / (decrease)
in operating segment
income from:
Changes in foreign
currency
exchange rates $- $(17) $17 $- $(45) $45
Unit volume change vs. 2003
Third Nine
Quarter Months
2004 2004
------------- --------------
Global unit volume 2 % 0 %
Retail 4 % 1 %
Europe 0 % (1) %
U.S. 14 % 8 %
Brazil 8 % 2 %
Foodservice (1) % (2) %
Europe (3) % (3) %
U.S. 0 % (2) %
Overview
-- Net sales growth of 13% in the quarter was driven by favorable foreign
currency exchange rates - particularly for the euro - price increases
taken during the year to cover higher green coffee prices, and higher
volumes in Brazil and the United States.
-- Global unit volumes were up 2% in the quarter, driven by an 8% volume
gain in Brazil and a 14% increase in the U.S. retail channel. In Europe,
unit volumes were flat in the retail channel and down 3% in the
foodservice business. Volumes for the foodservice coffee business in the
United States were flat for the quarter. Year-to-date, global unit
volumes were flat.
-- Operating segment income grew 18% in the third quarter, driven primarily
by the strengthening of the euro. A favorable product mix in Europe as a
result of Senseo's ongoing success as well as improved results in Brazil
contributed to the higher profits. Partially offsetting this growth were
lower results for foodservice in Europe and retail in the United States,
as well as higher pension costs worldwide.
-- MAP spending for the Beverage business was 8% lower in the quarter as a
result of a 29% decrease in media advertising, which was partially
offset by a 6% increase in promotion and other advertising spending.
Retail
-- For the quarter, European retail coffee sales growth was primarily
driven by the favorable impact of the strengthening of the euro and a
favorable product mix as a result of the strong performance of Senseo.
Unit volumes in Europe were flat as growth in countries such as France,
Denmark, Poland and Germany was offset by volume declines in Spain,
Hungary and the Czech Republic.
-- Senseo continued its strong advance in Europe in the third quarter.
Senseo volumes grew 78% compared with last year's third quarter due to
strong increases in the Netherlands, Belgium, France and Germany. At the
end of the third quarter, Senseo was launched in the United States.
Senseo will be distributed through retailers across the country,
including mass channel retailers, club stores, department stores,
supermarkets and online retailers. The successful, single-serve coffee
system is scheduled to be launched in the United Kingdom in the fourth
quarter.
-- Sales in U.S. retail coffee were up for the third quarter and the first
nine months as a result of higher volumes. Unit volumes for the third
quarter rose 14% as a result of the comparison to a weak quarter last
year, and the impact of lower retail prices in the category.
Year-to-date, unit volumes were up 8%. Lower operating results in the
quarter were due to higher commodity costs and pricing pressure.
-- Results in Brazil continued their growth momentum in the third quarter
with volumes up 8%. Sales grew significantly in the quarter and first
nine months, driven by higher unit volumes and recent price increases,
as well as favorable changes in foreign currency rates. Operating
profits also rose as a result of the pricing strategy.
Foodservice
-- Total foodservice coffee sales in the United States were up 3% in the
quarter, and rose 1% year-to-date. The company announced a price
increase at the end of the third quarter to cover higher green coffee
prices and energy costs. Unit volumes in the foodservice coffee market
in the United States were flat during the quarter, but down 2%
year-to-date as a result of lower same customer sales and heavy
competition in the roast and ground coffee segment, partially offset by
growth in coffee concentrates.
-- Sales in the European foodservice market were up 22% for the quarter and
rose 18% for the first nine months, primarily due to the strengthening
of the euro. Foodservice unit volumes decreased 3% during the quarter
and year-to-date, mainly due to softness in roast and ground volumes
caused by a weak market environment in Europe, which were partially
offset by growth in coffee concentrates.
HOUSEHOLD PRODUCTS
Household Products is Sara Lee's most global business, with important positions
in four core product categories: body care, air care, shoe care and
insecticides. This line of business also includes Direct Selling, which reaches
consumers through an independent sales force in countries around the world.
Third Quarter Highlights
-- Net sales increased, primarily driven by favorable currency effects and
strength in body care and insecticides
-- Operating segment income was up, driven by currency, higher sales and
lower costs
-- Overall core category unit volumes increased
Third Nine Months
Quarter Change Change
-------------------------------------------------
In millions 2004 2003 $ % 2004 2003 $ %
----------------------------------------------------------------------
Net Sales $599 $512 $87 17.0 $1,743 $1,522 $221 14.5
----------------------------------------------------------------------
Increase / (decrease)
in net sales
from:
Changes in foreign
currency
exchange rates $- $(83) $83 $- $(172) $172
Disposition - 2 (2) - 2 (2)
----------------------------------------------------------------------
----------------------------------------------------------------------
Operating segment
income $109 $82 $27 32.2 $279 $246 $33 13.1
----------------------------------------------------------------------
Increase / (decrease)
in operating segment
income from:
Changes in foreign
currency
exchange rates $- $(15) $15 $- $(26) $26
Exit activities and
business
dispositions - - (2) - (2)
Unit volume change vs. 2003
Third Nine
Quarter Months
2004 2004
------------- ------------
Household & Body Care
core unit volume 3 % 2 %
Body Care 6 % 4 %
Air Care (2) % (4) %
Shoe Care (9) % (8) %
Insecticides 19 % 18 %
Overview
-- Net sales grew 17% in the quarter, primarily driven by favorable foreign
currency rates. Moderate sales growth in the body care segment and
strong sales growth in insecticides also contributed to the sales
increase. Year-to-date, net sales were up 14%.
-- Unit volumes increased 3% in household and body care's four core
categories, driven by strength in body care and insecticides, which was
partially offset by volume weakness in shoe care and air care.
Year-to-date, unit volumes were up 2%.
-- Direct Selling results improved in Mexico, Argentina and the
Philippines.
-- Operating segment income increased 32% in the quarter as a result of
favorable foreign currency exchange rates, higher sales and lower MAP
spending.
-- MAP spending for Household Products decreased 9% in the quarter, driven
by a 21% decrease in media advertising, partially offset by a 12%
increase in promotion and other advertising. MAP spending year-to-date
was up 3%.
Household and Body Care
-- In body care, favorable foreign currency exchange rates and sales growth
for some of the local European bath and shower brands, particularly
Radox (U.K.) and Duschdas (Germany), drove the growth in the third
quarter. Sanex for Men, a new range of grooming products especially
developed for men's skin, including shower gel, deodorant and aftershave
products, was successfully launched in three European countries.
-- Unit volumes for air fresheners decreased in the quarter in many
European markets as a result of category softness and strong price
competition. To help counter the soft category trends, the Ambi Pur air
freshener line was recently re-launched in Europe with new, harmonized
packaging designs. In addition, Ambi Pur 2 in 1 Fresh, a dual-action air
freshener for the bathroom, was launched in Europe and Asia. Ambi Pur
Car was re-launched in Europe with new diffuser colors and new
fragrances.
-- Shoe care unit volumes declined in the quarter, as lower distribution
rates in France and slightly lower unit volumes in the United States,
were partially offset by sales growth in Africa and China. However,
overall net sales for shoe care grew in the third quarter due to
favorable foreign currency effects and an improved product mix. Also,
Kiwi Fresh Force shoe freshener was launched in eight additional
countries during the quarter.
-- Unit volumes and net sales for insecticides grew at double-digit rates
in the third quarter, driven by strong sales gains in India and
Malaysia. The growth in these two countries was primarily the result of
new products launched during the quarter, along with effective media
advertising and promotions.
Direct Selling
-- During the third quarter, Direct Selling net sales increased, primarily
due to growth in Mexico, Argentina and the Philippines, as well as
favorable currency exchange rates. Direct Selling profits declined
slightly in the quarter.
BRANDED APPAREL
Sara Lee's Branded Apparel line of business includes intimate apparel, knit
products and legwear marketed under some of the most powerful brand names in the
apparel industry. Sara Lee holds leading share positions in these categories in
both North America and Europe.
Third Quarter Highlights
-- Net sales increased, driven by overall retailer sales momentum, strong
sales in underwear and casual wear, and favorable currency effects
-- Unit volumes increased due to volume growth in underwear, casual wear
and socks
-- Operating segment income declined as a result of pricing pressure,
unfavorable mix and increased cotton and pension costs
Third Nine Months
Quarter Change Change
--------------------------------------------------------
In millions 2004 2003 $ % 2004 2003 $ %
----------------------------------------------------------------------
Net Sales $1,562 $1,495 $67 4.4 $4,805 $4,864 $(59) (1.2)
----------------------------------------------------------------------
Increase /
(decrease) in
net sales
from:
Changes in
foreign
currency
exchange
rates $- $(77) $77 $- $(197) $197
Dispositions - 20 (20) - 24 (24)
----------------------------------------------------------------------
----------------------------------------------------------------------
Operating
segment
income $142 $185 $(43) (23.4) $401 $607 $(206)(33.9)
----------------------------------------------------------------------
Increase /
(decrease) in
operating
segment
income from:
Changes in
foreign
currency
exchange
rates $- $(5) $5 $- $(13) $13
Exit
activities
and business
dispositions - 2 (2) (4) 24 (28)
Unit volume change vs. 2003
Third Nine
Quarter Months
2004 2004
-------------- ---------------
Global unit volume 4 % (3) %
Intimate Apparel - Global (3) % (5) %
U.S. (5) % (8) %
Europe (1) % (1) %
Knit Products - Global 15 % 0 %
U.S. 17 % 2 %
Europe 5 % (9) %
Legwear - Global (3) % (3) %
Sheer Hosiery - Global (6) % (8) %
Socks - Global 3 % 4 %
Overview
-- Net sales were up 4% as higher global unit volumes and favorable foreign
currency effects more than offset unfavorable pricing, mainly in the
U.S. printables business.
-- Global unit volumes increased 4% in the quarter, primarily driven by
strong underwear volumes in the U.S. mass channel and higher volumes in
U.S. casual wear and socks. These increases were partially offset by
continued declines in worldwide hosiery markets, volume decreases in the
U.S. printables market and volume weakness in intimate apparel in the
United States and Europe.
-- Operating segment income declined 23% in the quarter due to unfavorable
pricing and mix as well as increased cotton and pension costs.
Year-to-date, operating segment income was down 34%.
-- MAP spending decreased 5% in the quarter, primarily due to a 27% decline
in media advertising as compared to very strong spending in this quarter
last year. Promotion and other advertising expenses were up 5% in the
third quarter. For the first nine months, MAP spending rose 3%.
Intimate Apparel
-- Worldwide intimate apparel sales in the quarter increased, primarily due
to favorable foreign currency effects, which were partially offset by
lower unit volumes in the United States.
-- In the United States, intimate apparel unit volumes fell 5% in the
quarter, partially reflecting tough comparisons to the prior year and
competition from private labels.
-- Successful new products, such as Playtex Thank Goodness It Fits and
Playtex Secrets in the department store channel and Hanes Her Way Pure
Bliss in the mass channel, helped offset some of the volume weakness.
-- In Europe, unit volumes for intimates decreased 1% in the quarter, as
strong volumes for Dim and Playtex in France and private label in the
United Kingdom were offset by volume softness in our branded business in
Spain, Italy and the United Kingdom.
-- Profits for intimate apparel increased in the quarter, mainly as a
result of favorable foreign currency effects, partially offset by lower
unit volumes and sales in the United States.
Knit Products
-- Knit Products sales increased primarily due to strong growth in
underwear and casual wear, partially offset by weakness in printables.
Profits declined primarily due to higher cotton costs, pricing pressures
and unfavorable sales mix.
-- U.S. underwear unit volumes and sales were up 28% and 23%, respectively,
driven by excellent sales at key mass retailers. An earlier Easter also
helped increase shipments in the third quarter.
-- New Hanes ComfortSoft, men's underwear with the comfortable tagless
waistband, performed well in the mass channel during the quarter. In the
women's underwear segment, sales for Hanes Authentic, on-trend underwear
for young women, and Hanes Her Way Body Creations panties continued to
perform well.
-- Internationally, underwear unit volumes were up 8% in the quarter, due
to the ongoing success of Dim Men in France and higher unit volumes for
private label women's underwear in the United Kingdom.
-- Unit volumes for U.S. active wear were flat in the quarter, as strong
volumes in casual wear, driven by T-shirt sales for Hanes, Hanes Her Way
and Just My Size, were offset by volume softness for Champion and volume
declines in the printable T-shirt business, which was a result of
continued strong price competition in the category.
Legwear
-- Net legwear sales increased in the quarter, due to favorable currency
impacts and growth in socks in the United States.
-- Profits for legwear decreased in the quarter, primarily driven by
continued declines in worldwide sheer hosiery markets, partially offset
by higher profits for socks in the United States.
-- Worldwide unit volumes for legwear decreased 3% in the quarter,
combining a 3% unit volume increase for socks with a 6% decline for
sheer hosiery. Volume growth for socks was driven by continued strong
retail sales growth in the U.S. mass retail channel.
Net Interest Expense, General Corporate Expenses, Tax Rate and Share Repurchase
Net interest expense was $42 million for the third quarter, compared to $49
million in last year's third quarter. The decline in interest expense was
primarily due to lower rates on floating rate debt.
General corporate expenses were $106 million in the third quarter of fiscal
2004, compared to $67 million in the comparable period of the prior year. The
increase primarily was due to the centralization of certain finance and
marketing functions; higher pension and employee benefit costs; and costs
associated with stock compensation for certain former Earthgrains employees.
The effective tax rate was 17.6% for the third quarter of fiscal 2004, compared
to 18.1% in the prior year's quarter.
During the third quarter of fiscal 2004, Sara Lee Corporation repurchased 3.6
million shares of its common stock at an average price of $20.79 per share.
Year-to-date, the company has repurchased 18 million shares at an average price
of $19.42 per share. Approximately 35 million shares remain authorized by the
board of directors for repurchase.
Receipt of Contingent Sale Proceeds
The corporation sold its European cut tobacco business in 1999. Under the terms
of that agreement, the corporation can receive an annual cash payment of 95
million euros if tobacco continues to be a legal product in the Netherlands,
Germany and Belgium through 2010. The legal status of tobacco in each country
accounts for a portion of the total contingency with the Netherlands accounting
for 67%, Germany 22% and Belgium 11%. If tobacco ceases to be a legal product
within any of these countries, the corporation forfeits the receipt of all
future amounts related to that country. In January 2004, the contingencies
associated with the first payment passed and the corporation received a cash
payment of 95 million euros. This was equivalent to $119 million based upon
exchange rates on the date of receipt, and this amount was recognized in the
corporation's earnings in the third quarter of fiscal 2004. This transaction
increased diluted EPS within the quarter and nine months year-to-date by $.15
per share.
Exit and Business Disposition Activities
In the third quarter and first nine months of fiscal 2004, exit and business
disposition activities reduced diluted EPS by $.01 and $.02, respectively. Exit
and business disposition activities in fiscal 2003 had no net impact on diluted
EPS in the third quarter and increased that measure by $.01 in the first nine
months.
In the third quarter of fiscal 2004, the corporation's management approved
actions to sever certain employees in its European Meat and U.S. Bakery
operations, which resulted in a pretax charge of $6 million. A pretax charge of
$11 million was recognized for exit and business disposition activities in the
first nine months of fiscal 2004. This amount consists of $20 million of costs
related to severance and plant closure costs, offset by $9 million of gains
related to the dispositions of the corporation's minority ownership position in
Johnsonville Foods Inc, the assets of an Italian hosiery business and a
Brazilian household and body care operation. Through the date-of-sale, the
Italian hosiery business had sales of $44 million and an operating loss of $2
million. The Brazilian household and body care operation had net sales of $7
million through the date-of-sale and no material operating income or loss. Cash
proceeds from the sale of investments and businesses through the first nine
months of fiscal 2004 totaled $119 million.
Exit and business disposition actions recognized in the third quarter and first
nine months of fiscal 2004 reduced net income by $4 million and $8 million,
respectively. During the first nine months of fiscal 2003, business disposition
and exit activities increased pretax profits and net income by $13 million and
$12 million, respectively.
Outlook
Sara Lee's management currently expects diluted EPS for the fourth quarter of
fiscal 2004 to fall within a range of $.41 to $.45, compared to $.37 in the
year-ago period. Full-year fiscal 2004 diluted EPS are expected to be in a range
of $1.56 to $1.60, compared to $1.50 in fiscal 2003.
Management expects the challenging market conditions that affected operations in
the third quarter of fiscal 2004, including higher raw material costs and
competitive pricing in printables, to continue into the fourth quarter of this
year. For full fiscal 2004, however, four of the company's five lines of
business - Meats, Bakery, Beverage and Household Products - are expected to show
good gains in operating segment income, driven by higher sales from new product
activity, select price increases to cover higher raw material costs and an
improved economic and retail environment. Branded Apparel operating segment
income will be down for the year, although it is expected to be up in the fourth
quarter as new product activity and a better market environment drive
performance. At current exchange rates, foreign currency translations, primarily
relating to the euro, are expected to have a positive impact on fiscal 2004
results.
Webcast
Sara Lee Corporation's review of third quarter results for fiscal 2004 will be
broadcast live via the Internet today at 9 a.m. CDT. During the webcast, the
company will discuss third quarter results and provide an outlook for the fourth
quarter and full fiscal year.
The live webcast can be accessed at www.saralee.com, and is anticipated to
conclude by 10 a.m. CDT. For people who are unable to listen to the webcast
live, the earnings review will be available two hours following the completion
of the webcast in the Investors section of the Sara Lee corporate website until
Thursday, May 6, 2004.
Forward-looking Statements
This news release contains forward-looking statements regarding Sara Lee's
business prospects, costs and operating results, including statements contained
under the heading "Outlook." In addition, from time to time, in oral statements
and written reports, the corporation discusses its expectations regarding the
corporation's future performance by making "forward-looking statements" preceded
by terms such as "expects," "projects" or "believes." These forward-looking
statements are based on currently available competitive, financial and economic
data and management's views and assumptions regarding future events. Such
forward-looking statements are inherently uncertain, and investors must
recognize that actual results may differ from those expressed or implied in the
forward-looking statements. Consequently, the corporation wishes to caution
readers not to place undue reliance on any forward-looking statements. Among the
factors that could cause Sara Lee's actual results to differ from such
forward-looking statements are the following: (i) impacts on reported earnings
from fluctuations in foreign currency exchange rates, particularly the euro
given Sara Lee's significant concentration of business in Western Europe; (ii)
significant competitive activity, including advertising, promotional and price
competition, and changes in consumer demand for Sara Lee's products; (iii) a
significant change in Sara Lee's business with any of its major customers, such
as Wal-Mart, the corporation's largest customer, including changes in the level
of inventory these customers decide is necessary to service their consumers;
(iv) the impact of volatility in the equity markets and interest rates on the
funded status and annual expense of the corporation's defined benefit pension
plans and the impact of such changes on consumer spending; (v) Sara Lee's
ability to continue to source production and conduct manufacturing and selling
operations in various countries due to changing business conditions, the
financial condition of suppliers and political environments; (vi) Sara Lee's
ability to achieve planned cash flows from capital expenditures and
acquisitions, particularly Earthgrains, and the impact of changing interest
rates and the cost of capital on the discounted value of those planned cash
flows; (vii) Sara Lee's ability to realize the estimated savings and
productivity improvements associated with prior restructuring initiatives;
(viii) fluctuations in the cost and availability of various raw materials; (ix)
the impact of various food safety issues on the consumption of meat products in
the United States and parts of Europe and the profitability of the corporation's
meat business; (x) credit and other business risks associated with customers
operating in a highly competitive retail environment; (xi) inherent risks in the
marketplace associated with new product introductions, including uncertainties
about trade and consumer acceptance; and (xii) the settlement of a number of
ongoing reviews of the corporation's income tax filing positions in the United
States and other jurisdictions. In addition, the corporation's results may also
be affected by general factors, such as economic conditions, political
developments, interest and inflation rates, accounting standards, taxes, and
laws and regulations in markets where the corporation competes. We have provided
additional information in our Form 10-K for fiscal 2003, which readers are
encouraged to review, concerning factors that could cause actual results to
differ materially from those in the forward-looking statements. Sara Lee
undertakes no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise.
Company Description
Sara Lee Corporation (www.saralee.com) is one of the world's leading branded
consumer packaged goods companies, selling its products in nearly 200 countries.
The company has three global businesses - Food and Beverage, Branded Apparel,
and Household Products - through which it manufactures and markets products of
exceptional quality and value under leading, well-known brand names such as Sara
Lee, Earth Grains, Jimmy Dean, Douwe Egberts, Chock full o' Nuts, Hanes,
Playtex, Bali, Dim, Kiwi, Ambi Pur and Sanex.
Consolidated Statements of Income Sara Lee Corporation (NYSE)
---------------------------
(in millions, except per share amounts)
----------------------------------------------------------------------
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------- ---------------------------
March 27, March 29, Percent March 27, March 29, Percent
2004 2003 Change 2004 2003 Change
--------- --------- ------- --------- --------- -------
Net sales $ 4,745 $ 4,350 9.1 % $ 14,428 $ 13,660 5.6 %
--------- --------- ------- --------- --------- -------
Cost of sales 2,888 2,604 8,826 8,230
Selling,
general and
administrative
expenses 1,471 1,370 4,459 4,170
(Income from)
charges for
exit activities
and business
dispositions 6 (1) 11 (13)
Contingent sale
proceeds (119) -- (119) --
Interest expense 63 70 195 205
Interest income (21) (21) (61) (58)
--------- --------- --------- ---------
4,288 4,022 13,311 12,534
--------- --------- --------- ---------
Income before
income taxes 457 328 38.8 1,117 1,126 (0.8)
Income taxes 81 59 199 201
--------- --------- --------- ---------
Net income $ 376 $ 269 39.6 $ 918 $ 925 (0.7)
========= ========= ========= =========
Net income per
common share
Basic $ 0.47 $ 0.34 38.2 $ 1.17 $ 1.17 --
========= ========= ========= =========
Diluted $ 0.47 $ 0.33 42.4 $ 1.15 $ 1.13 1.8
========= ========= ========= =========
Average shares
outstanding
Basic 791 781 787 782
========= ========= ========= =========
Diluted 797 813 798 814
========= ========= ========= =========
See accompanying Notes to Financial Statements.
Operating Results by Industry Segment Sara Lee Corporation (NYSE)
---------------------------
(in millions) Thirteen Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------- -------------------
March 27, March 29, Percent March 27, March 29, Percent
2004 2003 Change 2004 2003 Change
--------- --------- ------- --------- --------- -------
Sara Lee
Meats $ 976 $ 871 12.0 % $ 97 $ 72 32.1 %
Sara Lee Bakery 810 767 5.7 26 11 NM
Beverage 801 706 13.4 140 119 18.3
Household
Products 599 512 17.0 109 82 32.2
Branded Apparel 1,562 1,495 4.4 142 185 (23.4)
--------- --------- ------- --------- --------- -------
Total sales
and operating
segment
income 4,748 4,351 9.1 514 469 9.3
Intersegment
sales (3) (1) NM -- -- --
Amortization
of identifiable
intangibles -- -- -- (28) (25) (13.5)
General corporate
expenses -- -- -- (106) (67) (59.0)
Contingent sale
proceeds -- -- -- 119 -- --
--------- --------- ------- --------- --------- -------
Total net sales
and operating
income 4,745 4,350 9.1 499 377 31.7
Net interest
expense -- -- -- (42) (49) 15.6
--------- --------- ------- --------- --------- -------
Net sales and
income before
income taxes $ 4,745 $ 4,350 9.1 % $ 457 $ 328 38.8 %
========= ========= ======= ========= ========= =======
Thirty-Nine Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------- -------------------
March 27, March 29, Percent March 27, March 29, Percent
2004 2003 Change 2004 2003 Change
--------- --------- ------- --------- --------- -------
Sara Lee
Meats $ 3,054 $ 2,770 10.2 % $ 313 $ 275 13.7 %
Sara Lee
Bakery 2,517 2,451 2.7 121 77 57.4
Beverage 2,314 2,056 12.6 361 326 11.0
Household
Products 1,743 1,522 14.5 279 246 13.1
Branded Apparel 4,805 4,864 (1.2) 401 607 (33.9)
--------- --------- ------- --------- --------- -------
Total sales
and operating
segment
income 14,433 13,663 5.6 1,475 1,531 (3.7)
Intersegment
sales (5) (3) (50.7) -- -- --
Amortization of
identifiable
intangibles -- -- -- (78) (74) (6.2)
General corporate
expenses -- -- -- (265) (184) (44.0)
Contingent sale
proceeds -- -- -- 119 -- --
--------- --------- ------- --------- --------- -------
Total net sales
and operating
income 14,428 13,660 5.6 1,251 1,273 (1.8)
Net interest
expense -- -- -- (134) (147) 9.3
--------- --------- ------- --------- --------- -------
Net sales and
income before
income taxes $ 14,428 $ 13,660 5.6 % $ 1,117 $ 1,126 (0.8)%
========= ========= ======= ========= ========= =======
See accompanying Notes to Financial Statements.
Consolidated Balance Sheets Sara Lee Corporation (NYSE)
---------------------------
(in millions)
---------------------------------------------------------------------
March 27, June 28,
2004 2003
-------------- --------------
ASSETS
Cash and equivalents $ 703 $ 942
Trade accounts receivable 2,082 1,928
Inventories 2,749 2,704
Other current assets 452 378
Net assets held for sale 1 1
-------------- --------------
Total current assets 5,987 5,953
Other non-current assets 205 284
Property, net 3,307 3,350
Trademarks and other identifiable
intangibles, net 2,063 2,110
Goodwill 3,416 3,387
-------------- --------------
$ 14,978 $ 15,084
============== ==============
LIABILITIES AND EQUITY
Notes payable $ 125 $ 75
Accounts payable 1,231 1,286
Accrued liabilities 2,977 2,834
Current maturities of long-term debt 1,355 1,004
-------------- --------------
Total current liabilities 5,688 5,199
Long-term debt 4,284 5,157
Deferred income taxes 227 200
Pension obligation 1,178 1,178
Other non-current liabilities 1,037 901
Minority interest in subsidiaries 78 358
Preferred stock -- 39
Common stockholders' equity 2,486 2,052
-------------- --------------
$ 14,978 $ 15,084
============== ==============
See accompanying Notes to Financial Statements.
Notes to Financial Statements
1.) Exit and Business Disposition Activities
In the third quarter and first nine months of fiscal 2004, exit
and business disposition activities reduced diluted EPS by $0.01
and $0.02, respectively. Exit and business disposition activities
in fiscal 2003 had no net impact on diluted EPS in the third
quarter and increased that measure by $0.01 in the first nine
months.
In the third quarter of fiscal 2004, the corporation's management
approved actions to sever certain employees in its European Meat
and U.S. Bakery operations which resulted in a pretax charge of $6
million. A pretax charge of $11 million was recognized for exit
and business disposition activities in the first nine months of
fiscal 2004. This amount consists of $20 million of costs related
to severance and plant closure costs offset by $9 million of gains
related to the disposition of the corporation's minority ownership
position of Johnsonville Foods Inc., the assets of an Italian
Hosiery business and a Brazilian Household and Body Care
operation. Through the date-of-sale, the Italian Hosiery business
had sales of $44 million and an operating loss of $2 million. The
Brazilian Household and Body Care operation had net sales of $7
million through the date-of-sale and no material operating income
or loss. Cash proceeds from the sale of investments and businesses
through the first nine months of 2004 totaled $119 million. Exit
and business dispositions actions recognized in the third quarter
and first nine months of fiscal 2004 reduced net income by $4
million and $8 million, respectively.
During the first nine months of fiscal 2003, business disposition
and exit activities increased pretax profits and net income by $13
million and $12 million, respectively.
2.) Receipt of Contingent Sale Proceeds
The corporation sold its European cut tobacco business in 1999.
Under the terms of that agreement, the corporation can receive an
annual cash payment of 95 million euros if tobacco continues to be
a legal product in the Netherlands, Germany and Belgium through
2010. The legal status of tobacco in each country accounts for a
portion of the total contingency with the Netherlands accounting
for 67%, Germany 22% and Belgium 11%. If tobacco ceases to be a
legal product within any of these countries, the corporation
forfeits the receipt of all future amounts related to that
country. In January 2004, the contingencies associated with the
first payment passed and the corporation received a cash payment
of 95 million euros. This was equivalent to $119 million based
upon exchange rates on the date of receipt, and this amount was
recognized in the corporation's earnings in the third quarter of
2004. This transaction increased diluted EPS within the quarter
and nine months year-to-date by $.15 per share.
CONTACT: Sara Lee Corporation
Media:
Julie Ketay, 312.558.8727
Analysts:
Aaron Hoffman, 312.558.8739
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