BW20030424002041 20030424T114302Z UTC
( BW)(SARA-LEE)(SRL) 3rd Quarter Results
Business Editors
UK REGULATORY NEWS
CHICAG0--(BUSINESS WIRE)--April 24, 2003--
Sara Lee Reports Increased Sales and Earnings for Fiscal
2003 Third Quarter
Cash flow from operations for first nine months exceeds $1.2 billion,
up more than 30%
Marketing spending up 23%, with significant increases targeted
to strengthen key brands
Strategy for growth continues in challenging economic environment
Sara Lee Corporation today reported diluted earnings per share (EPS)
of $.33 for the third quarter of fiscal 2003, a 6% increase compared
to $.31 one year ago. For the first nine months of fiscal 2003,
diluted EPS were $1.13 compared to $.80 for the first nine months of
fiscal 2002, a 41% increase.
For the third quarters of fiscal 2002 and 2003, restructuring and
business disposition activities had no net impact on EPS. Results for
the nine-month periods include restructuring and business disposition
activities that increased EPS by $.01 in fiscal 2003 and reduced EPS
by $.14 in fiscal 2002.
Fiscal 2003 third quarter sales increased 4% to $4.4 billion, and
nine-month sales also rose 4% to $13.7 billion. Favorable foreign
currency rates increased sales by six percentage points for the
quarter and four percentage points for the nine-month period. The
year-to-date period also benefited by two percentage points from an
additional five weeks of Earthgrains' results in the first quarter of
fiscal 2003. Unit volumes, excluding acquisitions and divestitures,
fell 2% in the third quarter and declined 1% through the first nine
months versus the prior year.
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. Significant items affecting operating segment income in the
third quarter included income from restructuring and business
disposition activities of $5 million in fiscal 2002 and $1 million in
fiscal 2003; operating losses related to businesses sold of $5 million
in fiscal 2002; and a foreign currency benefit of $37 million in the
most recent period. Through the first nine months, significant items
included costs from restructuring and business disposition activities
of $183 million in fiscal 2002 and income of $13 million in fiscal
2003; and operating losses related to businesses sold of $10 million
in fiscal 2002 and income of acquired businesses, primarily The
Earthgrains Company, of $21 million in fiscal 2003. In addition,
favorable foreign currency comparisons added $76 million to operating
segment income through the first nine months of fiscal 2003.
Excluding these significant items, total operating segment income fell
5% in the third quarter reflecting significantly higher marketing
spending to support key brands and new product introductions,
challenging market conditions in the foodservice sector and weakness
among some retail customers. In addition, the results were negatively
affected by a $6 million pretax charge to increase reserves for
amounts due from Fleming Companies Inc., a grocery products
distributor that recently filed for bankruptcy. Through the first nine
months, excluding significant items, operating segment income grew 3%,
reflecting incremental savings from the company's restructuring
activities and increased sales of higher margin products in response
to strengthened marketing initiatives.
Cash flow from operations exceeded $1.2 billion for the nine-month
period of fiscal 2003 compared to $930 million for the year ago
period, an increase of more than 30%.
Both media advertising and other advertising and promotions increased
23% in the quarter. All five lines of business reported higher
marketing spending, with double-digit increases in Meats, Bakery,
Beverage, and Intimates and Underwear. Through nine months, media
advertising and promotion spending increased 12%.
"We remain committed to our strategic plans for growth in this
challenging economic environment, " said C. Steven McMillan, chairman,
president and chief executive officer of Sara Lee Corporation.
"Sara Lee's businesses continue to benefit from incremental cost
savings and increased productivity related to previous restructuring
activities. 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,
but we continue to focus our resources to provide convenient, everyday
items that look, feel or taste terrific."
Restructuring and Business Disposition Activities
During the third quarters of fiscal 2003 and 2002, the corporation
completed certain restructuring and business disposition activities
for amounts that were less than previously reflected in the financial
statements. The recognition of these transactions increased pretax
income by $1 million in fiscal 2003 and $5 million in fiscal 2002. No
new restructuring reserves were recognized in either quarter.
Restructuring and business disposition activities in the first nine
months of fiscal 2003 increased pretax income, net income and diluted
EPS by $13 million, $12 million and $.01 per share, respectively.
During the first nine months of fiscal 2003, the corporation completed
certain restructuring activities for amounts that were less than
previously reflected in the financial statements, and the recognition
of these completed transactions increased pretax income and net income
by $30 million and $21 million, respectively. The corporation also
completed the disposition of certain businesses for proceeds in excess
of those previously anticipated, and these actions increased pretax
income and net income by $5 million. The favorable outcome of the
completed restructuring and business disposition activities increased
pretax income, net income and diluted EPS by $35 million, $26 million
and $.03, respectively. Offsetting this amount was the recognition of
a charge associated with a decision to restructure the operations of
the Sara Lee Bakery segment. These actions reduced pretax income, net
income and diluted EPS by $22 million, $14 million and $.02,
respectively.
In the first nine months of fiscal 2002, the corporation's management
approved a series of actions to reduce the number of employees, to
exit leases and to dispose of assets. In addition, the corporation
completed certain restructuring and business disposition activities
that were previously recognized in the financial statements. The net
impact of these actions was to reduce pretax income, net income and
diluted EPS in the first nine months of fiscal 2002 by $183 million,
$111 million and $.14 per share, respectively.
As a result of the restructuring actions taken, the corporation's cost
structure was reduced and efficiency improved. It is estimated that
operating income in the third quarter and first nine months of fiscal
2003 included $34 million and $99 million, respectively, of
incremental benefits over those realized in the comparable periods of
the prior year.
Performance Review
A performance review for each line of business follows. Unit volumes
exclude acquisitions and divestitures unless otherwise noted. All
dollar amounts are in millions.
SARA LEE MEATS
Third Quarter Change Nine Months Change
----------------------------------------
2003 2002 2003 2002
Sales $871 $869 0%$2,770 $2,803 (1)%
Operating Segment Income $72 $78 (7)% $275 $219 26%
Significant items impacting
comparability:
Restructuring/Business exit
costs/(income) $1 -- $(7) $35
Strengthening of foreign
currencies $(4) -- $(9) --
(Income)/Loss of
acquired/sold businesses -- $1 $(1) $1
----------------------------------------
Operating segment income
before significant items $ 69 $ 79 (12)% $ 258 $ 255 2%
----------------------------------------
-- Sara Lee Deli Meats and Jimmy Dean Fresh Taste. Fast! breakfast
products enjoy continued marketplace success
-- Media advertising and promotion spending up 13%
-- European profits show good gains
-- Lower foodservice sales reflect sector weakness
Sara Lee Meats is a leader in the branded, packaged meat business in
the United States, Europe and Mexico.
Third quarter sales were flat, and year-to-date sales fell 1%.
Excluding the impact of acquisitions, divestitures and favorable
foreign currency rates, sales fell 3% in the third quarter and
declined 4% through nine months due to the impact of stronger trade
promotion support, a challenging foodservice environment and lower
pricing due to lower commodity costs.
Operating segment income fell 7% to $72 million in the third quarter,
while nine-month operating segment income rose 26% to $275 million;
the nine-month results included restructuring costs of $35 million in
fiscal 2002 and income from restructuring and business disposition
activities of $7 million in fiscal 2003. The strengthening of the euro
versus the U.S. dollar increased operating segment income for both
fiscal 2003 periods, while acquisitions and dispositions had a modest
impact on the quarter and nine-month periods.
Excluding these significant items, operating segment income for the
third quarter fell 12% as increased marketing spending, lower
foodservice volumes and higher distribution and warehouse costs offset
lower raw material costs and gains in Europe. For the first nine
months of fiscal 2003, operating segment income, excluding significant
items, rose 2%.
Media advertising and promotion spending for Sara Lee Meats increased
13% during the quarter, and was flat through the first nine months.
Global unit volumes for Sara Lee Meats were flat in the third quarter,
combining a 2% decline in both the United States and Europe with a 12%
increase in Mexico. U.S. branded retail volumes fell 1%, primarily
reflecting the timing of Easter sales that contributed to third
quarter results last year and will add to fourth quarter volumes in
fiscal 2003. By major category, Sara Lee Meats enjoyed increased unit
sales for hot dogs, breakfast sausages, lunchmeats, corn dogs and
breakfast sandwiches. Jimmy Dean Fresh Taste. Fast! breakfast sausages
and sandwiches continue to drive growth in the sausage category, and
new Jimmy Dean frozen croissant sandwiches are becoming one of the
top-selling sandwich products where they are distributed. Since its
introduction, Hillshire Farm Ultra Thin sliced lunchmeat is exceeding
expectations for distribution into stores. U.S. deli volumes grew 12%,
reflecting continued customer and consumer acceptance of the company's
Sara Lee Deli lunchmeat and sandwich products. Foodservice volumes in
the United States declined 8% in the third quarter in response to
lower customer demand. For the first nine months, global unit volumes
grew 1%, with flat sales in both the United States and Europe, and a
6% increase in Mexico.
SARA LEE BAKERY
Third Quarter Change Nine Months Change
----------------------------------------
2003 2002 2003 2002
Sales $767 $774 (1)%$2,451 $2,173 13%
Operating Segment Income $11 $29 (63)% $77 $67 14%
Significant items impacting
comparability:
Restructuring/Business exit
costs/(income) -- -- $18 $51
Strengthening of foreign
currencies $(2) -- $(4) --
(Income)/Loss of acquired/sold
businesses -- $1 $(17) $1
----------------------------------------
Operating segment income
before significant items $9 $ 30 (73)% $74 $119 (39)%
----------------------------------------
-- Profit strength in Europe offset by lower U.S. income
-- New products capitalize on the strength of the Sara Lee brand
-- Streamlining manufacturing capacity and eliminating low-volume
regional brands will improve efficiency and profitability
Sara Lee Bakery is a leader in the U.S. fresh baked goods market, with
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.
Sara Lee Bakery's third quarter sales declined 1% as lower volumes in
regional fresh bread brands and foodservice in the United States
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 to $2.2
billion for last year, including an additional five weeks of
Earthgrains' results in the first quarter of fiscal 2003. Excluding
acquisitions and the strengthening of foreign currencies versus the
U.S. dollar, sales for the quarter fell 4%, and sales for the
nine-month period declined 2%.
Sara Lee Bakery's third quarter operating segment income declined to
$11 million from $29 million a year ago. For the first nine months,
operating segment income increased to $77 million from $67 million a
year ago. While the nine-month fiscal 2003 results included the
benefit of $17 million in operating segment income from an additional
five weeks of Earthgrains' results in the first quarter, restructuring
and business exit costs reduced operating segment income by $18
million in fiscal 2003 and by $51 million in fiscal 2002. There was a
modest benefit from favorable foreign currency exchange rates for both
the third quarter and nine-month period in fiscal 2003.
Excluding these significant items, the declines in operating segment
income for the third quarter resulted from lower volumes in regional
fresh bread brands and foodservice in the United States, higher
employee and commodity costs, and increased investment and marketing
spending in support of new products, partially offset by savings from
restructuring actions initiated in the second quarter of fiscal 2003.
Media advertising and promotion spending for Sara Lee Bakery increased
54% in the third quarter, with spending to support the segment's key
brands more than double year-ago levels. Media advertising and
promotion spending rose 29% in the first nine months reflecting
increased base business spending levels and the inclusion of an
additional five weeks of Earthgrains' media advertising and promotion
spending in the first quarter of fiscal 2003.
Sara Lee breads were launched systemwide during the second quarter,
and in less than six months this product line has become Sara Lee
Bakery's largest domestic bread brand, with an annualized sales rate
that currently exceeds $100 million. IronKids crustless bread,
launched last spring, has established a successful market position,
complementing sales of regular IronKids bread. In Europe, Bimbo
crustless white bread sales continue to grow in Spain following the
introduction of a second production line. This increased production
capacity also enabled the introduction of crustless wheat bread in
Spain and the successful launch of crustless white and wheat breads in
Portugal. With the continuing increase in demand, the company plans to
add an additional production line.
Global bakery unit volumes declined 2% in the third quarter. U.S.
fresh bakery volumes fell 3% as strength in Sara Lee and IronKids
products was offset by lower regional brand sales. U.S. frozen units
fell 13%, including a 4% decline in retail volumes, which partially
reflects Easter sales that occurred in the third quarter of last year
and will add to fourth quarter sales this year, and a 17% decline in
foodservice volumes. European fresh bakery unit volumes increased 3%,
Australian bakery units rose 4%, and refrigerated dough units
increased 2% in the United States and were flat in Europe. For the
nine-month period, global bakery unit volumes were down 2%, combining
a 2% decline in the United States with a 2% increase in Europe and a
5% increase in Australia.
Sara Lee Bakery management has previously discussed the need to
minimize complexity by reducing the number of brands and products it
sells. As part of its efforts to improve margins and profit growth,
Sara Lee Bakery intends to eliminate approximately 60 small regional
fresh bread brands, approximately 45 of which will be discontinued
during the fourth quarter of fiscal 2003.
Sara Lee Bakery also intends to close three U.S. fresh bakery
manufacturing facilities during the fourth quarter of 2003. These
closings, which will bring to 10 the number of fresh bakeries closed
in the United States since Sara Lee Corporation acquired The
Earthgrains Company in August 2001, will further streamline and
strategically improve Sara Lee Bakery's manufacturing network.
BEVERAGE
Third Quarter Change Nine Months Change
----------------------------------------
2003 2002 2003 2002
Sales $706 $601 18%$2,056 $1,897 8%
Operating Segment Income $119 $102 16% $326 $314 4%
Significant items impacting
comparability:
Restructuring/Business exit
costs/(income) -- -- -- $7
Strengthening of foreign
currencies $(17) -- $(34) --
(Income)/Loss of acquired/sold
businesses -- -- $(3) --
----------------------------------------
Operating segment income
before significant items $102 $ 102 (1)% $289 $ 321 (10)%
----------------------------------------
-- Increased sales and profits in European retail and out-of-home
businesses
-- Continued market share gains for the Senseo coffee system in Europe
-- Challenging U.S. retail and out-of-home markets
Sara Lee Beverage is one of the largest producers of roast and ground
coffee in the world and is number one in the global out-of-home coffee
market. Its primary markets are Europe, the United States and Brazil.
Sales for Beverage rose 18% in the third quarter and increased 8%
through the first nine months. Excluding the impact of changes in
foreign currency rates and acquisitions, sales increased 7% in the
quarter and rose 1% through nine months. Business trends continued to
be mixed in the quarter, with sales gains in Europe and Brazil offset
by weakness in the United States.
Operating segment income increased 16% in the quarter, as the
strengthening of foreign currencies favorably impacted results by $17
million. Through nine months, operating segment income rose 4%, which
included restructuring and business exit costs that lowered fiscal
2002 results by $7 million; and favorable foreign currency comparisons
and income from an acquired business that contributed $34 million and
$3 million, respectively, to fiscal 2003 results.
Before significant items, operating segment income for Beverage fell
1% in the third quarter and fell 10% through nine months, reflecting
higher European profits in both periods that were offset by continued
weakness in U.S. markets and marketing investments for the Senseo
coffee system in Europe.
Media advertising and promotion spending rose 24% in the third quarter
and increased 36% for the first nine months, with considerable funds
devoted to the rollout of the Senseo retail coffee product into new
markets. The Senseo coffee system continues to increase market share
in the Netherlands, Belgium, France and Germany.
Global unit sales of roasted coffee and concentrate products were flat
for the third quarter. On a geographic basis, volumes increased 3% in
Europe, rose 7% in Brazil and declined 8% in the United States. 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 United States. For the first nine
months, global unit volumes fell 2%, reflecting a 1% increase in
Europe, a 2% decline in Brazil and a 5% decline in the United States.
HOUSEHOLD PRODUCTS
Third Quarter Change Nine Months Change
----------------------------------------
2003 2002 2003 2002
Sales $512 $464 10%$1,522 $1,428 7%
Operating Segment Income $82 $78 5% $246 $233 6%
Significant items impacting
comparability:
Restructuring/Business exit
costs/(income) -- -- -- --
Strengthening of foreign
currencies $(10) -- $(20) --
(Income)/Loss of acquired/sold
businesses -- -- -- --
----------------------------------------
Operating segment income
before significant items $72 $ 78 (8)% $ 226 $ 233 (3)%
----------------------------------------
-- Distribution and geographic penetration for body-care products
expands
-- Direct Selling results in most recent period improves
Household Products is Sara Lee's most global business, with leading
positions in four core product categories: body care, air care, shoe
care and insecticides, plus a Direct Selling business in select
markets.
Sales grew 10% in the third quarter and operating segment income
increased 5%. Excluding the impact of currency movements, sales fell
1% and operating segment income declined 8% as increased sales and
income for Direct Selling were offset by lower results from
traditional household and body care operations. For the first nine
months, sales for the Household Products line of business grew 7% and
operating segment income increased 6% to $246 million. Excluding the
impact of currency movements, sales increased 1% and operating segment
income fell 3%.
Media advertising and promotion spending for this line of business
grew 6% in the quarter, combining a 2% increase in media spending with
a 14% increase in other advertising and promotional activities.
Through nine months, media advertising and promotion spending was up
2%.
Unit volumes for this segment's four core categories were flat in the
quarter, as increased unit sales in the body care, air care and
insecticide segments were offset by declines in shoe care. Sanex
deodorants sold well as the company expanded the market reach of this
well-known pan-European brand. Household Products global unit volumes
increased 2% for the nine-month period.
INTIMATES AND UNDERWEAR
Third Quarter Change Nine Months Change
----------------------------------------
2003 2002 2003 2002
Sales $1,495 $1,495 0%$4,864 $4,840 0%
Operating Segment Income $185 $167 11% $607 $354 71%
Significant items impacting
comparability:
Restructuring/Business exit
costs/(income) $(2) $(5) $(24) $90
Strengthening of foreign
currencies $(4) -- $(9) --
(Income)/Loss of acquired/sold
businesses -- $3 -- $8
----------------------------------------
Operating segment income
before significant items $ 179 $ 165 8% $ 574 $ 452 27%
----------------------------------------
-- Strong key brand sales include Playtex, Dim, Bali, Unno and barely
there
-- Challenging retail environment affects unit sales
-- Consolidation efforts continue to improve profitability
Sara Lee's Intimates and Underwear 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.
Intimates and Underwear sales were flat in both the third quarter and
nine months. Excluding the results of business dispositions and the
impact of favorable foreign currency rates, sales for the quarter and
nine months fell 5% and 2%, respectively, primarily reflecting lower
sheer hosiery revenues. Unit volumes fell 3% in the quarter, and
declined 1% through nine months.
Operating segment income for Intimates and Underwear increased 11% in
the quarter and grew 71% through the first nine months. Third quarter
operating segment income was affected by restructuring and business
disposition activities and losses related to sold businesses that
increased fiscal 2002 and fiscal 2003 results by $2 million;
nine-month operating segment income was affected by restructuring and
business disposition activities and losses related to sold businesses
that decreased fiscal 2002 results by $98 million and increased fiscal
2003 results by $24 million. In addition, foreign currency comparisons
added $4 million and $9 million, respectively, to fiscal 2003 third
quarter and nine-month results.
Excluding these significant items, Intimates and Underwear operating
segment income rose 8% for the quarter and increased 27% for the first
nine months. The business continues to benefit from significant cost
savings and production efficiencies driven by restructuring activities
undertaken during the past two years, allowing for increased spending
for marketing and new product development activities. From a business
segment perspective, all three product areas - legwear, knit products
and intimate apparel - reported increased operating segment income
during the nine-month period.
Driven by a 47% increase in media spending, total media advertising
and promotion spending for Intimates and Underwear increased 38% in
the third quarter, led by strong double-digit increases for a number
of the segment's largest brands, including Hanes, Hanes Her Way,
Playtex, Dim, Just My Size and barely there. Media advertising and
promotion spending rose 10% through nine months.
Worldwide unit volumes for intimate apparel products were flat during
the third quarter. U.S. unit sales grew 2% compared against an
unusually strong 10% increase in last year's third quarter. Department
store sales for Bali and Playtex products increased nicely, but were
partially offset by weakness in the U.S. discount sector. The company
continued to increase its number-one dollar share of the U.S. bra
market, up more than two points over the last 12 months to 28.3%.
European unit volumes fell 2% in the third quarter as increased sales
of Dim products were offset by weaker private label sales in the
United Kingdom. Through nine months, intimate apparel unit volumes
increased 2%, including a 4% increase in the United States and a 1%
increase in Europe.
Global knit product unit volumes fell 4% in the third quarter as lower
underwear volumes offset increases in worldwide activewear sales. U.S.
activewear volumes grew 7%, driven by gains in printables, up 13%,
casualwear, up 3%, and Champion branded products, up 5%. U.S.
underwear volumes fell 9%, reflecting slow retail sales over the past
few months as well as a difficult comparison against a strong year-ago
period, when volumes rose 6%. The company's number-one unit market
shares continued to increase for both men's and boys' and women's and
girls' products in the United States over the last 12 months, rising
to 37.8% and 34.3%, respectively. In Europe, unit sales fell 5% in the
third quarter, primarily reflecting challenging market conditions in
the U.K. private-label market. Through nine months, global unit
volumes were up 1%, with unit sales in both the United States and
Europe up 1%.
Legwear unit volumes worldwide fell 10%. Sheer hosiery unit sales
declined 13%, reflecting continued market weakness and further product
line rationalization in major global markets. Worldwide sock sales
fell slightly, down 4%, compared against an unusually strong 19%
increase in last year's third quarter. The company increased its
number-one unit share of the U.S. sock category over the last 12
months by more than two points to 20.7%, widening its lead over the
number-two competitor to nearly 10 market share points. In the U.S.
sheer hosiery market, the company increased its dollar share by nearly
four points to 55.3% for the most recent 12-month period. Through nine
months, global legwear unit sales fell 6%, combining a 12% decline in
sheer hosiery volumes with a 4% increase in sock volumes.
Corporate Interest Expense, Tax Rate and Share Repurchase
Net interest expense was $49 million for the quarter and $147 million
for the first nine months compared with $51 million in last year's
third quarter and $162 million for the year-ago nine months. Interest
expense decreased as the company benefited from lower interest rates
and the use of strong cash flow to reduce debt levels. During the
third quarter, the corporation redeemed $250 million of debt with an
8.5% interest rate; the company recognized a loss of $9 million on
this transaction, but will benefit from lower interest payments in
future periods.
The tax rate for the third quarter was 18% compared to 16% in the
year-ago quarter, with no net impact from restructuring activities.
For the first nine months of fiscal 2003, the tax rate was 18%
compared to 13% a year ago, including restructuring and business
disposition activities; excluding restructuring and business
disposition activities, the tax rate was 18% in both fiscal years.
During the third quarter of fiscal 2003, Sara Lee Corporation
repurchased 6.7 million shares of its common stock at an average price
of $19.68 per share. On a fiscal year-to-date basis, the company has
repurchased 14.7 million shares at an average price of $19.30 per
share. Approximately 54 million shares remain authorized by the Board
of Directors for repurchase.
Outlook
Sara Lee's management currently expects diluted EPS for the fourth
quarter of fiscal 2003 to fall within a range of $.36 to $.38 compared
to $.43 in the year-ago period. These projections include expected
costs of approximately $17 million to $19 million pretax, or $.01 to
$.02 per share after tax, for plant closings and the discontinuation
of low-margin regional fresh bread brands at the company's Bakery
operations, and restructuring initiatives related to the company's
foodservice coffee operations in the United States. Fourth quarter
2002 EPS included income from restructuring and business disposition
activities of $.01 per share after tax, related primarily to Intimates
and Underwear.
Full-year fiscal 2003 diluted EPS are expected to be in a range of
$1.49 to $1.51, compared to $1.23 in fiscal 2002. Fiscal 2002 results
included expenses related to the company's restructuring program
totaling $.12 per share after tax, while fiscal 2003 results are
expected to include expenses related to restructuring activities of up
to $.01 per share after tax.
By line of business, management expects increased operating segment
income in the fourth quarter for Sara Lee Meats, driven by higher
retail and deli product sales and savings from the company's
restructuring program. Excluding the costs related to plant closings
and the discontinuation of certain regional brands, Sara Lee Bakery
operating segment income is expected to increase, benefiting from
cost-reduction actions implemented earlier in the year as well as
higher net prices due to more efficient trade spending. The Beverage
group is expected to show lower operating segment income, as operating
results and restructuring activities in the United States offset
continued strong results in Europe. Household Products operating
segment income will benefit from continued volume growth in its core
categories and improved results from the Direct Selling operations. In
the Intimates and Underwear line of business, operating segment income
is expected to be below last year's results, reflecting a difficult
comparison against a strong fourth quarter of fiscal 2002 and current
challenges in the retail environment.
Webcast
Janet Bergman, senior vice president, corporate relations, will
discuss the third quarter results live via the Internet today at 9:30
a.m. CDT. The live webcast can be accessed at www.saralee.com, and
will last approximately one hour. For people who are unable to listen
to the webcast live, it will be archived two hours following the
completion of the webcast under the "What's New" section of the Sara
Lee corporate Web site until Thursday, May 8, 2003.
Forward-looking statements
This news release contains certain forward-looking statements
concerning Sara Lee's expected fiscal year 2003 financial results.
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.
Factors that could cause Sara Lee's actual results to differ
materially from such forward-looking statements include 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 reduction in Sara Lee's business with any of its
major customers, such as Wal-Mart, the corporation's largest customer,
including a reduction resulting from adverse developments in the
customer's business; (iv) the impact of declines in equity markets on
the funded status and annual expense of the corporation's defined
benefit pension plans and the impact of such market declines on
consumer spending; (v) Sara Lee's ability to continue to source
production and conduct manufacturing and selling operations in various
countries in the world 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 availability of
new acquisitions, joint ventures and alliance opportunities that build
stockholder value; (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; (x) credit and other business risks associated
with customers operating in a highly competitive retail environment;
and (xi) inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer
acceptance. 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.
Consequently, the company wishes to caution readers not to place undue
reliance on any forward-looking statements. We have provided
additional information in our Form 10-K for fiscal year 2002 and in
our quarterly reports on Form 10-Q, 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, Intimates and Underwear, 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.
Sara Lee Corporation
Executive Summary of Performance
Third quarter fiscal 2003 Percentage change
----------------------------------------------------------------------
Sara Sara Intimates
Lee Lee Household and Total
MeatsBakeryBeverageProducts Underwear SLE
-------------------------------------------
Net sales 0% (1)% 18% 10% 0% 4%
Significant items impacting
net sales -
Strengthening of foreign
currencies (4)% (3)% (11)% (11)% (5)% (6)%
(Income)/Loss of
acquired/sold
businesses 1% 0% 0% 0% 0% 0%
-------------------------------------------
Net sales before
significant items (3)% (4)% 7% (1)% (5)% (2)%
Operating segment income (7)% (63)% 16% 5% 11% 3%
Significant items impacting
operating segment income -
Restructuring/Business
exit costs/(income) 1% (1)% 0% 0% 2% 1%
Strengthening of foreign
currencies (6)% (8)% (17)% (13)% (3)% (8)%
(Income)/Loss of
acquired/sold
businesses 0% (1)% 0% 0% (2)% (1)%
-------------------------------------------
Operating segment income
before significant items (12)% (73)% (1)% (8)% 8% (5)%
Unit volumes(a) 0% (2)% 0% 0% (3)% (2)%
Diluted earnings per share 6%
Total advertising and
promotional expense(b) 13% 54% 24% 6% 38% 23%
Media advertising
expense(b) 6% 124% 37% 2% 47% 23%
Promotional expense(b) 24% 3% 15% 14% 34% 23%
---------------------------
(a) Excludes acquisitions and divestitures.
(b) Does not include amounts related to divested businesses.
Sara Lee Corporation
Executive Summary of Performance
First nine months fiscal 2003 Percentage change
----------------------------------------------------------------------
Sara Sara Intimates
Lee Lee Household and Total
MeatsBakery Beverage Products Underwear SLE
--------------------------------------------
Net sales (1)% 13% 8% 7% 0% 4%
Significant items
impacting net sales -
Strengthening of
foreign currencies (3)% (2)% (6)% (6)% (3)% (4)%
(Income)/Loss of
acquired/sold
businesses 0% (13)% (1)% 0% 1% (2)%
--------------------------------------------
Net sales before
significant items (4)% (2)% 1% 1% (2)% (2)%
Operating segment income 26% 14% 4% 6% 71% 29%
Significant items
impacting operating
segment income -
Restructuring/Business
exit costs/(income) (20)% (34)% (3)% (1)% (40)%(18)%
Strengthening of
foreign currencies (3)% (4)% (10)% (8)% (2)% (6)%
(Income)/Loss of
acquired/sold
businesses (1)% (15)% (1)% 0% (2)% (2)%
--------------------------------------------
Operating segment income
before significant items 2% (39)% (10)% (3)% 27% 3%
Unit volumes(a) 1% (2)% (2)% 2% (1)% (1)%
Diluted earnings per share 41%
Total advertising and
promotional expense(b) 0% 29% 36% 2% 10% 12%
Media advertising
expense(b) 3% 38% 21% 4% 21% 13%
Promotional expense(b) (6)% 13% 49% 0% 5% 11%
--------------------------
(a) Excludes acquisitions and divestitures.
(b) Does not include amounts related to divested businesses.
Consolidated Statements of Income
Sara Lee Corporation (NYSE)
(in millions except per share amounts)
----------------------------------------------------------------------
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------- --------------------------
March March March March
29, 30, Percent 29, 30, Percent
2003 2002 Change 2003 2002 Change
-------- ------- -------- -------- -------- --------
Net sales $ 4,350 $4,200 3.6 % $13,660 $13,133 4.0 %
-------- ------- -------- --------
Cost of
sales 2,604 2,576 8,230 8,184
Cost of sales -
product line
exit costs -- (3) -- (7)
Selling,
general and
administrative
expenses 1,370 1,271 4,170 3,849
(Income from)
charges for
exit activities
and business
dispositions (1) (2) (13) 190
Interest
expense 70 70 205 224
Interest
income (21) (19) (58) (62)
-------- ------- --------- --------
4,022 3,893 12,534 12,378
-------- ------- -------- --------
Income
before income
taxes 328 307 7.3 1,126 755 49.2
Income taxes 59 50 201 96
-------- ------- -------- --------
Net income $ 269 $ 257 4.7 $ 925 $ 659 40.3
======== ======= ======== ========
Net income
per common share
Basic $ 0.34 $ 0.32 6.3 $ 1.17 $ 0.83 41.0
======== ======= ======== ========
Diluted $ 0.33 $ 0.31 6.5 $ 1.13 $ 0.80 41.3
======== ======= ======== ========
Average shares
outstanding
Basic 781 786 782 784
======== ======= ======== ========
Diluted 813 819 814 818
======== ======= ======== ========
Operating Results by Industry Segment
Sara Lee Corporation (NYSE)
(in millions) Thirteen Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------ ------------------
March 29,March 30,PercentMarch 29,March 30,Percent
2003 2002 Change 2003 2002 Change
-------- -------- ------ -------- -------- ------
Sara Lee Meats $ 871 $ 869 0.1% $ 72 $ 78 (7.3)%
Sara Lee Bakery 767 774 (0.9) 11 29 (63.4)
Beverage 706 601 17.8 119 102 15.9
Household Products 512 464 10.3 82 78 5.3
Intimates and
Underwear 1,495 1,495 -- 185 167 11.3
-------- -------- ------ -------- -------- ------
Total sales and
operating
segment income 4,351 4,203 3.5 469 454 3.3
Intersegment sales (1) (3) 82.8 -- -- --
Amortization of
identifiable
intangibles -- -- -- (25) (21) (17.6)
General corporate
expenses -- -- -- (67) (75) 12.3
-------- -------- ------ -------- -------- ------
Total net sales and
operating income 4,350 4,200 3.6 377 358 5.8
Net interest expense -- -- -- (49) (51) 2.9
-------- -------- ------ -------- -------- ------
Net sales and income
before income taxes $ 4,350 $ 4,200 3.6% $ 328 $ 307 7.3%
======== ======== ====== ======== ======== ======
Thirty-Nine Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------ ------------------
March 29,March 30,PercentMarch 29,March 30,Percent
2003 2002 Change 2003 2002 Change
-------- -------- ------ -------- -------- ------
Sara Lee Meats $ 2,770 $ 2,803 (1.2)% $ 275 $ 219 25.6%
Sara Lee Bakery 2,451 2,173 12.8 77 67 13.9
Beverage 2,056 1,897 8.4 326 314 3.8
Household Products 1,522 1,428 6.6 246 233 5.9
Intimates and
Underwear 4,864 4,840 0.5 607 354 71.4
-------- -------- ------ -------- -------- ------
Total sales and
operating
segment income 13,663 13,141 4.0 1,531 1,187 29.0
Intersegment sales (3) (8) 62.2 -- -- --
Amortization of
identifiable
intangibles -- -- -- (74) (52) (41.3)
General corporate
expenses -- -- -- (184) (218) 15.4
-------- -------- ------ -------- -------- ------
Total net sales and
operating income 13,660 13,133 4.0 1,273 917 38.8
Net interest expense -- -- -- (147) (162) 9.4
-------- -------- ------ -------- -------- ------
Net sales and income
before income taxes $ 13,660 $ 13,133 4.0% $ 1,126 $ 755 49.2%
======== ======== ====== ======== ======== ======
See accompanying notes to financial statements.
Sara Lee Corporation (NYSE)
Consolidated Balance Sheets
(in millions)
----------------------------------------------------------------------
March 29, June 29,
2003 2002
---------- ----------
ASSETS
Cash and equivalents $ 257 $ 298
Trade accounts receivable 1,806 1,831
Inventories 2,640 2,509
Other current assets 327 341
Net assets of businesses held for sale -- 7
---------- ----------
Total current assets 5,030 4,986
Other non-current assets 242 192
Property, net 3,230 3,155
Trademarks and other identifiable intangibles, net 2,092 2,106
Goodwill, net 3,340 3,314
---------- ----------
$ 13,934 $ 13,753
========== ==========
LIABILITIES AND EQUITY
Notes payable $ 471 $ 468
Accounts payable 1,142 1,321
Accrued liabilities 2,851 2,953
Current maturities of long-term debt 1,136 721
---------- ----------
Total current liabilities 5,600 5,463
Long-term debt 3,999 4,326
Deferred income taxes 530 534
Other non-current liabilities 1,129 1,038
Minority interest in subsidiaries 379 632
Preferred stock 16 18
Common stockholders' equity 2,281 1,742
---------- ----------
$ 13,934 $ 13,753
========== ==========
Notes to Financial Statements
1.) Restructuring and Business Disposition Activities
During the third quarters of fiscal 2003 and 2002, the corporation
completed certain restructuring and business disposition activities
for amounts that were less than previously reflected in the financial
statements. The recognition of these transactions increased pretax
income by $1 million in fiscal 2003 and $5 million in fiscal 2002. No
new restructuring reserves were recognized in either quarter.
Restructuring and business disposition activities taken in the first
nine months of fiscal 2003 increased pretax income, net income and
diluted EPS by $13 million, $12 million and $.01 per share
respectively. During the first nine months of fiscal 2003, the
corporation completed certain restructuring activities for amounts
that were less than previously reflected in the financial statements,
and the recognition of these completed transactions increased pretax
income and net income by $30 million and $21 million, respectively.
The corporation also completed the disposition of certain businesses
for proceeds in excess of those previously anticipated, and these
actions increased pretax income and net income by $5 million. The
favorable outcome of the completed restructuring and business
disposition activities increased pretax income, net income and diluted
EPS by $35 million, $26 million and $.03, respectively. Offsetting
this amount was the recognition of a charge associated with a decision
to restructure the operations of the Sara Lee Bakery segment. These
actions reduced pretax income, net income and diluted EPS by $22
million, $14 million and $.02, respectively.
In the first nine months of fiscal 2002, the corporation's management
approved a series of actions to reduce the number of employees, exit
leases and dispose of assets. In addition, the corporation completed
certain restructuring and business disposition activities that were
previously recognized in the financial statements. The net impact of
these actions was to reduce pretax income, net income and diluted EPS
in the first nine months of 2002 by $183 million, $111 million and
$.14 per share, respectively.
As a result of the restructuring actions taken, the corporation's cost
structure was reduced and efficiency improved. It is estimated that
operating income in the third quarter and first nine months of fiscal
2003 included $34 million and $99 million, respectively, of
incremental benefits over those realized in the comparable periods of
the prior year.
2.) Significant Items
Several significant items, including the impact of exit activities and
business dispositions, changes in foreign currency exchange rates and
acquisitions, impacted the corporation's results of operations during
the third quarter and first nine months of fiscal year 2003 and 2002.
The following table summarizes the impact of these items on operating
income
(In Millions)
Third Quarter Nine Months
------------------------ ------------------------
% %
2003 2002 Change 2003 2002 Change
-------- -------- ------ -------- -------- ------
Sales $ 4,350 $ 4,200 3.6% $ 13,660 $ 13,133 4.0%
======== ======== ====== ======== ======== ======
Total operating
segment income $ 469 $ 454 3.3% $ 1,531 $ 1,187 29.0%
Significant items
impacting
comparability
Restructuring/
business exit
costs/(income) (1) (5) (13) 183
Strengthening of
foreign
currencies (37) - (76) -
(Income)/loss of
acquired/sold
businesses - 5 (21) 10
-------- -------- ------ -------- -------- ------
Total operating
segment income
before
significant
items $ 431 $ 454 (5.3%)$ 1,421 $ 1,380 2.9%
3.) Acquisition of Earthgrains
In the first quarter of fiscal 2002, the corporation acquired the
outstanding common shares of The Earthgrains Company (Earthgrains).
Under the terms of the purchase agreement, the corporation acquired
Earthgrains' common stock for $40.25 per share, or approximately $1.9
billion. Cash on the Earthgrains balance sheet on the acquisition date
reduced the purchase price to a net amount of approximately $1.8
billion. In addition, the corporation assumed $1.0 billion of
Earthgrains' long-term debt and notes payable. The results of
operations have been included in the consolidated financial statements
for the corporation for the full nine months of 2003, which is 38 days
greater than included in the first nine months of fiscal 2002. The
sales and operating profits generated by the Earthgrains business for
the first 38 days of fiscal 2003 were $284 million and $17 million,
respectively.
4.) Reclassification
Certain prior year amounts have been reclassified to conform to
current year presentation.
Short Name: Sara Lee Corporation
Category Code: QRT
Sequence Number: 00004244
Time of Receipt (offset from UTC): 20030423T221730+0100
--30--CV/cg* DB/ny
CONTACT: Media:
Sara Lee Corporation
Julie Ketay, 312/558-8727
or
Analysts:
Sara Lee Corporation
Aaron Hoffman, 312/558-8739
KEYWORD: ILLINOIS UNITED KINGDOM NETHERLANDS GERMANY FRANCE BRAZIL
BELGIUM AUSTRALIA INTERNATIONAL ASIA PACIFIC LATIN AMERICA EUROPE
INDUSTRY KEYWORD: RETAIL FOODS/BEVERAGES APPAREL/TEXTILES
CONSUMER/HOUSEHOLD CONFERENCE CALLS EARNINGS
SOURCE: Sara Lee Corporation
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