By Martinne Geller
NEW YORK(Reuters) - Sara Lee Corp is
planning to spend more on its North American bakery business
and raise some prices as it looks to improve performance in
that lagging business.
The maker of Sara Lee bread, Jimmy Dean sausages and other
packaged foods, also plans to reduce the number of products it
sells in the bakery business, Christopher J. (CJ) Fraleigh, CEO
of Sara Lee North America, said Tuesday at a meeting with
"Our performance has been flat ... we don't find it
acceptable," Fraleigh said about the unit, which has $2.1
billion in net sales, but an operating margin of only 3
percent. By contrast, the corresponding units of rivals Flowers
Foods Incand Mexico's Grupo Bimbohave
margins closer to 9 percent, he said.
"We didn't have good discipline on pricing," Fraleigh said
of the business, which sells some 2 billion pounds of baked
goods. "A penny is worth $20 million to the bottom line."
Sara Lee shares closed down 1.6 percent at $13.88 after it
said it would pour more resources into the ailing business,
which analysts expected might be sold.
The unit has faced stiff price competition in a market that
is tied closely to wheat prices. In July, sources said Sara Lee
was quietly seeking buyers for the unit.
Company executives would not comment about a possible sale,
but Fraleigh said he planned to invest more with a keen focus
on raising prices for the products it sells.
"There are value-creating opportunities to be had there,"
But he also made clear the unit was still Sara Lee's third
priority behind the North American meat business, which
includes the Hillshire Farm and Ball Park brands, and the
global coffee business, which includes the Senseo brand that
will soon launch in Brazil.
The weak global economy has hurt Sara Lee's business, but
interim Chief Executive Officer Marcel Smits said he was
feeling better about the recovery than he did six months ago.
"As a management team, we are guardedly optimistic that in
Europe, the worst is behind us," he told reporters after the
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Sara Lee has sold off parts of its European household and
body care business to focus on food and coffee. It said
Tuesday that, as a result of recent divestitures, 390 back
office jobs would be lost in the next three years.
Also Tuesday, Sara Lee reaffirmed its 2011 financial
outlook. Smits said Sara Lee still expects 2011 operating
earnings in the range of 88 cents to 95 cents a share, and
sales from continuing operations of $10.7 billion to $10.9
Analysts polled by Thomson Reuters I/B/E/S were expecting
2011 operating earnings of 94 cents per share and sales of
Smits added that the company is going through a selection
process of internal and external candidates for the CEO job
since former CEO Brenda Barnes resigned last month to recover
from a stroke she suffered in May.
Fraleigh and Smits are seen as two top internal candidates
for the job.
Smits also said Sara Lee expects share buybacks among other
things to boost earnings per share in fiscal 2012 by 15 cents
to 20 cents per share, although he declined to give a specific
Interim Chief Financial Officer Mark Garvey said Sara Lee
still expects to deliver cumulative annual cost-savings of $350
million to $400 million by 2012.
Last month, Sara Lee reported lower-than-expected quarterly
sales and forecast an earnings range for 2011 that was largely
below analysts' estimates as the company invests more to market
its brands in what remains a tough environment for food makers
due to weak consumer spending.
The company expects to raise prices this year across most
of its portfolio to make up for an expected 15 percent increase
in the cost of ingredients.
(Additional reporting by Ben Klayman in Detroit; editing by
Robert MacMillan, Gunna Dickson and Andre Grenon)