November 8, 2007

High commodity costs pulls down Sara Lee profits by 40 percent

Global consumer goods Sara Lee Corporation based in Downers Grove, Illinois on Wednesday (November 7) said its fiscal first-quarter profits dropped 40 percent, citing steep increases in commodity costs and higher spending on marketing and advertising.

For the three months ended September 29, the company posted net earnings of US$200 million, or 28 cents per diluted share, compared with US$333 million, or 44 cents per share, in the same period last year.

Analysts, on average, expected earnings of 27 cents per share, according to a Thomson Financial poll.

Sales for the quarter were up 8 percent over last year, reaching US$3.13 billion.

In the retail meats segment, operating income was US$28 million, up slightly from US$27 million in the same period last year. The results were driven by improved operating results in Mexico and cost-savings measures, Sara Lee said, though commodity-cost increases and increased marketing and promotions spending hampered improvements.

CEO Brenda Barnes in a statement said marketing and research and development increased significantly to develop and support new innovative products that will be the "bedrock for a successful fiscal 2008."

In the first fiscal quarter of 2008, Sara Lee launched Hillshire Farm Deli Wraps and Premium Hearty Slices and Jimmy Dean D-Lights breakfast sandwiches in the retail meats segment.

Sara Lee also upped its fiscal 2008 guidance, forecasting diluted earnings per share from continuing operations to be in the range of US$1 to US$1.06, a 5 cent-per-share increase based on favourable foreign exchange rates.

Shares of Sara Lee were US$16, down 31 cents, in midday trading Wednesday on the New York Stock Exchange.