BW20030123002202 20030123T132546Z UTC
( BW)(SARA-LEE)(SRL) Interim Results
Business Editors
UK REGULATORY NEWS
CHICAGO--(BUSINESS WIRE)--Jan. 23, 2003--
Earnings Momentum Continues as Sara Lee Reports 110%
Increase in EPS For Second Quarter of Fiscal 2003
Company reports diluted EPS of $.42
for the second quarter of fiscal 2003
Cash flow from operations up 40% through the first half
Sara Lee Corporation today reported diluted earnings per share (EPS)
of $.42 for the second quarter of fiscal 2003, ending December 28,
2002, as compared to $.20 one year ago. The second quarter of fiscal
2003 included restructuring costs and income that had no net impact on
reported results. In the second quarter of fiscal 2002, costs
associated with restructuring and business dispositions reduced
diluted EPS by $.17 per share. For the first six months of fiscal
2003, diluted EPS were $.80 compared to $.49 for the first half of
fiscal 2002. Amounts recognized in the first half of fiscal 2003 for
restructuring and business dispositions increased diluted EPS by $.01,
while restructuring and business disposition activities recognized in
the first half of the prior year reduced diluted EPS by $.14.
Sales for the second quarter of fiscal 2003 increased 2% to $4.8
billion compared to $4.7 billion in the prior year's quarter. For the
fiscal six months, sales increased 4% to $9.3 billion compared to $8.9
billion for the year ago period. During the quarter and six-month
periods, sales benefited from favorable foreign currency exchange
rates. The year-to-date period also benefited from the inclusion of an
additional five weeks of Earthgrains' results in the first quarter of
fiscal 2003. Unit volumes, excluding acquisitions and divestitures,
were up 1% during the second quarter, with gains in the company's
Meats and Household Products operations partially offset by declines
in the Beverage and Bakery businesses. Intimates and Underwear volumes
were flat versus the prior year. Through the first six months of
fiscal 2003, corporate unit volumes, excluding acquisitions and
divestitures, were flat.
Operating income increased 66% to $556 million for the quarter and 45%
to $1.1 billion for the first six months. The second quarter of fiscal
2003 included restructuring costs and income that increased operating
income by $3 million, while restructuring and business disposition
costs decreased operating income by $187 million in the second quarter
of fiscal 2002. For the first half of fiscal 2003, restructuring costs
and income increased operating income by $12 million, while
restructuring and business disposition costs decreased operating
income by $188 million in the year ago period. Beyond these
restructuring and business disposition items, operating income growth
for the second quarter and six months of fiscal 2003 reflected
incremental benefits and savings resulting from the company's
restructuring activities, favorable foreign currency exchange rates,
lower commodity costs and increased sales of higher margin products in
response to strengthened marketing initiatives. Operating income
growth was strongest in the company's Meats, Household Products and
Intimates and Underwear operations. Results for the six months were
also impacted by the inclusion of an additional five weeks of
Earthgrains' results in the first quarter of fiscal 2003.
Total media advertising and promotion spending grew 14% in the second
quarter, including a 16% increase in media advertising and a 13%
increase in other advertising and promotions. Through the six months,
media advertising and promotion spending increased 8%.
"I am very pleased that the second quarter continued the momentum
begun late last year," said C. Steven McMillan, chairman, president
and chief executive officer of Sara Lee Corporation. "The strategies
outlined in our annual report last September are serving our company
well.
"Our increased investment in media advertising and new product
development is starting to accelerate the growth of our key brands. We
are especially pleased with the strong consumer acceptance of a wide
range of new products including the Hanes Tagless T-shirt, Playtex and
Bali gel-strap bras, Sara Lee fresh breads, IronKids crustless bread,
Hillshire Farm ultra-thin deli meats, the Senseo coffee system, Jimmy
Dean Fresh Taste. Fast! sausage and bacon, and Ambi-Pur air care
products.
"In addition, our restructuring initiatives to reduce costs while
consolidating and strengthening our operational capabilities continued
to show good progress. Through the first six months of fiscal 2003, we
estimate that these efforts generated incremental savings of $65
million over the prior year.
"Our cash flow from operations grew 40% through the first six months
of this fiscal year and generated funds of more than $850 million. Our
consistently high level of cash generation gives us financial and
operational flexibility to reinvest in our businesses and to pay down
debt. Cash flow from operations is one of the key metrics of our
company, and I am proud to report on our performance so far this
year," concluded McMillan.
Restructuring and Business Disposition Activities
The reported results for the quarter and the first six months of
fiscal 2003 and 2002 reflect amounts recognized in connection with
ongoing restructuring and business disposition activities. In the
second quarter of fiscal 2003, the corporation's management approved
actions to sever 311 employees, exit leases and dispose of assets in
the Bakery segment. These actions resulted in an after-tax charge of
$14 million (pretax $22 million) or $.02 per share. In addition, the
corporation completed certain restructuring and business disposition
activities for amounts that were less than previously reflected in the
financial statements, and the recognition of these completed
transactions essentially offset the after-tax charge associated with
the Bakery restructuring actions. In the second quarter of fiscal
2002, the corporation's management approved actions to sever
employees, exit leases and dispose of assets in its various businesses
that resulted in an after-tax charge of $130 million. In addition, the
corporation's management approved actions to dispose of certain
businesses that resulted in an additional after-tax charge of $13
million. The combined impact of the $143 million of charges was a
reduction in diluted EPS of $.17.
In the first half 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 amounts in excess of those
previously anticipated that increased pretax income and net income by
$4 million. The favorable outcome of the completed restructuring and
business disposition activities increased pretax income, net income
and diluted EPS by $34 million, $25 million and $.03, respectively.
Offsetting this amount was the recognition of a charge associated with
management's second quarter decision to restructure the operations of
the Bakery segment. These actions reduced pretax income, net income
and diluted EPS by $22 million, $14 million and $.02, respectively. In
the first half of fiscal 2002, the corporation's management approved a
series of actions to sever 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 half of
2002 by $188 million, $114 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 second quarter and first half of fiscal 2003
included $33 million and $65 million, respectively, of incremental
benefits over those realized in the prior year, as a result of these
factors.
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.
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*T
SARA LEE MEATS
Second Quarter Change Six Months Change
------------- ------ ---------- ------
2003 2002 2003 2002
Sales $ 976 $ 995 (2)% $ 1,899 $ 1,933 (2)%
Operating Income $ 113 $ 73 57% $ 203 $ 141 44%
Significant items
impacting comparability:
- Restructuring/Business
exit
costs/(income) $(7) $ 29 $ (8) $ 35
- Strengthening of
foreign currencies $ (3) -- $ (5) --
- (Income)/Loss of
acquired/sold
businesses $ -- -- $ (1) --
---------------------------------------------------
- Operating income
before significant
items $ 103 $ 102 1% $ 189 $ 176 8%
*T
Sara Lee Meats is a leading manufacturer of branded packaged meat
products in the United States, Europe and Mexico.
For the second quarter and first six months of fiscal 2003, Sara Lee
Meats sales declined 2% from year-ago levels. Excluding the impact of
favorable foreign currency exchange rates and acquisitions and
dispositions, sales for both the quarter and first six months declined
4% as unit volume gains were offset by the impact of lower pricing due
to lower commodity costs and more aggressive trade promotion support.
For the second quarter and first six months of fiscal 2003, operating
income increased 57% to $113 million and 44% to $203 million,
respectively. Included in these results was income from restructuring
activities of $7 million in the quarter and $8 million for the first
six months of fiscal 2003 versus costs of $29 million in last year's
second quarter and $35 million for the first six months of last year.
The strengthening of the euro versus the U.S. dollar during the
current year and the impact of acquisitions and dispositions completed
after the start of fiscal 2002 favorably impacted comparisons of
operating results.
Excluding these significant items, operating income for the second
quarter increased 1% over the prior year from a combination of
favorable raw material costs and unit volume growth, partially offset
by transition costs associated with U.S. organizational consolidation.
For the first six months of fiscal 2003, operating income, excluding
the significant items, was up 8%.
Global unit volumes for Meats increased 2% in the second quarter. U.S.
branded retail volumes increased 2% and U.S. Deli volumes grew 8%,
reflecting the continued positive consumer response to Sara Lee's "Red
Wave" marketing program. Foodservice volumes in the United States were
flat in the second quarter, while unit volumes in Europe and Mexico
increased 2% and 6%, respectively. For the first six months, global
unit volumes grew 1%.
Media advertising and promotion for Meats declined 13% during the
quarter, primarily due to the timing of advertising programs. Media
advertising and promotion spending for Meats was flat for the first
six months, but is expected to rise, versus the prior year, through
the second half of fiscal 2003.
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*T
SARA LEE BAKERY
Second Quarter Change Six Months Change
-------------- ------ ---------- ------
2003 2002 2003 2002
Sales $ 862 $ 854 1% $ 1,684 $ 1,399 20%
Operating Income $ 21 $ 5 271% $ 66 $ 38 72%
Significant items impacting
comparability:
- Restructuring/Business
exit
costs/(income) $ 19 $ 49 $ 18 $ 51
- Strengthening of
foreign currencies $(1) -- $ (2) --
- (Income)/Loss of
acquired/sold
businesses -- -- $ (17) --
---------------------------------------------------
- Operating income
before significant
items $ 39 $ 54 (28)% $ 65 $ 89 (27)%
*T
Sara Lee Bakery is a leader in the U.S. fresh bread market, with
important positions in the U.S. and European refrigerated dough and
European fresh bread markets. The Bakery operations also enjoy leading
positions in frozen baked goods in both the United States and
Australia.
Sara Lee Bakery's second quarter sales grew 1% as a decline in U.S.
fresh bread sales, due to weak private-label volumes, was offset by
higher sales in all other Bakery businesses, including branded fresh
bread. For the first six months of fiscal 2003, Bakery sales grew to
$1.7 billion compared to $1.4 billion for last year. The significant
growth in the six-month sales total reflects the inclusion of an
additional five weeks of Earthgrains' results in the first quarter of
fiscal 2003. Excluding the impact of the Earthgrains acquisition and
the strengthening of foreign currencies versus the U.S. dollar, sales
for the quarter and first six months of fiscal 2003 declined 1%.
Sara Lee Bakery's operating income for the second quarter of fiscal
2003 increased to $21 million from $5 million last year, and for the
first six months it increased to $66 million from $38 million a year
ago. Included in these results were significant items, including
restructuring and business exit costs, of $19 million for this quarter
compared to costs of $49 million in the year-ago period, and $18
million for the first six months of fiscal 2003 compared to $51
million a year ago.
There was a modest benefit from favorable foreign currency exchange
rates for both the second quarter and the first six months of fiscal
2003, and the six-month results also included the benefit of $17
million in operating income from an additional five weeks of
Earthgrains' results in the first quarter. Excluding these significant
items, operating income was down 28% in the second quarter and 27% for
the first six months due to volume declines in the U.S. private-label
fresh bread sector, higher employee and commodity costs and increased
investment in support of new products.
Global Bakery unit volumes declined 1% in the second quarter. U.S.
fresh bakery volumes fell 3% as strength in the high-margin premium
and superpremium sector, led by Sara Lee breads, was offset by
declines in domestic private label and regional brands. Unit volumes
for the U.S. frozen operations rose 4% in the second quarter as both
foodservice and retail sales volumes increased. European fresh bakery
unit volumes were flat, while refrigerated dough unit sales for the
quarter increased 3% in the United States and 8% in Europe. For the
six-month period, global bakery unit volumes were down 1%.
New product introductions in the United States have been very well
received by consumers and retailers. Sara Lee breads were launched
systemwide during the second quarter, and this product line is already
Sara Lee Bakery's number-one selling domestic bread brand. These
premium breads, currently sold in five varieties, capitalize on the
strength of the Sara Lee brand and the Bakery's extensive distribution
system. 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 increase at strong double-digit rates in Spain, benefiting
from a second crustless production line added in May 2002. The
increased production capacity also allowed for the introduction of
crustless wheat bread in Spain and the very successful launch of
crustless white and wheat breads in Portugal.
Media advertising and promotion spending for Bakery in the second
quarter increased 6% over last year to support the launch of the new
products. Media advertising and promotion spending rose 17% in the
first six months, due to the inclusion of an additional five weeks of
Earthgrains' results in the first quarter of fiscal 2003.
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*T
BEVERAGE
Second Quarter Change Six Months Change
-------------- ------ ---------- ------
2003 2002 2003 2002
Sales $ 731 $ 683 7% $ 1,350 $ 1,297 4%
Operating Income $ 121 $ 116 5% $ 207 $ 212 (2)%
Significant items impacting
comparability:
- Restructuring/Business
exit
costs/(income) -- $ 9 -- $ 7
- Strengthening of
foreign currencies $(10) -- $ (17) --
- (Income)/Loss of
acquired/sold
businesses $ (1) -- $ (3) --
---------------------------------------------------
- Operating income
before significant
items $ 110 $ 125 (13)% $ 187 $ 219 (15)%
*T
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 increased 7% in the second quarter and 4% for the first six
months. Excluding the impact of changes in foreign currency exchange
rates and acquisitions, sales increased 1% in the quarter and declined
2% for the six months. Business trends continued to be mixed in the
quarter with positive results in Europe offset by weakness in the
United States and Brazil.
Operating income increased 5% to $121 million for the quarter and
declined 2% to $207 million for the first six months. The
strengthening of foreign currencies in fiscal 2003 favorably impacted
operating results in the quarter and year-to-date periods by $10
million and $17 million, respectively. Operating comparisons were also
favorably impacted by the earnings associated with an acquisition made
after the start of fiscal 2002. Significant items affecting operating
income also included restructuring and business exit costs of $9
million in the second quarter of fiscal 2002 and $7 million for the
first six months of last year. Excluding these significant items,
operating income declined 13% for the quarter and 15% for the first
six months as a result of aggressive investment for the launch of the
Senseo coffee system and the effect of continuing competitive
pressures in the U.S. retail and foodservice markets.
Media advertising and promotion spending was up 69% in the second
quarter and 43% for the first six 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 and France, and it was launched in Germany
in October with good introductory results.
Global unit sales of roasted coffee and coffee concentrate products
fell 2% during the quarter as a 3% decline in retail volumes offset a
1% increase in out-of-home sales volumes. On a geographic basis, unit
volumes increased 1% in Europe, were flat in the United States and
fell 12% in Brazil, where volume was affected by price increases
required by higher commodity costs. For the first six months, global
unit volumes decreased 3%.
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*T
HOUSEHOLD PRODUCTS
Second Quarter Change Six Months Change
-------------- ------ ---------- ------
2003 2002 2003 2002
Sales $ 532 $ 500 6% $ 1,010 $ 964 5%
Operating Income $ 92 $ 86 6% $ 164 $ 154 6%
Significant items impacting
comparability:
- Restructuring/Business
exit
costs/(income) -- -- -- --
- Strengthening of
foreign currencies $(5) -- $ (10) --
- (Income)/Loss of
acquired/sold
businesses -- -- -- --
---------------------------------------------------
- Operating income
before significant
items $ 87 $ 86 -- $ 154 $ 154 --
*T
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.
For the second quarter of fiscal 2003, sales and operating income both
grew 6% with some benefits from a stronger euro. Excluding the impact
of currency movements, second quarter sales rose 4% and operating
income was flat as increased sales and operating income for the
company's traditional household and body care business were partially
offset by weakness in the Direct Selling operation due to sales
declines in Mexico and start-up costs in Brazil. For the first six
months, excluding the effect of currency movements, sales grew 2% and
operating income was flat.
Unit volumes for this segment's four core categories grew 5% for the
quarter, led by increased sales in the body care and air care
segments. Sanex deodorants, launched in the United Kingdom in the
first quarter, sold well as the company expanded the market reach of
this well-known pan-European brand. Ambi-Pur Instant Perfume, another
successful launch conducted during the second quarter, involved the
introduction of a room spray into the Netherlands, Spain and France.
Household Products global unit volumes increased 3% for the six-month
period.
Media advertising and promotion spending for this line of business
decreased 2% in the second quarter as lower promotional spending
offset a 5% increase in media spending. Through six months, media
advertising and promotion spending was up 1%.
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*T
INTIMATES AND UNDERWEAR
Second Quarter Change Six Months Change
-------------- ------ ---------- ------
2003 2002 2003 2002
Sales $ 1,676 $ 1,656 1% $ 3,369 $ 3,345 1%
Operating Income $ 209 $ 56 273% $ 422 $ 188 125%
Significant items impacting
comparability:
- Restructuring/Business
exit
costs/(income) $ (15) $ 100 $ (22) $ 95
- Strengthening of
foreign currencies $(2) -- $ (5) --
- (Income)/Loss of
acquired/sold
businesses -- $ 2 -- $ 5
---------------------------------------------------
- Operating income
before significant
items $ 192 $ 158 22% $ 395 $ 288 38%
*T
Sara Lee's Intimates and Underwear 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 intimate apparel, underwear and legwear in both North
America and Europe.
Intimates and Underwear sales increased 1% in both the second quarter
and first six months of fiscal 2003. Excluding the results of business
dispositions and the impact of favorable foreign currency rates, sales
for the quarter and first half declined by 1%. For both periods,
strength in knit products was offset by declines in legwear. Unit
volumes were flat for both the quarter and the first six months, as
increases in knit products were offset by continued weakness in global
hosiery markets.
Operating income for Intimates and Underwear increased 273% over the
previous year's second quarter and 125% over last year's first six
months. The comparability of the reported results for the quarter was
impacted by restructuring and business exit activities that had the
effect of increasing second quarter operating income by $15 million,
compared with a reduction of $100 million in the year ago quarter. For
the first six months of fiscal 2003, the favorable completion of
restructuring actions and the strengthening of foreign currencies
improved reported results by $22 million and $5 million, respectively.
Operating comparisons for the first six months were also impacted by
the recognition of a restructuring charge of $95 million and the
disposition of businesses with net operating losses of $5 million in
fiscal 2002.
Excluding these significant items, Intimates and Underwear operating
income was up 22% for the second quarter and 38% for the first six
months. The business continues to benefit from lower cotton costs and
significant cost savings and production efficiencies derived from the
restructuring activities undertaken during the past two years.
Excluding restructuring and business exit costs or credits, strong
increases in operating income for worldwide knit products and intimate
apparel offset declines in legwear for both periods.
Worldwide unit volumes for intimate apparel products were flat in the
second quarter driven by weakness in the U.S. discount sector. Unit
sales fell 3% in the United States due to an overall market decline
and a mix shift to higher-value branded products. In fact, the
company's 12-month U.S. bra dollar market share increased more than
3.5 points to 27.9%. European intimate apparel unit sales increased 4%
for the quarter. For the six-month period, global unit volumes for
intimate apparel increased 4%, a more typical unit volume performance
for this business.
Global knit products volumes increased 5% for the quarter. U.S.
activewear units grew with strength at Champion, up 9%, and
Printables, up 16%. In the United States, volumes in the quarter
increased 6% for both men's and boys' underwear and women's and girls'
underwear. Business was strong due to excellent sales of Hanes Tagless
T-shirts resulting from the high level of consumer and retail
acceptance for this new product. For the most recent twelve-month
period, the company maintained its number-one unit share in the fleece
market and the men's and boys' underwear market, and increased its
leading unit share of the women's and girls' underwear market to
33.7%. European underwear unit sales increased 5% for the quarter
primarily due to increased Unno sales. Global unit volumes for knit
products for the six-month period were up 2%.
In legwear, sock volumes were flat for the quarter but up 8% for the
first half of fiscal 2003. The company increased its number-one unit
share of the U.S. sock category over the last 12 months by three
points to 20.4%, widening its lead over the number-two competitor to
more than nine market share points. Unit volumes for sheer hosiery
fell 12% for the quarter and six months as a result of weak market
conditions and the discontinuation of low margin products. The company
increased its dollar share of the U.S. sheer hosiery market by more
than five points to 55.8% for the most recent 12-month period.
Media advertising and promotion spending for Intimates and Underwear
increased 18% in the second quarter on the strength of a nearly 40%
increase in media advertising to support the business' key brands and
new product introductions including the Hanes Tagless T-shirt and the
Playtex gel-strap bra.
Corporate Interest Expense, Tax Rate and Share Repurchase
Net interest expense was $50 million for the quarter and $98 million
for the first six months compared with $60 million in last year's
second quarter and $111 million for the year ago six months. Interest
expense decreased as the company benefited from lower interest rates
and the use of strong cash flow to reduce debt levels.
The tax rate for the second quarter was 17% compared to 14% in the
year ago quarter. Excluding the impact of restructuring and business
disposition activities, the tax rate was 18% compared to 19% last
year.
During the second quarter of fiscal 2003, Sara Lee Corporation
repurchased 1.2 million shares of its common stock at an average price
of $22.23 per share. On a fiscal year-to-date basis, the company has
repurchased 7.9 million shares at an average price of $18.97 per
share.
Outlook
Sara Lee's management currently expects diluted EPS for the third
quarter of fiscal 2003 to fall within a range of $.33 to $.35 compared
to $.31 in the year-ago period.
Full-year fiscal 2003 diluted EPS are expected to be in a range of
$1.54 to $ 1.60, compared to $1.23 in fiscal 2002. Fiscal 2002
included expenses related to the company's restructuring program
totaling $.12 per share after-tax.
By line of business, management expects increased operating income in
the third quarter versus the year ago period for each of its lines of
business, except Bakery. For Sara Lee Meats, increased retail and deli
product sales, lower commodity costs and savings from the company's
restructuring program will drive higher profits. Although Bakery
operating income is expected to be below the prior year due to
continued softness in the U.S. fresh bread sector, operating income
will benefit from the cost-reduction actions implemented in the second
quarter as well as higher net prices due to more efficient trade
spending. The Beverage group is expected to show increased operating
income based on continued strong results in Europe combined with
improved sales and operating income in the company's Brazilian
operations. Household Products' operating income will benefit from
continued volume growth in its core categories and improved results
from its Direct Selling operations. In the Intimates and Underwear
line of business, operating income is expected to continue to grow by
more than 10% as a result of its targeted advertising and product
introductions.
For the full year, the company is targeting sales growth of
approximately 2%, excluding acquisitions, with a double-digit
operating income increase as all five lines of business are expected
to contribute to higher profits.
Webcast
Janet Bergman, senior vice president, corporate relations, will
discuss the second quarter results live via the Internet today at 9:00
a.m. (CST). 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 for 10 business days.
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) the loss of one of Sara Lee's major retailers or supermarket
chain customers, including Wal-Mart, the corporation's largest
customer; (iv) adverse economic trends, including reduced consumer
spending, relating in part to substantial declines in the U.S.
equities markets; (v) Sara Lee's ability to continue to source
production and conduct manufacturing and selling operations in various
countries in the world due to the 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 business
restructuring initiatives; (viii) fluctuations in the cost and
availability of various raw materials; (ix) the impact of various food
safety issues in parts of Europe on the consumption of meat products
in general and the cost of raw materials used in the production of
finished goods; (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 company'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.
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*T
Sara Lee Corporation
Executive Summary of Performance
Second quarter fiscal 2003 Percentage change
----------------------------------------------------------------------
Sara Lee Sara Lee
Meats(1) Bakery(2) Beverage(3)
-------- --------- ------------
Reported sales (2)% 1% 7%
Sales from ongoing operations(a) (2)% 1% 6%
Base sales(b) (4)% (1)% 1%
Reported operating income 57% 271% 5%
Operating income
before restructuring(c) 4% (25)% (3)%
Operating income from
ongoing operations(a) 3% (26)% (5)%
Operating income before
significant items(b) 1% (28)% (13)%
Base unit volumes(d) 2% (1)% (2)%
Diluted earnings per share(c) - - -
Total advertising and promotional
expense for ongoing operations(a) (13)% 6% 69%
Media advertising expense
for ongoing operations(a) (11)% (3)% 41%
Promotional expense for
ongoing operations(a) (17)% 19% 101%
Intimates
Household and Total
Products(3) Underwear(4) SLE
----------- ------------ -----
Reported sales 6% 1% 2%
Sales from ongoing operations(a) 6% 1% 2%
Base sales(b) 4% (1)% (1)%
Reported operating income 6% 273% 66%
Operating income
before restructuring(c) 6% 25% 6%
Operating income from
ongoing operations(a) 6% 23% 5%
Operating income before
significant items(b) 0% 22% 1%
Base unit volumes(d) 5% 0% 1%
Diluted earnings per share(c) - - 14%
Total advertising and promotional
expense for ongoing operations(a) (2)% 18% 14%
Media advertising expense
for ongoing operations(a) 5% 39% 16%
Promotional expense for
ongoing operations(a) (12)% 5% 13%
---------------------------------------
(a) Ongoing operations results exclude divested businesses from FY03
and FY02.
(b) Significant items include acquisitions, divestitures,
restructuring and business disposition costs and income, and the
effect of currency.
(c) Excludes restructuring and business exit costs/income.
(d) Base unit volumes exclude acquisitions and divestitures.
(1) There were no divestitures in this segment in FY02. In 2003,
Huisken, the meat patty business of Trail's Best, was sold.
(2) The Earthgrains Company was acquired on August 7, 2001. There were
no divestitures in this segment in FY02.
(3) There were no divestitures in this segment in FY02.
(4) There were no divestitures in this segment in 2Q02.
Sara Lee Corporation
Executive Summary of Performance
First six months fiscal 2003 Percentage change
----------------------------------------------------------------------
Sara Lee Sara Lee
Meats(1) Bakery(2) Beverage(3)
-------- --------- ------------
Reported sales (2)% 20% 4%
Sales from ongoing operations(a) (2)% 0% 3%
Base sales(b) (4)% (1)% (2)%
Reported operating income 44% 72% (2)%
Operating income
before restructuring(c) 11% (6)% (6)%
Operating income from
ongoing operations(a) 10% (25)% (7)%
Operating income before
significant items(b) 8% (27)% (15)%
Base unit volumes(d) 1% (1)% (3)%
Diluted earnings per share(c) - - -
Total advertising and promotional
expense for ongoing operations(a) 0% 17% 43%
Media advertising expense
for ongoing operations(a) 2% 5% 15%
Promotional expense
for ongoing operations(a) (3)% 37% 69%
Intimates
Household and Total
Products(3) Underwear(4) SLE
----------- ------------ -----
Reported sales 5% 1% 4%
Sales from ongoing operations(a) 5% 1% 1%
Base sales(b) 2% (1)% (1)%
Reported operating income 6% 125% 45%
Operating income
before restructuring(c) 6% 42% 14%
Operating income from
ongoing operations(a) 6% 39% 11%
Operating income before
significant items(b) 0% 38% 7%
Base unit volumes(d) 3% 0% 0%
Diluted earnings per share(c) - - 25%
Total advertising and promotional
expense for ongoing operations(a) 1% 2% 8%
Media advertising expense
for ongoing operations(a) 5% 14% 8%
Promotional expense
for ongoing operations(a) (6)% (4)% 9%
----------------------------------------
(a) Ongoing operations results exclude divested businesses from FY03
and FY02.
(b) Significant items include acquisitions, divestitures,
restructuring and business disposition costs and income, and the
effect of currency.
(c) Excludes restructuring and business exit costs/income.
(d) Base unit volumes exclude acquisitions and divestitures.
(1) There were no divestitures in this segment in FY02. In 2003,
Huisken, the meat patty business of Trail's Best, was sold.
(2) The Earthgrains Company was acquired on August 7, 2001. There were
no divestitures in this segment in FY02.
(3) There were no divestitures in this segment in FY02.
(4) There were no divestitures in this segment in 2Q02. The following
businesses were sold in 1Q02: International Fabrics operations in
France, Italy, Spain, Portugal, the U.K., and China; Liabel and
Vocal.
Consolidated Statements of Income Sara Lee Corporation (NYSE)
---------------------------
(in millions except per share amounts)
----------------------------------------------------------------------
Thirteen Weeks Ended
------------------------------------
December 28, December 29, Percent
2002 2001 Change
------------- ------------- -------
Net sales $ 4,776 $ 4,685 1.9 %
------------- -------------
Cost of sales 2,874 2,892
Cost of sales - product
line exit costs -- (1)
Selling, general and
administrative expenses 1,434 1,360
(Income from) charges for
exit activities and
business dispositions (3) 188
Interest expense 68 80
Interest income (18) (20)
------------- -------------
4,355 4,499
------------- -------------
Income before income taxes 421 186 NM
Income taxes 73 26 NM
------------- -------------
Net income $ 348 $ 160 NM
============= =============
Net income per common share
Basic $ 0.44 $ 0.20 NM
============= =============
Diluted $ 0.42 $ 0.20 NM
============= =============
Average shares outstanding
Basic 783 785
============= =============
Diluted 818 819
============= =============
Twenty-Six Weeks Ended
------------------------------------
December 28, December 29, Percent
2002 2001 Change
------------- ------------- -------
Net sales $ 9,310 $ 8,933 4.2 %
------------- -------------
Cost of sales 5,626 5,608
Cost of sales - product
line exit costs -- (4)
Selling, general and
administrative expenses 2,800 2,578
(Income from) charges for
exit activities and
business dispositions (12) 192
Interest expense 135 154
Interest income (37) (43)
------------- -------------
8,512 8,485
------------- -------------
Income before income taxes 798 448 77.8
Income taxes 142 46
------------- -------------
Net income $ 656 $ 402 63.0
============= =============
Net income per common share
Basic $ 0.83 $ 0.51 62.7
============= =============
Diluted $ 0.80 $ 0.49 63.3
============= =============
Average shares outstanding
Basic 783 784
============= =============
Diluted 816 818
============= =============
Operating Results by Industry Segment Sara Lee Corporation (NYSE)
---------------------------
(in millions) Thirteen Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------ ------------------
Dec. 28, Dec. 29, Percent Dec. 28, Dec. 29, Percent
2002 2001 Change 2002 2001 Change
-------- -------- ------- -------- -------- -------
Sara Lee Meats $ 976 $ 995 (1.9)% $ 113 $ 73 56.8 %
Sara Lee Bakery 862 854 0.9 21 5 NM
Beverage 731 683 7.0 121 116 4.6
Household
Products 532 500 6.4 92 86 6.3
Intimates and
Underwear 1,676 1,656 1.2 209 56 NM
-------- -------- ------- -------- -------- -------
Total sales
and operating
companies
income 4,777 4,688 1.9 556 336 65.5
Intersegment
sales (1) (3) 53.6 -- -- --
Amortization of
identifiable
intangibles -- -- -- (25) (17) (45.0)
General corporate
expenses -- -- -- (60) (73) 15.2
-------- -------- ------- -------- -------- -------
Total net sales
and operating
income 4,776 4,685 1.9 471 246 90.3
Net interest
expense -- -- -- (50) (60) 17.6
-------- -------- ------- -------- -------- -------
Net sales and
income before
income taxes $ 4,776 $ 4,685 1.9 % $ 421 $ 186 NM %
======== ======== ======= ======== ======== =======
Twenty-Six Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------ ------------------
Dec. 28, Dec. 29, Percent Dec. 28, Dec. 29, Percent
2002 2001 Change 2002 2001 Change
-------- -------- ------- -------- -------- -------
Sara Lee Meats $ 1,899 $ 1,933 (1.8)% $ 203 $ 141 44.0 %
Sara Lee Bakery 1,684 1,399 20.3 66 38 72.4
Beverage 1,350 1,297 4.1 207 212 (2.0)
Household
Products 1,010 964 4.8 164 154 6.1
Intimates and
Underwear 3,369 3,345 0.7 422 188 NM
-------- -------- ------- -------- -------- -------
Total sales
and operating
companies
income 9,312 8,938 4.2 1,062 733 44.9
Intersegment
sales (2) (5) 49.1 -- -- --
Amortization of
identifiable
intangibles -- -- -- (49) (31) (57.1)
General corporate
expenses -- -- -- (117) (143) 17.1
-------- -------- ------- -------- -------- -------
Total net sales
and operating
income 9,310 8,933 4.2 896 559 59.9
Net interest
expense -- -- -- (98) (111) 12.4
-------- -------- ------- -------- -------- -------
Net sales and
income before
income taxes $ 9,310 $ 8,933 4.2 % $ 798 $ 448 77.8 %
======== ======== ======= ======== ======== =======
See accompanying notes to financial statements.
Sara Lee Corporation (NYSE)
Consolidated Balance Sheets
(in millions)
----------------------------------------------------------------------
December 28, June 29,
2002 2002
------------- ------------
ASSETS
Cash and equivalents $ 429 $ 298
Trade accounts receivable 1,913 1,831
Inventories 2,482 2,509
Other current assets 363 341
Net assets of businesses
held for sale -- 7
------------- ------------
Total current assets 5,187 4,986
Other non-current assets 271 192
Property, net 3,185 3,155
Trademarks and other
identifiable intangibles, net 2,095 2,106
Goodwill, net 3,322 3,314
------------- ------------
$ 14,060 $ 13,753
============= ============
LIABILITIES AND EQUITY
Notes payable $ 111 $ 468
Accounts payable 1,185 1,321
Accrued liabilities 2,931 2,953
Current maturities of
long-term debt 1,101 721
------------- ------------
Total current liabilities 5,328 5,463
Long-term debt 4,276 4,326
Deferred income taxes 532 534
Other non-current liabilities 1,091 1,038
Minority interest in subsidiaries 631 632
Preferred stock 16 18
Common stockholders' equity 2,186 1,742
------------- ------------
$ 14,060 $ 13,753
============= ============
*T
Notes to Financial Statements
1. Restructuring and Business Disposition Activities
The reported results for the quarter and the first six months of
fiscal 2003 and 2002 reflect amounts recognized in connection with
ongoing restructuring and business disposition activities. In the
second quarter of fiscal 2003, the corporation's management approved
actions to sever 311 employees, exit leases and dispose of assets in
the Bakery segment. These actions resulted in an after-tax charge of
$14 million (pretax $22 million) or $.02 per share. In addition, the
corporation completed certain restructuring and business disposition
activities for amounts that were less than previously reflected in the
financial statements, and the recognition of these completed
transactions essentially offset the after-tax charge associated with
the Bakery restructuring actions. In the second quarter of fiscal
2002, the corporation's management approved actions to sever
employees, exit leases and dispose of assets in its various businesses
that resulted in an after-tax charge of $130 million. In addition, the
corporation's management approved actions to dispose of certain
businesses that resulted in an additional after-tax charge of $13
million. The combined impact of the $143 million of charges was a
reduction in diluted EPS of $.17.
In the first half 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 amounts in excess of those
previously anticipated that increased pretax income and net income by
$4 million. The favorable outcome of the completed restructuring and
business disposition activities increased pretax income, net income
and diluted EPS by $34 million; $25 million and $.03, respectively.
Offsetting this amount was the recognition of a charge associated with
management's second quarter decision to restructure the operations of
the Bakery segment. These actions reduced pretax income, net income
and diluted EPS by $22 million, $14 million and $.02, respectively. In
the first half of fiscal 2002, the corporation's management approved a
series of actions to sever 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 was to reduce pretax income, net income and
diluted EPS in the first half of 2002 by $188 million, $114 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 second quarter and first half of fiscal 2003
included $33 million and $65 million, respectively, of incremental
benefits over those realized in the prior year, as a result of these
factors.
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 quarter and first six months of fiscal year 2003. The following
table summarizes the impact of these items on operating income:
-0-
*T
(In Millions) Second Quarter Six Months
----------------------- -------------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Sales $ 4,776 $ 4,685 1.9% $ 9,310 $ 8,933 4.2%
===== ===== ==== ===== ===== ====
Operating Income $ 556 $ 336 65.5% $ 1,062 $ 733 44.9%
Significant Items Impacting
Comparability:
Restructuring/Business
exit costs/(income) (3) 187 (12) 188
Strengthening of
foreign currencies (21) - (39) -
(Income)/Loss of
acquired/sold
businesses (1) 2 (21) 5
---- ---- ---- ---- ---- ----
Operating income
before significant
items $ 531 $ 525 0.9% $ 990 $ 926 7.0%
==== ==== ==== ==== ====
*T
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
Earthgrain's 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 first and second quarters of 2003,
which is 38 days greater than included in the first and second
quarters of fiscal 2002. The sales and operating profits generated by
the Earthgrains business for the first 38 days of fiscal 2003 were
$283 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: IR
Sequence Number: 00001671
Time of Receipt (offset from UTC): 20030123T002809+0000
--30--db/in
CONTACT: Sara Lee Corporation
Julie Ketay (MR), 312/558-8727
or
Aaron Hoffman (Analysts), 312/558-8739
KEYWORD: ILLINOIS UNITED KINGDOM INTERNATIONAL EUROPE
INDUSTRY KEYWORD: FOODS/BEVERAGES RETAIL APPAREL/TEXTILES
CONFERENCE CALLS EARNINGS
SOURCE: Sara Lee Corporation
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