TIDMSRL
Sara Lee Corp. (NYSE: SLE):
-- Diluted EPS as reported of $0.53, compared to $(0.02) in the
prior-year second quarter
-- Adjusted EPS¹ of $0.36, compared to $0.19 a year ago, driven by
strong operating performance
-- Company raises guidance for fiscal 2010 Adjusted EPS to $1.00 -
$1.05 per share
-- Pricing actions and innovation drove improved volume trends in the
second quarter
-- Cash flow from operations of $472 million in the first six months,
up $258 million year-over-year
Sara Lee Corp. (NYSE: SLE) today reported strong operating income growth for the second quarter of fiscal 2010, driven by significant improvement in operating segment income across the company, particularly in the North American Retail and International Beverage business segments, and lower corporate expenses. Net income also rose sharply, driven by higher income from continuing and discontinued operations, partially due to one-time tax benefits and lower charges for significant items. Net sales were unchanged in the second quarter as favorable foreign currency exchange rates were offset by slightly lower corporate unit volumes, lower prices and the impact of divestitures. Cash from operations continued to improve, primarily due to higher operating income.
"We're pleased to report a strong second quarter, which was even better than our first quarter, and was highlighted by significant profit growth," said Sara Lee Corp. chairman and chief executive officer Brenda C. Barnes. "On an adjusted basis, every segment of our continuing business, along with Household and Body Care, delivered income growth in the quarter. During this period we recalibrated pricing, which helped us deliver improved volume trends. Based on the strong first half performance, we have raised guidance and feel very confident in our full year outlook. We also are making significant investments across our business designed to drive growth this year and beyond. We believe that we will have a strong 2010 and are confident that in 2011 we can deliver meaningful additional profit improvement."
Barnes added, "We made further progress toward completing the divestiture of our Household and Body Care businesses, thus far receiving binding offers for body care and air care for a combined 1.595 billion euros. We are also making progress toward selling the remainder of the business."
Financial Review
Net Sales and Unit Volumes
Net sales for the second quarter of fiscal 2010 were $2.9 billion, unchanged versus the year-ago period as favorable foreign currency exchange rates were offset by the impact of divestitures, slightly lower unit volumes and lower selling prices. The company's adjusted net sales decreased 2.7%. Total Sara Lee unit volumes were 1.0% lower in the second quarter, but increased 0.7% excluding the impact of planned exits from commodity and kosher meats in the North American Retail segment. On a comparable basis, in the first quarter of fiscal 2010, volumes decreased 2.4%. Unit volume trends generally showed improvement in the second quarter driven by innovative new products, successful trade spending and strategic pricing initiatives.
¹ The term "adjusted EPS" and other "adjusted" financial measures are explained and reconciled to each item's most comparable U.S. generally accepted accounting principles measure at the end of this release.
Operating Income
Sara Lee reported second quarter operating income of $282 million, compared to an operating loss of $(4) million in the prior-year period. Adjusted operating income increased to $319 million in the second quarter, up 75.8%. The improvement in adjusted operating income included a $103 million increase in total adjusted operating segment income for all continuing business segments, $27 million of favorable mark-to-market variances on commodity derivatives and lower corporate costs.
Discontinued Operations
Net sales for the international household and body care businesses, which are being reported as discontinued operations, were $565 million in the second quarter of fiscal 2010, compared to $484 million in the prior-year period, a 16.8% increase. This was primarily due to strength in most of the core categories and favorable foreign currency exchange rates. Adjusted net sales increased 5.4%.
Operating segment income in the second quarter was $63 million, an increase of $19 million compared to the year-ago period. The increase was driven by higher net sales, Project Accelerate and continuous improvement savings, lower commodity costs and favorable foreign currency exchange rates, which were partially offset by higher media advertising and promotion (MAP) spending. Adjusted operating segment income was up 44.9% in the second quarter.
Net income was $66 million in the second quarter versus $23 million in the year-ago period, primarily due to improved business performance, the recognition of $27 million of net tax benefits and $8 million in benefit from the cessation of depreciation and amortization in compliance with U.S. GAAP rules, which were partially offset by $19 million in charges for various significant items.
Earnings Per Share
Diluted EPS as reported were $0.53 per diluted share in the second quarter compared to a loss of $(0.02) in the year-ago period. Diluted EPS from continuing operations were $0.43 per diluted share, compared to a loss of $(0.06) in the year-ago period, while diluted EPS from discontinued operations were $0.09 per diluted share, versus $0.03 in the comparable period last year.
During the quarter, results in both continuing and discontinued operations were influenced by a number of significant items, including:
Continuing Operations
-- After-tax charges of $24 million, or $(0.03) per diluted share, for
business exits, Project Accelerate costs and asset impairments, the
latter associated with the write-down of fixed assets at the North
American Foodservice and International Bakery segments.
-- Income of $119 million, or $0.17 per diluted share, from significant
tax items, primarily resulting from the favorable conclusion of
various tax audits in jurisdictions around the world, the release of
Brazilian valuation allowances and the utilization of current-year
United Kingdom net operating losses.
Discontinued Operations
-- After-tax charges of $19 million, or $(0.02) per diluted share, for
benefit plan curtailment losses, business disposition transaction
costs and retention bonuses.
-- Income of $27 million, or $0.04 per diluted share, from significant
tax items, primarily related to the benefit of capital loss
carryforwards, the utilization of prior-year United Kingdom net
operating losses and various tax settlements in jurisdictions around
the world.
The combination of these significant items resulted in a net benefit of $103 million, or $0.15 per diluted share, in the second quarter of fiscal 2010. Adjusted EPS were $0.36 in the second quarter, compared to $0.19 per share in the second quarter of fiscal 2009. For more detail on the impact of significant items on diluted EPS in the current- and prior-year periods, see table "Impact of Significant Items on Diluted Earnings per share."
Cash from Operations
Net cash from operating activities was $285 million in the second quarter, compared to $252 million in the comparable period last year; primarily driven by higher operating income.
Financial Highlights
-- Project Accelerate is a company-wide cost saving and productivity
initiative focused on outsourcing actions, supply chain efficiencies,
SKU rationalization and organizational simplification. As compared to
last year, the project is expected to generate between $75 million and
$100 million of incremental benefits in fiscal 2010, of which $48
million has already been realized in the first six months of the year.
-- MAP spending increased 4.9% in the second quarter, primarily driven by
a significant increase in spending at the North American Retail
segment behind category-leading brands such as Jimmy Dean, Hillshire
Farm and Ball Park.
-- Net interest expense was $32 million in the second quarter, compared
to $36 million in last year's period, due to lower interest rates and
less average debt outstanding.
-- General corporate expenses declined to $60 million in the second
quarter, compared to $91 million in the year-ago period, primarily due
to $27 million of favorable mark-to-market variances on commodity
derivatives and $4 million of lower corporate costs, on an as reported
basis.
-- The effective tax rate for continuing operations in the second quarter
was a negative (21.5)%, compared to a negative (0.8)% in the year-ago
period, a decrease primarily driven by the impact of significant items
in the quarter. Excluding significant items, the effective tax rate
would have been 26.7%. For further detail on the tax rate, see table
"Tax Rate Reconciliation - Fiscal 2010."
-- On December 11, 2009, Sara Lee announced it received a binding offer
of 320 million euros from The Procter & Gamble Company to acquire the
company's Ambi Pur air care business. The proposed transaction,
which is subject to customary closing conditions and regulatory
clearances, is expected to close during fiscal year 2010. Sara Lee
will consult with relevant works councils during the process. The
company has also received significant interest in the remainder of its
international household and body care businesses, which includes shoe
care, insecticides and non-European cleaning brands, and is continuing
to pursue divestiture options for these businesses.
-- The company did not repurchase any shares of its common stock in the
second quarter. Earlier in fiscal 2010, the board of directors
authorized a $1.0 billion share repurchase program, in addition to the
13.5 million share authorization remaining under the prior program.
Six-Month Results
Continuing Operations
For the first six months of fiscal 2010, Sara Lee reported net sales of $5.4 billion, down 3.6% over the comparable period last year, while adjusted net sales decreased 3.0% in the first half. Operating income was $607 million in the first six months, compared to $289 million in the year-ago period, while adjusted operating income increased 77.1%.
Discontinued Operations
Net sales were $1.1 billion, up 4.6% in the first six months, while adjusted net sales rose 3.3%. Operating segment income was $132 million in the first half, versus $105 million last year, while adjusted operating segment income increased 41.0%.
EPS and Cash from Operations
Diluted EPS, as reported, were $0.94 in the first six months of fiscal 2010, compared to $0.30 for the first half of fiscal 2009. Adjusted EPS for the comparable six month periods were $0.60 versus $0.34 (see table "Reconciliation of Diluted EPS as reported to Adjusted EPS"). Net cash from operating activities was $472 million in the first six months of fiscal 2010, compared to $214 million in the first half of fiscal 2009 - the $258 million increase was primarily driven by higher operating income and better inventory management.
Business Performance Review
North American Retail
The North American Retail segment delivered another strong quarter, building on the past two years of business improvements. Operating segment income increased significantly in the first half of fiscal 2010 despite some unit volume softness at the start of the year. Over the course of the second quarter, targeted consumer and customer spending led to attractive price points for high-quality products, which drove unit volume growth (excluding commodity and kosher meat exits). In the second half of the year, volumes are likely to continue to improve, while operating segment income comparisons will be less robust due to strong year-over-year comparisons, increasing commodity costs and further reinvestment to fuel future growth. Operating margins reached a relatively high level in the second quarter of fiscal 2010 and are likely to contract in the short-term as the retail segment reinvests and laps very favorable commodity costs.
Operating segment income was $122 million in the second quarter, compared to $73 million in the year-ago period, an increase of 66.6%; adjusted operating segment income rose at a similar pace. The increase was primarily the result of favorable supply chain performance, Project Accelerate and continuous improvement savings, lower input costs and strong performance from the segment's core retail business. These factors were partially offset by higher MAP spending in support of campaigns for the Jimmy Dean and Hillshire Farm brands.
Unit volumes declined 2.7% in the second quarter due to significantly lower volumes for commodity meats, which the company is exiting, and the impact of the exit of the kosher meats business. Excluding these planned exits, unit volumes for the core retail business were up 3.3% in the second quarter. Net sales of $745 million were flat in the quarter on a reported and adjusted basis, as favorable sales mix into higher-margin products was offset by the impact of trade spending and the exits of commodity and kosher meats. The retail segment's key brands continued to show generally positive market share trends and maintained their premium pricing in the quarter. The Jimmy Dean brand increased its share of the frozen protein breakfast category by 2.4 points to 54.3%, according to Information Resources, Inc. (IRI) share data, FDMx + Walmart, 12 weeks ending December 13, 2009, while the Hillshire Farm brand increased its share in lunchmeats by 1.0 points to 13.3%, per the same IRI market share data.
North American Fresh Bakery
Similar to the first quarter of fiscal 2010, the North American Fresh Bakery segment reported higher adjusted operating segment income and adjusted operating margin in the second quarter, despite a very competitive marketplace. However, branded volumes were soft and as a result the business will continue to recalibrate pricing to drive sales, building on unit volume trends that were starting to show improvement at the end of the second quarter. The second half of the year is likely to show better unit volume performance and a reinvestment of some of the first half operating income in strategic pricing actions and marketing support for the introduction of innovative new products such as Sara Lee Soft & Smooth bread made with Omega-3/DHA and EarthGrains 100% whole grain bread made with Eco-Grain.
Operating segment income was $16 million in the second quarter, compared to a loss of $(16) million in the year-ago period. The increase was primarily due to a $30 million charge for a pension partial withdrawal liability in last year's second quarter. Adjusted operating segment income was $16 million, up 10.3% compared to $14 million in the prior-year quarter. This was the result of lower commodity costs, lower MAP spending and a decrease in operating costs driven by Project Accelerate initiatives and other continuous improvement savings.
Net sales decreased 7.5% to $499 million in the second quarter of fiscal 2010, primarily due to lower unit volumes, unfavorable sales mix into private label breads and price decreases following lower input costs and competitive pressures. Unit volumes decreased 4.2%, as higher volumes for private label breads could not fully offset volume declines for branded bakery products, the latter as a result of intense price competition in the category.
North American Foodservice
Building on a solid fiscal 2009 and a strong first quarter of fiscal 2010, the North American Foodservice segment reported higher operating segment income in the second quarter, despite an ongoing shift by consumers away from dining out. As a result of Project Accelerate savings, attractive new business wins, strategic business exits and lower commodity costs, the segment managed to overcome negative category trends. While adjusted net sales and unit volumes were down in the first half of fiscal 2010, most of these declines can be attributed to marketplace dynamics. Management continues to be cautious about full-year results and currently expects a slight decline in adjusted operating segment income for the year, as the second half is likely to become more challenging due to increasing commodity costs and tougher year-over-year comparisons. This will be particularly true for volume, which will be significantly impacted by a lost account that represented approximately 15% of the segment's volumes, but less than 4% of sales and had a low margin.
The segment reported operating segment income of $45 million in the second quarter, compared to a loss of $(48) million in the year-ago period, the latter primarily due to an $107 million impairment charge. During the current-year quarter, the segment booked a $13 million asset impairment charge for the write-down of fixed assets at a foodservice bakery manufacturing facility. Adjusted operating segment income rose 11.7% to $60 million in the second quarter of fiscal 2010. The increase was primarily driven by lower commodity costs net of pricing, lower SG&A expense and savings from Project Accelerate and continuous improvement initiatives, which were partially offset by the impact of lower unit volumes.
Net sales decreased 13.8% to $529 million in the second quarter of fiscal 2010, primarily due to the divestiture of the direct store delivery (DSD) foodservice coffee business in fiscal 2009, as well as lower unit volumes and lower pricing. Adjusted net sales, which exclude the impact of the dispositions, decreased 5.9%. Unit volume growth in frozen bakery and private label refrigerated dough could not fully offset demand weakness in other parts of the business, a loss of a large, low-margin bakery contract and the impact of planned business exits in foodservice meats, resulting in 2.9% lower unit volumes in the second quarter.
International Beverage
International Beverage continues to drive profitable growth by focusing on innovation in the single-serve and instant coffee categories, expanding in growth markets such as Brazil and Russia and generally holding pricing in most of its key European markets. These initiatives, coupled with favorable foreign currency exchange rates, helped improve top- and bottom-line trends between the first and second fiscal quarters. With the expectation for a strong second half of the year, the segment will continue to focus on strategic pricing, new products and emerging markets.
Reported operating segment income was $172 million, up 59.1% from $108 million in the second quarter of fiscal 2009. The increase was primarily driven by higher net sales, Project Accelerate and continuous improvement savings and favorable foreign currency exchange rates. Adjusted operating segment income rose 35.2%. Both reported and adjusted operating segment income benefited from a $16 million favorable variance in the quarter, largely from mark-to-market currency impacts related to the purchase of raw materials.
Net sales increased 14.8% to $884 million in the second quarter of fiscal 2010, primarily due to favorable foreign currency exchange rates and higher unit volumes. Unit volumes were up 4.8% in the quarter, driven by strong volume growth in Brazil and higher volumes for single-serve and instant coffees. Adjusted net sales were up 1.2%. New products in the quarter included additional Senseo coffee pod varieties in the United Kingdom and Pilão Summer, a coffee blend sold in Brazil. Maison du Café Pepites d'Arome, roast and ground coffee pressed in the shape of a coffee bean for easy dosing and great taste, was voted "Product of the Year 2010" in France during the quarter.
International Bakery
The International Bakery segment continues to face headwinds in its core Spanish market and has implemented numerous actions expected to deliver an improved second half of the year. With new product launches, pricing actions and Project Accelerate benefits in Spain, combined with ongoing strong performance in France and Australia, the segment expects to show positive trends in the upcoming quarters and for the full fiscal year.
The segment reported an operating segment loss of $(1) million in the second quarter, primarily due to costs associated with Project Accelerate and for the impairment of certain fixed assets in the Spanish bakery business. The segment reported an operating segment loss of $(19) million in the year-ago period. Adjusted operating segment income was $12 million, compared to $11 million in the prior-year quarter, driven by lower commodity costs and Project Accelerate and continuous improvement savings, partially offset by reduced prices and lower unit volumes.
Net sales increased 7.1% to $211 million in the second quarter, driven by favorable foreign currency exchange rates, partially offset by a 2.8% decline in unit volumes and lower prices. Adjusted net sales decreased 6.6%. Successful new products launched in the second quarter included Ortiz wheat bread in Spain and various new Sara Lee branded foodservice bakery products in Australia. In addition, Bimbo Tender Bakery bread was named "Product of the Year 2010" in Spain and the Bimbo brand was recognized by Spanish consumers and industry experts as one of the 25 "Super Brands" for 2010.
Discontinued Operations
In spite of continued weak market conditions in Europe and an ongoing process to divest the business, the discontinued international household and body care operations delivered impressive top- and bottom-line performance for the second consecutive quarter, while also increasing marketing investment. Growth came from numerous new product successes, strategic pricing actions and Project Accelerate cost savings. Sara Lee continues to work toward the divestiture of the entire business while delivering strong results and investing in the business appropriately.
Operating segment income was $63 million in the second quarter, up $19 million versus the year-ago period, primarily driven by higher sales, Project Accelerate and continuous improvement savings and favorable foreign currency exchange rates, which were partially offset by higher MAP spending. Adjusted operating segment income was up 44.9%. Net sales increased 16.8% in the second quarter to $565 million, driven by favorable foreign currency exchange rates and growth in body care's successful new products such as Sanex Zero% and NaturProtect, shoe care's strength in the United States and Africa, and insecticides' very strong sales in India and Malaysia. Adjusted net sales were up 5.4%.
Guidance
Sara Lee currently expects full-year fiscal 2010 total diluted EPS to be in the range of $1.36 to $1.41 per share, which includes $0.19 per share of contingent sale proceeds received in the first quarter of fiscal 2010 from the sale of its tobacco business in fiscal 1999, and a $0.17 per share gain from significant items realized in the first six months of fiscal 2010. Full-year 2010 adjusted EPS is expected to be in the range of $1.00 to $1.05 per share, compared to $0.82 in fiscal 2009. This represents an increase of $0.09 to $0.10 per share compared to the last guidance provided by the company. The $0.09 to $0.10 per share increase is comprised of our expectation of $0.03 to $0.04 per share of improved operational performance, $0.02 from a lower anticipated tax rate and $0.04 from the cessation of depreciation and amortization expense for H&BC. EPS guidance also includes anticipated benefits from a 53rd week and favorable currency exchange rates. This adjusted EPS guidance implies that the second half of fiscal 2010 will be lower than the second half of the previous year. The primary drivers are comparisons to unusually low corporate expense in the second half of last year (approximately $25 to $30 million lower than the expected expense in the second half of fiscal 2010), lapping a positive commodity mark-to-market variance of $40 million, and significant business re-investment.
Guidance does not include any additional significant items that may occur during the remainder of fiscal 2010, such as one-time expenses related to Project Accelerate. If any of the household and body care transactions closes before the end of fiscal 2010, this may have an impact on the fiscal 2010 guidance.
Looking at the business segments, Sara Lee currently expects four out of the five continuing business segments, as well as the discontinued international household and body care operations, to show an increase in adjusted operating segment income in fiscal 2010. The company continues to be cautious about the North American Foodservice segment, as market trends remain weak for that segment.
Actual results may differ from this guidance due to future significant events that may occur, the nature, timing and financial impact of which are not yet known.
Fiscal 2010Guidance (1) Fiscal 2009
Total diluted EPS $1.36 - 1.41/per share $0.52/per share
Diluted EPS from continuing $1.01 - 1.04/per share $0.31/per share
operations
Diluted EPS from discontinued $0.35 - 0.37/per share $0.21/per share
operations
Contingent sale proceeds $0.19/per share $0.21/per share
Total significant items (2) $0.17/per share $(0.51)/per share
Significant items related $0.09/per share $(0.51)/per share
to continuing operations
Significant items related to $0.08/per share $(0.01)/per share
discontinued operations
Adjusted EPS (2)(3) $1.00 - 1.05/per share $0.82/per share
Adjusted EPS from continuing $0.73 - 0.76/per share $0.61/per share
operations
Adjusted EPS from $0.27 - 0.29/per share $0.22/per share
discontinued
operations
Net sales $12.9 - $13.2 billion $12.9 billion
Net sales from continuing $10.8 - $11.0 billion $10.9 billion
operations
Net sales from discontinued $2.1 - $2.2 billion $2.0 billion
operations
Total operating income $1,225 - $1,275 million $713 million
Operating income $970 - $1,000 million $482 million
from continuing
operations
Operating income from $255 - $275 million $231 million
discontinued
operations
Cash flow items(including
discontinued operations)
Cash flow from operations $750-$850 million $900 million
Capital expenditures $425-$450 million $379 million
Key assumptions
Interest expense, net $120 - $130 million $125 million
Dollar/euro exchange rate $1.42 $1.38
(1) Fiscal 2010 has an extra, 53rd week.
(2) Amounts are rounded and may not add to the total.
(3) Diluted EPS excluding significant items and contingent sale proceeds. See explanation of non-GAAP measures at the end of this release.
Form 10-Q and Webcast
Sara Lee Corporation filed a Form 10-Q for the second quarter of fiscal 2010 with the Securities and Exchange Commission this morning. The Form 10-Q can be accessed in the Investor Relations section (Financial/SEC Information page) on www.saralee.com. Sara Lee Corporation's review of its results for the second quarter will be broadcast live via the Internet today at 9:30 a.m. CST. The live webcast can be accessed in the Investor Relations section on www.saralee.com and is anticipated to conclude by 10:30 a.m. CST. For people who are unable to listen to the webcast live, a recording will be available on the website two hours following the completion of the webcast until Wednesday, August 4, 2010.
Forward-Looking Statements
This release contains forward-looking statements regarding Sara Lee's business prospects, costs and operating results, including statements contained under the heading "Guidance." In addition, from time to time, in oral statements and written reports, the corporation discusses its expectations regarding the corporation's future performance by making forward-looking statements preceded by terms such as "expects," "likely" or "believes." These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events. Forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements.
Consequently, the corporation wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Sara Lee's actual results to differ from such forward-looking statements are factors relating to:
-- Sara Lee's relationship with its customers, such as (i) a significant
change in Sara Lee's business with any of its major customers, such as
Walmart, its largest customer, including changes in the level of
inventory these customers maintain; and (ii) credit and other business
risks associated with customers operating in a highly competitive
retail environment;
-- The consumer marketplace, such as (iii) significant competition,
including advertising, promotional and price competition; (iv) changes
in consumer behavior due to economic conditions, such as a shift in
consumer demand toward private label; (v) fluctuations in the cost of
raw materials, Sara Lee's ability to increase or maintain product
prices in response to fluctuations in cost and the impact on
Sara Lee's profitability; (vi) the impact of various food safety
issues and regulations on sales and profitability of Sara Lee
products; and (vii) inherent risks in the marketplace associated with
new product introductions, including uncertainties about trade and
consumer acceptance;
-- Sara Lee's international operations, such as (viii) impacts on
reported earnings from fluctuations in foreign currency exchange
rates, particularly the European euro, given Sara Lee's significant
concentration of business in Western Europe; (ix) Sara Lee's
generation of a high percentage of its revenues from businesses
outside the United States and costs to remit these foreign earnings
into the United States to fund Sara Lee's domestic operations; (x) the
impact on Sara Lee's business of its receipt of binding offers to
purchase the global body care, European detergent and air care
businesses and its intent to divest the remainder of its international
household and body care business; and (xi) Sara Lee's ability to
continue to source production and conduct manufacturing and selling
operations in various countries due to changing business conditions,
political environments, import quotas and the financial condition of
suppliers;
-- Previous business decisions, such as (xii) Sara Lee's ability to
generate margin improvement through cost reduction and efficiency
initiatives, including Project Accelerate and the outsourcing of
significant portions of our financial transaction processing, global
IT applications development and maintenance, and global indirect
procurement activities; (xiii) Sara Lee's ability to achieve planned
cash flows from capital expenditures and acquisitions, and the impact
of changing interest rates and the cost of capital on the discounted
value of those planned cash flows, which could impact future
impairment analyses; (xiv) credit ratings issued by the three major
credit rating agencies and the impact these ratings have on Sara Lee's
cost to borrow funds and access to capital/debt markets; (xv) the
settlement of a number of ongoing reviews of Sara Lee's income tax
filing positions in various jurisdictions and inherent uncertainties
related to the interpretation of tax regulations in the jurisdictions
in which Sara Lee transacts business; and (xvi) changes in the expense
for and contingent liabilities relating to multi-employer pension
plans in which Sara Lee participates.
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. Sara Lee undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
About Sara Lee Corporation
Each and every day, Sara Lee (NYSE: SLE) delights millions of consumers and customers around the world. The company has one of the world's best-loved and leading portfolios with its innovative and trusted food, beverage, household and body care brands, including Ambi Pur, Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi, Sanex, Sara Lee and Senseo. Collectively, these brands generate almost $13 billion in annual net sales covering approximately 180 countries. The Sara Lee community consists of 41,000 employees worldwide. Please visit www.saralee.com for the latest news and in-depth information about Sara Lee and its brands.
SARA
LEE
CORPORATION
AND
SUBSIDIARIES
Consolidated
Statements
of Income
For
the
Quarter
and Six
Months
ended
December
26, 2009
and
December
27,2008
(Unaudited)
Quarter Ended Six Months Ended
In Dec. 26,2009 Dec. 27,2008 Dec. 26,2009 Dec. 27,2008
millions,
except
per share
data
Continuing
Operations
Net sales $ 2,858 $ 2,856 $ 5,446 $ 5,650
Cost of 1,753 1,887 3,372 3,704
sales
Selling, 791 832 1,555 1,670
general
and
administrative
expenses
Net 15 34 28 30
charges
for exit
activities,
asset and
business
dispositions
Impairment 17 107 17 107
charges
Contingent -- -- (133) (150)
sale
proceeds
Interest 38 41 73 86
expense
Interest (6) (5) (12) (25)
income
2,608 2,896 4,900 5,422
Income 250 (40) 546 228
(loss)
from
continuing
operations
before
income
taxes
Income (55) -- 51 77
tax
expense
(benefit)
Income 305 (40) 495 151
(loss)
from
continuing
operations
Discontinued
Operations
Net 66 23 160 62
income
from
discontinued
operations,
net of
tax
expense
(benefit)
of $(7),
$14,
$(38)
and $36
Net $ 371 $ (17) $ 655 $ 213
income
(loss)
Income
(loss)
from
continuing
operations
per share
of
common
stock
Basic $ 0.44 $ (0.06) $ 0.71 $ 0.21
Diluted $ 0.43 $ (0.06) $ 0.71 $ 0.21
Net
income
(loss)
per share
of common
stock
Basic $ 0.53 $ (0.02) $ 0.94 $ 0.30
Diluted $ 0.53 $ (0.02) $ 0.94 $ 0.30
Average
shares
outstanding
Basic 699 703 698 705
Diluted 701 703 700 706
Cash $ 0.11 $ 0.11 $ 0.11 $ 0.11
dividends
declared
per
share of
common
stock
SARA LEE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
at December 26, 2009 and June 27, 2009
(Unaudited)
In Dec. 26,2009 June 27,2009
millions
Assets
Cash $ 1,331 $ 951
and equivalents
Trade accounts receivable, 1,398 1,272
less allowances
Inventories
Finished 436 443
goods
Work 25 32
in process
Materials and 335 291
supplies
796 766
Current deferred 181 207
income taxes
Other current 314 250
assets
Assets held 403 384
for sale
Total current 4,423 3,830
assets
Property, net of accumulated depreciation 2,156 2,200
of $2,881 and $2,776, respectively
Trademarks and other identifiable 570 585
intangibles, net
Goodwill 1,312 1,295
Deferred income 314 309
taxes
Other noncurrent 175 245
assets
Noncurrent assets 980 953
held for sale
$ 9,930 $ 9,417
Liabilities
and Equity
Notes $ 42 $ 20
payable
Accounts 900 1,004
payable
Income taxes payable and 7 23
current deferred taxes
Other accrued 1,372 1,467
liabilities
Current maturities 22 46
of long-term debt
Liabilities held 336 286
for sale
Total current 2,679 2,846
liabilities
Long-term 2,749 2,738
debt
Pension 582 595
obligation
Deferred income 48 55
taxes
Other 1,079 1,061
liabilities
Noncurrent liabilities 11 64
held for sale
Equity
Sara Lee common stockholders' 2,753 2,036
equity
Noncontrolling 29 22
interest
Total 2,782 2,058
Equity
$ 9,930 $ 9,417
SARA LEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements
of Cash Flows
For the Six Months ended December
26, 2009 and December 27, 2008
(Unaudited)
Six Months ended
In Dec. 26, 2009 Dec. 27, 2008
millions
OPERATING ACTIVITIES
-
Net $ 655 $ 213
income
Less: Cash received from (133 ) (150 )
contingent sale proceeds
Adjustments to reconcile
net income to
net cash from operating activities:
Depreciation 181 184
Amortization 48 58
Impairment 17 107
charges
Net (gain) loss on business 9 (3 )
dispositions
Pension contributions, 25 (21 )
net of expense
Other (12 ) 142
Changes in current assets (318 ) (316 )
and liabilities,
net of businesses acquired and sold
Net cash from operating 472 214
activities
INVESTMENT ACTIVITIES
-
Purchases of property (142 ) (134 )
and equipment
Purchases of software and (11 ) (14 )
other intangibles
Acquisitions of businesses -- (10 )
and investments
Dispositions of businesses (1 ) 15
and investments
Cash received from contingent 133 150
sale proceeds
Cash received from (used in) 75 (153 )
derivative transactions
Sales of 9 5
assets
Net cash received from (used 63 (141 )
in) investment activities
FINANCING ACTIVITIES
-
Purchases of -- (103 )
common stock
Borrowings of 32 --
other debt
Repayments of (48 ) (327 )
other debt
Net change in financing with 1 (18 )
less than 90-day maturities
Payments of (154 ) (149 )
dividends
Net cash used in financing (169 ) (597 )
activities
Effect of changes in foreign 25 (198 )
exchange rates on cash
Increase (decrease) in 391 (722 )
cash and equivalents
Add: Cash balances of discontinued 8 1
operations at beginning of year
Less: Cash balances of discontinued (19 ) (4 )
operations at end of period
Cash and equivalents 951 1,282
at beginning of year
Cash and equivalents $ 1,331 $ 557
at end of quarter
COMPONENTS OF CHANGES IN CURRENT
ASSETS AND LIABILITIES -
Trade accounts $ (108 ) $ (89 )
receivable
Inventories (3 ) (77 )
Other current 50 (7 )
assets
Accounts (43 ) (151 )
payable
Accrued (36 ) 28
liabilities
Accrued (178 ) (20 )
taxes
Changes in current assets $ (318 ) $ (316 )
and liabilities,
net of businesses acquired and sold
Sara
Lee
Corporation
Operating
Results
by
Business
Segment*
(in millions)
Dollar Percent Dollar Percent
Second Quarter Change Change First Six Months Change Change
2010 2009 2010 2009
North American
Retail
Net sales $ 745 $ 746 $ (1 ) 0.0 % $ 1,404 $ 1,426 $ (22 ) (1.6 )%
Adjusted net $ 745 $ 746 $ (1 ) 0.0 % $ 1,404 $ 1,426 $ (22 ) (1.6 )%
sales*
Operating $ 122 $ 73 $ 49 66.6 % $ 202 $ 128 $ 74 57.6 %
segment
income
Operating 16.4 % 9.8 % 6.6 % 14.4 % 9.0 % 5.4 %
margin %
Increase/(decrease)
in operating
segment income
from:
Exit $ - $ - $ - $ (3 ) $ 1 $ (4 )
activities,
asset and
business
dispositions
Adjusted $ 122 $ 73 $ 49 66.2 % $ 205 $ 127 $ 78 61.2 %
operating
segment
income*
Adjusted 16.4 % 9.9 % 6.5 % 14.6 % 8.9 % 5.7 %
operating
margin %*
North American
Fresh Bakery
Net sales $ 499 $ 539 $ (40 ) (7.5 )% $ 1,040 $ 1,110 $ (70 ) (6.3 )%
Adjusted net $ 499 $ 539 $ (40 ) (7.5 )% $ 1,040 $ 1,110 $ (70 ) (6.3 )%
sales*
Operating $ 16 $ (16 ) $ 32 NM $ 30 $ 1 $ 29 NM
segment
income (loss)
Operating 3.1 % (3.0 )% 6.1 % 2.9 % 0.1 % 2.8 %
margin %
Increase/(decrease)
in operating
segment income
from:
Exit $ - $ - $ - $ (1 ) $ - $ (1 )
activities,
asset and
business
dispositions
Pension - (30 ) 30 (7 ) (30 ) 23
partial
withdrawal
liability
charge
Adjusted $ 16 $ 14 $ 2 10.3 % $ 38 $ 31 $ 7 21.6 %
operating
segment
income*
Adjusted 3.1 % 2.6 % 0.5 % 3.6 % 2.8 % 0.8 %
operating
margin %*
North American
Foodservice
Net sales $ 529 $ 614 $ (85 ) (13.8 )% $ 986 $ 1,151 $ (165 ) (14.3 )%
Increase/(decrease)
in net sales
from:
Changes in $ - $ (1 ) $ 1 $ - $ - $ -
foreign
currency
exchange rates
Disposition - 52 (52 ) - 109 (109 )
Adjusted net $ 529 $ 563 $ (34 ) (5.9 )% $ 986 $ 1,042 $ (56 ) (5.4 )%
sales*
Operating $ 45 $ (48 ) $ 93 NM $ 83 $ (23 ) $ 106 NM
segment
income (loss)
Operating 8.6 % (7.8 )% 16.4 % 8.5 % (2.0 )% 10.5 %
margin %
Increase/(decrease)
in operating
segment income
from:
Exit $ (2 ) $ 1 $ (3 ) $ (2 ) $ 4 $ (6 )
activities,
asset and
business
dispositions
Impairment (13 ) (107 ) 94 (13 ) (107 ) 94
charge
Disposition - 5 (5 ) - 8 (8 )
Adjusted $ 60 $ 53 $ 7 11.7 % $ 98 $ 72 $ 26 35.9 %
operating
segment
income*
Adjusted 11.3 % 9.5 % 1.8 % 10.0 % 7.0 % 3.0 %
operating
margin %*
* Adjusted
Net Sales,
Adjusted
Operating
Segment
Income and
Adjusted
Operating
Margin
% are non-GAAP
measures.
See
"Explanation
of
Non-GAAP
Financial
Measures" for
a detailed
explanation
of these and
other
non-GAAP
measures
used in this
release.
Sara Lee Corporation
Operating Results by
Business Segment*
(in millions)
Dollar Percent Dollar Percent
Second Quarter Change Change First Six Months Change Change
2010 2009 2010 2009
International
Beverage
Net sales $ 884 $ 770 $ 114 14.8 % $ 1,618 $ 1,554 $ 64 4.1 %
Increase/(decrease)
in net sales from:
Changes in foreign $ - $ (103 ) $ 103 $ - $ (43 ) $ 43
currency
exchange rates
Acquisition/disposition - - - 12 1 11
Adjusted net sales* $ 884 $ 873 $ 11 1.2 % $ 1,606 $ 1,596 $ 10 0.6 %
Operating segment $ 172 $ 108 $ 64 59.1 % $ 295 $ 250 $ 45 18.1 %
income
Operating margin % 19.4 % 14.0 % 5.4 % 18.2 % 16.1 % 2.1 %
Increase/(decrease)
in operating
segment income from:
Changes in foreign $ - $ (17 ) $ 17 $ - $ (11 ) $ 11
currency
exchange rates
Exit activities, 2 (1 ) 3 - (2 ) 2
asset and
business
dispositions
Transformation/Accelerate - - - - (1 ) 1
charges
Curtailment gain - - - - 12 (12 )
Acquisition/disposition - - - 1 - 1
Adjusted operating $ 170 $ 126 $ 44 35.2 % $ 294 $ 252 $ 42 16.7 %
segment income*
Adjusted operating 19.2 % 14.4 % 4.8 % 18.3 % 15.8 % 2.5 %
margin %*
International Bakery
Net sales $ 211 $ 197 $ 14 7.1 % $ 415 $ 428 $ (13 ) (3.0 )%
Increase/(decrease)
in net sales from:
Changes in foreign $ - $ (29 ) $ 29 $ - $ (16 ) $ 16
currency
exchange rates
Adjusted net sales* $ 211 $ 226 $ (15 ) (6.6 )% $ 415 $ 444 $ (29 ) (6.4 )%
Operating segment $ (1 ) $ (19 ) $ 18 94.6 % $ 5 $ (4 ) $ 9 NM
income (loss)
Operating margin % (0.5 )% (9.9 )% 9.4 % 1.1 % (1.0 )% 2.1 %
Increase/(decrease)
in operating
segment income from:
Changes in foreign $ - $ (1 ) $ 1 $ - $ - $ -
currency
exchange rates
Exit activities, (8 ) (29 ) 21 (15 ) (28 ) 13
asset and
business
dispositions
Transformation/Accelerate (1 ) - (1 ) (1 ) (1 ) -
charges
Impairment charge (4 ) - (4 ) (4 ) - (4 )
Adjusted operating $ 12 $ 11 $ 1 10.6 % $ 25 $ 25 $ - (2.1 )%
segment income*
Adjusted operating 5.8 % 4.9 % 0.9 % 6.0 % 5.7 % 0.3 %
margin %*
* Adjusted
Net Sales,
Adjusted
Operating Segment
Income and
Adjusted Operating
Margin
% are non-GAAP
measures.
See "Explanation of
Non-GAAP Financial
Measures" for
a detailed
explanation
of these and other
non-GAAP measures
used in this
release.
Sara Lee Corporation
Operating Results by
Business Segment*
(in millions)
Dollar Percent Dollar Percent
Second Quarter Change Change First Six Months Change Change
2010 2009 2010 2009
Total Sara Lee
Net sales - total $ 2,868 $ 2,866 $ 2 $ 5,463 $ 5,669 $ (206 )
operating
segments
Less: intersegment (10 ) (10 ) - (17 ) (19 ) 2
sales
Net sales $ 2,858 $ 2,856 $ 2 0.1 % $ 5,446 $ 5,650 $ (204 ) (3.6 )%
Increase/(decrease)
in net sales from:
Changes in foreign $ - $ (133 ) $ 133 $ - $ (59 ) $ 59
currency
exchange rates
Acquisitions/dispositions - 52 (52 ) 12 110 (98 )
Adjusted net sales* $ 2,858 $ 2,937 $ (79 ) (2.7 )% $ 5,434 $ 5,599 $ (165 ) (3.0 )%
Total operating $ 354 $ 98 $ 256 NM $ 615 $ 352 $ 263 74.6 %
segment income
Increase/(decrease)
in operating
segment income from:
Changes in foreign $ - $ (18 ) $ 18 $ - $ (11 ) $ 11
currency
exchange rates
Exit activities, (8 ) (29 ) 21 (21 ) (25 ) 4
asset and
business
dispositions
Transformation/Accelerate (1 ) - (1 ) (1 ) (2 ) 1
charges
Impairment charges (17 ) (107 ) 90 (17 ) (107 ) 90
Curtailment gain - - - - 12 (12 )
Pension partial - (30 ) 30 (7 ) (30 ) 23
withdrawal
liability charge
Acquisitions/dispositions - 5 (5 ) 1 8 (7 )
Total adjusted $ 380 $ 277 $ 103 36.6 % $ 660 $ 507 $ 153 30.0 %
operating
segment income*
Total operating $ 354 $ 98 $ 256 $ 615 $ 352 $ 263
segment income
Amortization of (12 ) (11 ) (1 ) (23 ) (23 ) -
trademarks
and
other intangibles
General corporate
expenses:
Other (64 ) (68 ) 4 (119 ) (132 ) 13
Mark-to-market 4 (23 ) 27 1 (58 ) 59
derivative
gains (losses)
Contingent sales - - - 133 150 (17 )
proceeds
Operating income $ 282 $ (4 ) $ 286 NM $ 607 $ 289 $ 318 NM
Operating margin % 9.9 % (0.1 )% 10.0 % 11.1 % 5.1 % 6.0 %
Increase/(decrease)
in
operating income
from:
Contingent sale $ - $ - $ - $ 133 $ 150 $ (17 )
proceeds
Changes in foreign - (17 ) 17 - (11 ) 11
currency
exchange rates
Exit activities, (15 ) (34 ) 19 (28 ) (30 ) 2
asset and
business
dispositions
Transformation/Accelerate (5 ) (2 ) (3 ) (10 ) (5 ) (5 )
charges
Curtailment gain - - - - 12 (12 )
Impairment charges (17 ) (107 ) 90 (17 ) (107 ) 90
Pension partial - (30 ) 30 (7 ) (30 ) 23
withdrawal
liability charge
Acquisition/disposition - 5 (5 ) 1 8 (7 )
Adjusted operating $ 319 $ 181 $ 138 75.8 % $ 535 $ 302 $ 233 77.1 %
income*
Adjusted operating 11.2 % 6.2 % 5.0 % 9.8 % 5.4 % 4.4 %
margin %*
* Adjusted
Net Sales,
Adjusted Operating
Segment Income,
Adjusted
Operating
Income and Adjusted
Operating Margin
% are non-GAAP
measures.
See "Explanation of
Non-GAAP Financial
Measures" for
a detailed
explanation
of these and other
non-GAAP measures
used in this
release.
Sara Lee Corporation
Operating Results
For Discontinued
Operations*
(in millions)
Dollar Percent Dollar Percent
Second Quarter Change Change First Six Months Change Change
2010 2009 2010 2009
International
Household
and
Body Care Businesses
Net sales $ 565 $ 484 $ 81 16.8 % $ 1,086 $ 1,039 $ 47 4.6 %
Increase/(decrease)
in net sales from:
Changes in foreign $ - $ (52 ) $ 52 $ - $ (13 ) $ 13
currency
exchange rates
Adjusted net sales* $ 565 $ 536 $ 29 5.4 % $ 1,086 $ 1,052 $ 34 3.3 %
Operating segment $ 63 $ 44 $ 19 45.3 % $ 132 $ 105 $ 27 26.6 %
income
Operating margin % 11.2 % 9.0 % 2.2 % 12.2 % 10.1 % 2.1 %
Increase/(decrease)
in operating
segment income from:
Changes in foreign $ - $ (7 ) $ 7 $ - $ (3 ) $ 3
currency
exchange rates
Exit activities, - (6 ) 6 - (6 ) 6
asset and
business
dispositions
Transformation/Accelerate - - - - (2 ) 2
charges
Curtailment gain (11 ) - (11 ) (11 ) 5 (16 )
(loss)
Professional (11 ) (2 ) (9 ) (15 ) (2 ) (13 )
fees/other
Adjusted operating $ 85 $ 59 $ 26 44.9 % $ 158 $ 113 $ 45 41.0 %
segment income*
Adjusted operating 15.0 % 10.9 % 4.1 % 14.6 % 10.7 % 3.9 %
margin %*
Operating segment $ 63 $ 44 $ 19 45.3 % $ 132 $ 105 $ 27 26.6 %
income
Amortization expense - (5 ) 5 (4 ) (9 ) 5
Noncontrolling (4 ) (5 ) 1 (6 ) (6 ) -
interest
expense
Foreign currency (1 ) 2 (3 ) (1 ) 6 (7 )
transaction
gains/other
Operating income $ 58 $ 36 $ 22 60.0 % $ 121 $ 96 $ 25 24.9 %
Changes in foreign - (7 ) 7 - (3 ) 3
currency
exchange rates
Exit activities, - (6 ) 6 - (6 ) 6
asset and
business
dispositions
Transformation/Accelerate - - - - (2 ) 2
charges
Curtailment gain (11 ) - (11 ) (11 ) 5 (16 )
(loss)
Professional (11 ) (2 ) (9 ) (15 ) (2 ) (13 )
fees/other
Adjusted operating $ 80 $ 51 $ 29 55.2 % $ 147 $ 104 $ 43 40.5 %
income
Operating income $ 58 $ 36 $ 22 $ 121 $ 96 $ 25
Interest income, net 1 1 - 1 2 (1 )
Income before 59 37 22 122 98 24
income taxes
Income taxes expense (7 ) 14 (21 ) (38 ) 36 (74 )
(benefit)
Net income from $ 66 $ 23 $ 43 NM $ 160 $ 62 $ 98 NM
discontinued
operations
* Adjusted
Net Sales,
Adjusted Operating
Segment Income,
Adjusted
Operating
Income and Adjusted
Operating Margin
% are non-GAAP
measures.
See "Explanation of
Non-GAAP Financial
Measures" for
a detailed
explanation
of these and other
non-GAAP measures
used in this
release.
Net Sales Bridge
For the Quarter and Six Months ended December 26, 2009
The following table illustrates the components of the change in net sales versus the prior year for each of the five reported business segments.
Quarter ended December 26, 2009
Adjusted* Total
Unit Price/ Net Sales Acq./ Foreign Net Sales
Volume + Mix/Other = Change + Disp. + Exchange = Change
North American Retail (2.7)% 2.7% 0.0% - - 0.0%
Retail 2.0% (0.8)% 1.2% - - 1.2%
Commodity meats (27.2)% (0.9)% (28.1)% - - (28.1)%
North American Fresh Bakery (4.2)% (3.3)% (7.5)% - - (7.5)%
North American Foodservice (2.9)% (3.0)% (5.9)% (8.0)% 0.1% (13.8)%
International Beverage 4.8% (3.6)% 1.2% - 13.6% 14.8%
International Bakery (2.8)% (3.8)% (6.6)% - 13.7% 7.1%
Total Continuing Business (1.0)% (1.7)% (2.7)% (1.8)% 4.6% 0.1%
Six Months ended December 26, 2009
Adjusted* Total
Unit Price/ Net Sales Acq./ Foreign Net Sales
Volume + Mix/Other = Change + Disp. + Exchange = Change
North American Retail (5.0)% 3.4% (1.6)% - - (1.6)%
Retail (0.9)% 1.0% 0.1% - - 0.1%
Commodity meats (25.5)% (8.0)% (33.5)% - - (33.5)%
North American Fresh Bakery (3.3)% (3.0)% (6.3)% - - (6.3)%
North American Foodservice (4.1)% (1.3)% (5.4)% (9.0)% 0.1% (14.3)%
International Beverage 2.6% (2.0)% 0.6% 0.7% 2.8% 4.1%
International Bakery (3.0)% (3.4)% (6.4)% - 3.4% (3.0)%
Total Continuing Business (2.3)% (0.7)% (3.0)% (1.7)% 1.1% (3.6)%
*Adjusted net sales is a non-GAAP measure that excludes the impact of foreign currency exchange rates and acquisitions/dispositions. See "Explanation of Non-GAAP Financial Measures" for a detailed explanation of this and other non-GAAP measures in this release.
Impact of Significant
Items on
Diluted Earnings
per Share
Second Quarter First Six Months
2010 2009 2010 2009
As reported:
Diluted EPS from $ 0.43 $ (0.06 ) $ 0.71 $ 0.21
continuing
operations
Diluted EPS $ 0.53 $ (0.02 ) $ 0.94 $ 0.30
Increase/(decrease)
in EPS from:
Exit activities, $ (0.01 ) $ (0.04 ) $ (0.03 ) $ (0.03 )
asset and
business dispositions
Transformation/Accelerate 0.00 0.00 (0.01 ) 0.00
charges
Pension partial 0.00 (0.03 ) (0.01 ) (0.03 )
withdrawal
liability charge
Impairment charge (0.02 ) (0.15 ) (0.02 ) (0.15 )
Curtailment gain 0.00 0.00 0.00 0.02
Significant items (0.03 ) (0.22 ) (0.06 ) (0.21 )
related
to continuing
operations before
income taxes*
Tax adjustments 0.17 0.00 0.14 0.00
Significant items 0.13 (0.22 ) 0.09 (0.21 )
related to
continuing operations*
Significant items 0.01 (0.01 ) 0.09 0.00
related to
discontinued operations
Total significant $ 0.15 $ (0.22 ) $ 0.17 $ (0.21 )
items*
Reconciliation of
Diluted EPS as
reported to Adjusted
EPS:
Diluted EPS from $ 0.43 $ (0.06 ) $ 0.71 $ 0.21
continuing
operations as reported
Less:
Significant items 0.13 (0.22 ) 0.09 (0.21 )
related
to continuing
operations
Contingent sale 0.02 0.01 0.17 0.17
proceeds (2)
Adjusted EPS from $ 0.28 $ 0.15 $ 0.45 $ 0.25
continuing
operations (1) *
Diluted EPS from $ 0.09 $ 0.03 $ 0.23 $ 0.09
discontinued
operations as reported
Less:
Significant items 0.01 (0.01 ) 0.09 0.00
related to
discontinued operations
Contingent sale 0.00 0.00 0.00 0.00
proceeds (2)
Adjusted EPS from $ 0.08 $ 0.04 $ 0.14 $ 0.09
discontinued
operations (1) *
Diluted EPS as reported $ 0.53 $ (0.02 ) $ 0.94 $ 0.30
Less:
Total significant items 0.15 (0.22 ) 0.17 (0.21 )
Contingent sale 0.02 0.01 0.17 0.17
proceeds (2)
Adjusted EPS (1) * $ 0.36 $ 0.19 $ 0.60 $ 0.34
Tax Rate Reconciliation - Fiscal 2010
(In millions, except tax rate) Quarter ended December 26, 2009
Tax
Income (Expense) Net Effective
before Taxes Benefit Income Tax Rate
Reported Results $ 250 $ 55 $ 305 (21.5 )%
Less: Significant items (37 ) 132 95 (48.2 )%
Results, excluding significant items (1) 287 (77 ) 210 26.7 %
Less: contingent sale proceeds (2) - 14 14 (4.8 )%
Adjusted Results (1) $ 287 $ (91 ) $ 196 31.5 %
Six months ended December 26, 2009
Tax
Income (Expense) Net Effective
before Taxes Benefit Income Tax Rate
Reported Results $ 546 $ (51 ) $ 495 9.4 %
Less: Significant items (62 ) 122 60 (19.1 )%
Results, excluding significant items (1) 608 (173 ) 435 28.5 %
Less: contingent sale proceeds (2) 133 (15 ) 118 (4.8 )%
Adjusted Results (1) $ 475 $ (158 ) $ 317 33.3 %
* Amounts are rounded and may not add to the total.
(1) Represents a non-GAAP financial measure. The following pages contain additional detail regarding these measures.
(2) Contingent Sale Proceeds - The reported results include the receipt of contingent sale proceeds and the related tax benefit. Sara Lee received contingent sale proceeds in the first quarters of fiscal years 2010, 2009 and 2008. While the contingent sale proceeds are never subject to tax, income tax expense calculated under U.S. GAAP requires the tax benefit to accrete over the course of the year, with a significant portion of the benefit recognized in the first quarter. At the end of each quarter, the corporation determines its annual effective tax rate based on an estimate of the tax that will be provided for the full fiscal year stated as a percentage of estimated "ordinary" income. The term ordinary income refers to ordinary income from continuing operations before income taxes. It excludes significant unusual or infrequently occurring items, as defined by the guidelines for the accounting for income taxes, but includes the contingent sale proceeds. The non-taxable nature of the contingent sale proceeds is reflected in the determination of the annual effective tax rate, providing approximately five percentage points of tax benefit.
The estimated annual effective tax rate is applied to the total year-to-date "ordinary" income at the end of each quarter in order to compute the year-to-date tax applicable to ordinary income. The dollar amount of tax benefit related to contingent sale proceeds in any one quarter is equal to approximately five percent of total ordinary income, which is the impact on the effective annual tax rate. Although the majority of the earnings impact of the contingent sale proceeds was realized in the first quarter, the full after-tax earnings and related earnings per share impact will not be realized until the end of the year, when the lower effective tax rate is applied against full year ordinary income. The tax expense of $15 million attributable to the contingent sale proceeds for the six month period ended December 26, 2009 represents an estimate of the remaining tax benefit that will be recognized over the second half of the fiscal year. The resulting impact on diluted earnings per share is estimated to be $0.01 in both the third and fourth quarters of fiscal 2010.
Explanation of Non-GAAP Financial Measures
Management measures and reports Sara Lee's financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). In this release, Sara Lee highlights certain items that have significantly impacted the corporation's financial results and uses several non-GAAP financial measures to help investors understand the financial impact of these significant items.
"Significant items" are income or charges (and related tax impact) that management believes have had or are likely to have a significant impact on the earnings of the applicable business segment or on the total corporation for the period in which the item is recognized, are not indicative of the company's core operating results and affect the comparability of underlying results from period to period. Significant items may include, but are not limited to: charges for exit activities; transformation program and Project Accelerate costs; impairment charges; pension partial withdrawal liability charges; benefit plan curtailment gains (losses); tax costs and benefits resulting from the disposition of a business; impact of tax law changes; changes in tax valuation allowances and favorable or unfavorable resolution of open tax matters based on the finalization of tax authority examinations or the expiration of statutes of limitations. Management highlights significant items to provide greater transparency into the underlying sales or profit trends of Sara Lee or the applicable business segment or discontinued operations and to enable more meaningful comparability between financial results from period to period. Additionally, Sara Lee believes that investors desire to understand the impact of these factors to better project and assess the longer term trends and future financial performance of the corporation.
"Contingent sale proceeds" are contingent proceeds from the sale of the company's tobacco business in fiscal 1999. Under the sales agreement, Sara Lee received cash payments annually so long as tobacco continued to be a legal product in the specified countries. Our last cash payment was received on July 15, 2009. Contingent sale proceeds are not "significant items," but are identified separately because the income is not generated by the company's underlying business and has a finite term.
This release contains certain non-GAAP financial measures that exclude from a financial measure computed in accordance with GAAP the impact of the significant items, the receipt of contingent sale proceeds, the impact of acquisitions and dispositions and changes in foreign currency exchange rates. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of Sara Lee's business that, when viewed together with Sara Lee's financial results computed in accordance with GAAP, provide a more complete understanding of factors and trends affecting Sara Lee's historical financial performance and projected future operating results, greater transparency of underlying profit trends and greater comparability of results across periods. These non-GAAP financial measures are not intended to be a substitute for the comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.
In addition, investors frequently have requested information from management regarding significant items and the impact of the contingent sale proceeds. Management believes, based on feedback it has received during earnings calls and discussions with investors, that these non-GAAP measures enhance investors' ability to assess Sara Lee's historical and projected future financial performance. Management also uses certain of these non-GAAP financial measures, in conjunction with the GAAP financial measures, to understand, manage and evaluate our businesses, in planning for and forecasting financial results for future periods, and as one factor in determining achievement of incentive compensation. Many of the significant items will recur in future periods; however, the amount and frequency of each significant item varies from period to period.
Management also has received inquiries from investors seeking to better understand and project the corporation's tax rate, which can be complex given the multiple foreign jurisdictions in which Sara Lee operates and the numerous tax rules with which it must comply. The information contained in the table "Tax Rate Reconciliation - Fiscal 2010," which includes certain non-GAAP financial measures, is intended to help investors better understand Sara Lee's effective tax rate.
The following is an explanation of the non-GAAP financial measures presented in this release.
In the "Tax Rate Reconciliation - Fiscal 2010" table, the "Results, excluding significant items" equals each of "income before taxes," "tax (expense) benefit," "net income" and "effective tax rate," computed in accordance with GAAP less the impact of significant items recognized in the fiscal period presented. Each item in the "Adjusted Results" row of that table equals the indicated financial measure computed in accordance with GAAP less the impact of both significant items and contingent sale proceeds recognized in the fiscal period presented.
"Adjusted EPS" excludes from diluted EPS, as reported, for total Sara Lee, for continuing operations or for discontinued operations, as indicated, the per share impact of significant items and the per share impact of contingent sale proceeds recognized in the fiscal period presented. The line item title or the context of its use in this release and in other communications indicates whether "Adjusted EPS" refers to total Adjusted EPS for all of Sara Lee, Adjusted EPS from continuing operations or Adjusted EPS from discontinued operations.
"Adjusted net sales" for continuing operations or discontinued operations, as indicated in this release, excludes from applicable net sales the impact of businesses acquired or divested after the start of the fiscal period and presents fiscal 2009 results at fiscal 2010 currency exchange rates.
"Adjusted operating income" for continuing operations or discontinued operations, as indicated in this release, excludes from applicable operating income the impact of significant items, contingent sale proceeds, if any, and businesses acquired or divested after the start of the fiscal period and presents fiscal 2009 results at fiscal 2010 currency exchange rates.
"Adjusted operating margin" for continuing operations, a specified business segment or discontinued operations, as indicated in this release, is a non-GAAP financial measure that equals adjusted operating income for the applicable portion of the business divided by adjusted net sales of the corporation (in the case of computing adjusted operating margin for continuing operations) or adjusted operating segment income for a business segment or discontinued operations divided by adjusted net sales for that business segment or discontinued operation (in the case of computing adjusted operating margin for a specific business segment or discontinued operations).
"Adjusted operating segment income" for continuing operations, a specified business segment or discontinued operations, as indicated in the release, excludes from the operating segment income from continuing operation, of a specified business segment or from discontinued operations the impact of significant items recognized by that portion of the business during the fiscal period and businesses acquired or divested after the start of the fiscal period and presents fiscal 2009 results at fiscal 2010 currency exchange rates.
CONTACT: Sara Lee Corp.
Media: Jon Harris, +1.630.598.8661
Analysts: Aaron Hoffman, +1.630.598.8739
Sara Lee Corp (LSE:SRL)
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Sara Lee Corp (LSE:SRL)
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