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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Sara Lee Corp | LSE:SRL | London | Ordinary Share | COM STK US$1.33 1/3 |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 13.82 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
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. -0- *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. -0- *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. -0- *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%. -0- *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%. -0- *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. -0- *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 Today's News On The Net - Business Wire's full file on the Internet with Hyperlinks to your home page. URL: http://www.businesswire.com
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