Sara Lee reports 2nd-quarter profit, helped by cost cutting

Cost cuts help Sara Lee report fiscal 2Q profit

DOWNERS GROVE, Ill. — Food maker Sara Lee Corp. said Thursday that cutting costs helped it report a profit for its second quarter, compared with a $17 million loss a year earlier, though its revenue was flat and volume edged down.

The maker of Jimmy Dean sausages, Hillshire Farm deli meats and its namesake baked goods raised its guidance on the results.

Profit for the quarter ending Dec. 26 totaled $371 million, or 53 cents per share, compared with a loss of 2 cents per share a year earlier. Excluding one-time items, it earned 36 cents per share.

As commodity costs have been moderating from highs, the company said it “recalibrated” some prices, lowering some in the competitive bakery segment and holding others steady.

“We’re pursuing a prudent pricing strategy which strikes the right balance and does not let the pendulum swing too far either way,” said Sara Lee CEO Brenda Barnes in a conference call with investors.

Sara Lee’s overall volume fell 1 percent. North American retail business volume fell 2.7 percent, hurt by the company exiting businesses such as kosher meats. The company said it is gaining market share in the category, however, particularly its Jimmy Dean and Hillshire Farm brands.

Sara Lee’s bakery volume fell 4.2 percent in North America. Even higher volume for its store-brand products couldn’t compensate for toughened competition for its Sara Lee baked goods.

Volume in the company’s North American food service unit fell 2.9 percent as the loss of a large bakery contract and other declines overwhelmed higher volume in frozen baked goods and store-branded refrigerated dough.

The company said its food service business, which supplies food to restaurants, schools and other businesses is likely to become “more challenging” as commodity costs increase.

With the expansion of its single-serve and instant coffee categories and growing overall volume in Brazil and Russia, Sara Lee’s international beverage volume rose 4.8 percent.

Sara Lee’s second-quarter revenue was nearly flat at $2.86 billion. That fell short of analyst expectations of $3.12 billion. The company said the benefit of the stronger dollar was offset by selling some businesses, the slight decline in unit volume and lower selling prices.

Morningstar analyst Erin Swanson said the company needs stronger brands and needs consumers to spend more if its sales are to grow in the long term.

“They continue to lack the brand strength their peers possess, and their top-line results continue to be plagued by commodified categories in which they compete as well as weak consumer spending,” said Morningstar analyst Erin Swanson.

The company now expects to earn $1 to $1.05 per share for the year, excluding one-time items, above analysts’ average forecast for profit of 95 cents per share.

Meanwhile, rival Kellogg Co. said higher costs and lower sales led to a slightly lower fourth-quarter profit, but the company said it has positioned itself for growth, and it raised its earnings expectations for the year.

Sara Lee has shed several lines to focus on its core food and beverage business and improve its profitability.

In December, Procter & Gamble Co. bought its Ambi Pur air freshener business for $470 million. And in September, Sara Lee announced it was selling its personal care products business to Unilever NV for $1.88 billion.

Sara Lee also plans launch several new products soon and has a distribution deal for its commercial products with the food supply company Sysco Corp.

Its cost-cutting is expected to save $75 million to $100 million in fiscal 2010.

Shares fell 6 cents to $12.38 during afternoon trading.