AP News, November 7th, 2007
Hefty marketing spending weighed down earnings at Sara Lee Corp., as the food maker posted a 40 percent decrease in fiscal first-quarter profit.
Higher marketing and advertising expenses, which rose 21 percent, cut into profit as the company worked to boost sales.
"We'll make investments in the business when it makes sense to support the right products at the right time with the right marketing mix," said Chief Executive Brenda Barnes. "The first quarter of 2008 is clearly a quarter that merited that investment."
Sara Lee said its operating profit was also hurt by "a very challenging input cost environment" as prices for such as wheat, poultry, pork and green coffee continued to climb. But executives said the company was able to offset most of those increases by raising the prices charged to consumers.
In the quarter ended Sept. 29, Sara Lee's net income fell to $200 million, or 28 cents per share. That's down from $333 million, or 44 cents per share a year earlier, when results included a 10-cent boost from discontinued operations.
Revenue at the Downers Grove-based company rose 8 percent to $3.13 billion, up from $2.89 billion in the first quarter of 2007.
The performance topped Wall Street forecasts, but investors questioned whether the company's efforts to increase sales were sustainable at a time when commodities are nearing record highs.
Analysts surveyed by Thomson Financial expected earnings per share of 27 cents and revenue of $3.12 billion.
"Despite an optimistic tone from management, we saw little in the quarter that would appear to portend meaningful improvements to come," Bear Stearns analyst Terry Bivens wrote in a research note to investors. "We appreciate that Sara Lee's marketing spending was higher this period; however, we continue to wonder how sustainable top line growth will be. We also have concerns about the company's ability to price further in the face of still-rising input inflation."
The food company is in the midst of a massive five-year restructuring plan to turn around its operations after years of lackluster results.
Sales in the company's international beverage division jumped 25 percent and the segment's overall operating income grew 30 percent. Household and body care sales rose 12 percent in the quarter, but the division's profit fell more than 27 percent because of the higher spending on marketing and advertising.
Meanwhile, the maker of frozen cheesecakes, Ball Park hot dogs and Hillshire Farm deli meats also boosted its 2008 fiscal year guidance for earnings from continuing operations. The company said it expects to earn $1.00 to $1.06 per share — a five cent-per-share increase — because of better-than-expected foreign exchange rates. Sara Lee forecast sales of about $13.2 billion.
Sara Lee shares fell 31 cents, or 1.9 percent, to $16 in midday trading.
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