Sara Lee Strives For Shareholder Value

By Ryan C. Fuhrmann | August 16, 2010 AAA

Packaged food and beverage provider Sara Lee (NYSE:SLE) reported full year results on Thursday that illustrated it is in a constant state of flux. SLE continues to sell off businesses and redeploy the capital to shareholders in a number of ways. Its remaining businesses may not be that great, but investors could still profit handsomely.

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Full-Year Sales Review
Reported net sales fell 0.8% to $10.8 billion, though this included the impact of divestitures, including selling its hair care business to Procter & Gamble (NYSE:PG) for more than $400 million. It is in the process of unloading its global body care business to Unilever (NYSE:UN) for more than $1.6 billion. According to the company, adjusted net sales, which are meant to look at recurring results, fell 2.8% as volumes declined 1.5%.

North American retail includes the sales of leading meat brands such as Hillshire Farm, Jimmy Dean and Ball Park. Sales in the segment were flat and accounted for approximately 26% of total sales. Fresh bakery sales of bread, muffins, and desserts in the region brought in just under 21% of total sales and experienced a decline in the mid single digits.

The foodservice business caters to restaurant chains such as Darden (NYSE:DRI), hospitals, and other businesses. It weighed in at 17% of sales and reported a 10.5% top-line decline. The international beverage unit sells coffee and tea throughout the world and was the only stand out as it reported 5.2% growth to account for almost 30% of total sales. International bakery sells to retail and businesses, and it also struggled as sales fell 1.3% to account for 7% of sales.

Profit Recap
Net operating income jumped 88.5% to $918 million on cost cutting and dramatically lower impairment and exit charges related to the divestitures of many business lines. However, other charges from discontinuing businesses tempered the net income increase to 38.7%. Net income came in at $527 million, or 73 cents per diluted share. Management estimated adjusted earnings at $1.08 per diluted share.

Outlook
For the coming year, Sara Lee expects sales between $10.7 billion and $10.9 billion from continuing operations. It projects between 88 cents and 95 cents per share in earnings, with discontinued operations providing another five to seven cents in earnings.

Bottom Line
Sara Lee remains in a perpetual state of flux but should return plenty to shareholders. With proceeds from the multitude of business and asset sales, "the company plans to buy back $2.5 to $3 billion of shares over a three-year period," representing nearly a third of its total stock market capitalization. It also plans to increase the annual dividend of 44 cents, which works out to a current yield of 3%.

A primary concern is that Sara Lee has sold off its most appealing businesses and is left with many meat, bread and food brands that are having a tough time differentiating themselves from rival brands and private label names in the store aisles. That being said, it's not difficult to see more than $20 in per-share value given the share buybacks, increased dividend and sale of the rest of the brands or outright sale of the entire company. (For more, check out Guard Your Portfolio With Defensive Stocks.)


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