BW20030731002034 20030731T114839Z UTC
( BW)(SARA-LEE)(SRL) Final Results
Business Editors
UK REGULATORY NEWS
CHICAGO--(BUSINESS WIRE)--July 31, 2003--
Sara Lee Corporation Reports Increased Sales and Earnings
for Fiscal 2003
Sara Lee Corporation (NYSE:SLE) today reported that net sales for the
fiscal year ended June 28, 2003, rose 4% to $18.3 billion, and net
sales for the fourth quarter rose 3% to $4.6 billion. The company
reported increased sales in both periods for four of its five lines of
business - Sara Lee Meats, Sara Lee Bakery, Beverage and Household
Products - offset, in part, by lower sales in the Intimates and
Underwear operations. Results benefited from favorable foreign
currency exchange rates in both the quarter and the full year, and the
acquisition of The Earthgrains Company in August 2001, also
contributed to full year results.
The company reported diluted earnings per share (EPS) for fiscal 2003
of $1.50 compared to $1.23 in the year-ago period. For the quarter,
diluted EPS were $.37 compared to $.43 in the prior year.
Restructuring and business disposition activities had no net impact in
fiscal 2003 and reduced fiscal 2002 EPS by $.12. For the quarter,
restructuring and business dispositions reduced EPS in fiscal 2003 by
$.01 and increased fiscal 2002 EPS by $.01.
Cash flow from operations was approximately $1.8 billion in fiscal
2003, an increase over last year's cash flow of $1.7 billion due
primarily to higher earnings.
Media advertising and promotion expense increased 12% in fiscal 2003,
with higher spending reported in all five lines of business. Media
advertising and promotion spending rose 13% in the fourth quarter.
"In a difficult operating environment, Sara Lee continued to invest
behind its key brands and improve its productivity and cash flow,"
said C. Steven McMillan, chairman, president and chief executive
officer of Sara Lee Corporation. "For the fiscal year, sales, helped
by currency, grew at the high end of the company's target, while
operating income and EPS posted double-digit gains. Our operating cash
flow was the second highest in the company's history, and this strong
cash generation is expected to improve further next year, offering
increased opportunity to return value to our shareholders."
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.
MEATS
Fourth Quarter Ended Fiscal Year Ended
-------------------- -----------------
(In millions) June 28, June 29, Percent June 28, June 29, Percent
2003 2002 Change 2003 2002 Change
----------------- -------- -------- ------- -------- -------- -------
Net sales $ 976 $ 901 8 % $ 3,746 $ 3,704 1 %
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased) net
sales:
- Strengthening
of foreign
currencies $ 43 $ -- $ 112 $ --
- Acquisitions/
dispositions -- 7 14 12
----------------- -------- -------- -------- --------
Total significant
items $ 43 $ 7 $ 126 $ 12
================= ======== ======== ======== ========
Total operating
segment income $ 100 $ 104 (4)% $ 375 $ 323 16%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased)
operating segment
income:
- Exit activities
& business
dispositions $ (1) $ 2 $ 6 (33)
- Strengthening
of foreign
currencies 5 -- 14 --
- Acquisitions/
dispositions -- -- 1 (1)
----------------- -------- -------- -------- --------
Total significant
items $ 4 $ 2 $ 21 $ (34)
================= ======== ======== ======== ========
Fourth Quarter Highlights
-- U.S. sales grew 5%; first increase this fiscal year
-- Retail unit volume gains recorded for most key product categories
-- Foodservice trends improve
Sara Lee Meats is a leader in the branded packaged meats business in
the United States, Europe and Mexico.
Global net sales grew 8% in the fourth quarter, fueled by a 2%
increase in unit volumes, higher net product prices and the impact of
a stronger euro. Operating segment income fell 4%. Certain significant
items affecting operating segment income have been identified in the
table above. The remaining operating segment income decline of 7%
reflects the impact of higher raw material costs and a significant
increase in media advertising and promotion spending, up 32%.
U.S. net sales, which account for approximately 70% of global
revenues, grew 5% during the fourth quarter, with particular strength
in the company's retail and deli product operations. The company holds
the number-two position in the U.S. retail packaged meats category,
and retail unit volumes increased 4% during the fourth quarter,
including a 2% increase in hot dog sales, a 5% increase for breakfast
sausage products, a 5% increase in lunchmeat volumes, a 16% increase
in corn dog units and a 27% increase for breakfast sandwich items.
These gains reflect the timing of Easter as well as innovative new
product activity under the company's leading Ball Park, Jimmy Dean and
Hillshire Farm brands and significant support from targeted marketing
programs. Sara Lee deli unit sales grew 10% during the quarter, as the
number of "Red Wave" displays increased to more than 2,500 retail
grocery outlets. While foodservice unit volumes fell 5% during the
fourth quarter, sales trends improved from prior periods.
European unit sales were flat during the quarter, as new product
activity was offset by competitive pricing in some markets. Mexican
unit sales grew 5%, driven by an increased number of direct-store
delivery routes and improved sales productivity in more traditional
channels.
For the full year, net sales increased 1%, reflecting a 1% increase in
global unit volumes and favorable foreign currency exchange rates,
partially offset by lower prices due to lower raw material costs.
Operating segment income for the fiscal year grew 16%. Certain
significant items affecting operating segment income have been
identified in the table above. The remaining operating segment income
decline of 1% reflects higher marketing and distribution costs,
partially offset by lower raw material costs. U.S. unit volumes rose
1% in fiscal 2003, including a 2% increase in retail volumes, a 10%
increase in Sara Lee deli unit sales and a 5% decline in unit sales to
the foodservice channel; outside the United States, unit sales were
flat in Europe and increased 6% in Mexico.
BAKERY
Fourth Quarter Ended Fiscal Year Ended
-------------------- -----------------
(In millions) June 28, June 29, Percent June 28, June 29, Percent
2003 2002 Change 2003 2002 Change
----------------- -------- -------- ------- -------- -------- -------
Net sales $ 825 $ 803 3% $ 3,276 $ 2,976 10%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased) net
sales:
- Strengthening
of foreign
currencies $ 27 $ -- $ 73 $ --
- Acquisitions/
dispositions 2 -- 286 --
----------------- -------- -------- -------- --------
Total significant
items $ 29 $ -- $ 359 $ --
================= ======== ======== ======== ========
Total operating
segment income $ 21 $ 30 (29)% $ 98 $ 97 1%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased)
operating segment
income:
- Exit activities
& business
dispositions $ (2) $ 1 $ (20) $ (50)
- Accelerated
Depreciation (7) -- (7) --
- Strengthening
of foreign
currencies 3 -- 7 --
- Acquisitions/
dispositions -- -- 17 (1)
----------------- -------- -------- -------- --------
Total significant
items $ (6) $ 1 $ (3) $ (51)
================= ======== ======== ======== ========
Fourth Quarter Highlights
-- U.S. fresh bakery trends improve
-- Strong European sales and profit gains continue
-- New products capitalize on strength of Sara Lee brand
-- Restructuring activities reduce business complexity
Sara Lee Bakery is a leader in the U.S. fresh baked goods market, and
holds important positions in the U.S. and European refrigerated dough
and European fresh bread markets. Sara Lee Bakery also enjoys leading
positions in frozen baked goods in both the United States and
Australia.
Sara Lee Bakery's worldwide net sales increased 3% in the fourth
quarter, and operating segment income fell 29%. Certain significant
items affecting operating segment income have been identified in the
table above. The remaining operating segment income decline of 4%
primarily reflects lower results in the United States, which were
partially offset by strength in Europe. Global unit volumes fell
slightly, down 1%, although unit sales for the company's key bakery
brands, including Sara Lee, grew at a double-digit rate. Media
advertising and promotion spending increased 17% during the quarter,
with the majority of the funds supporting the company's key bakery
brands.
The U.S. fresh bakery business is the largest division within Sara Lee
Bakery Group, accounting for approximately 60% of net sales. With
leading brands such as Sara Lee, Earth Grains and IronKids, Sara Lee
Bakery was the only competitor among the top three players in the
fresh baked goods category to increase its market share over the most
recent 12-month period.
Net sales and unit volumes for this division fell slightly during the
fourth quarter, as regional brand sales declined and lower-margin
brands and products were eliminated during the period. Profit trends
improved versus prior quarters, however, reflecting a more positive
product mix and benefits from cost cutting and productivity programs
instituted earlier in the year, offset by higher commodity, employee
and marketing costs. Contributing to the mix improvement was one of
the company's most successful new product introductions this year,
Sara Lee breads, a new line of premium sliced breads launched
systemwide in the second quarter. The success of this introduction was
complemented by the launch of Sara Lee buns and rolls in May, and in
less than nine months, Sara Lee has become Sara Lee Bakery's largest
domestic bread brand, and the fifth-largest brand in the group's
33-state distribution area.
The U.S. refrigerated dough and frozen retail operations both produced
higher net sales and profits during the fourth quarter, with unit
volumes up 5% and 2%, respectively. Although the timing of the Easter
holiday contributed to the year-over-year sales gains, both businesses
also improved their market shares during the most recent three-month
period. The foodservice business in the United States reported lower
profits during the fourth quarter, as reduced customer demand led to a
9% decline in unit volumes.
In Europe, net sales and profits increased due to strength in the
fresh baking operations during the fourth quarter. Unit volumes for
the Spanish and Portuguese fresh bread operations were flat, and
refrigerated dough unit sales grew 5%; the company recently entered
the U.K. refrigerated dough market with Sara Lee branded products, and
initial sales are exceeding expectations. Net sales and profits also
increased in Australia, with unit sales up 8% during the fourth
quarter.
For the full year, net sales rose 10% and operating segment income
increased 1%. Certain significant items affecting both net sales and
operating segment income have been identified in the table above. The
remaining net sales decline of 2% reflects lower unit volumes, while
the remaining operating segment income decline of 32% reflects weak
U.S. fresh and foodservice market conditions during the year. Global
unit volumes fell 1%, comprised of a 2% decline in U.S. fresh bakery
volumes; a 3% increase in U.S. refrigerated dough sales; a 2% decline
in U.S. retail frozen units; a 5% decline in foodservice volumes in
the United States; a 2% increase in Europe; and a 5% increase in
Australia.
Sara Lee Bakery undertook two restructuring projects during the fourth
quarter. Three fresh bakeries were closed in order to streamline and
strategically improve Sara Lee Bakery's manufacturing network.
Secondly, as part of its efforts to improve margins and profit growth,
Sara Lee Bakery eliminated 44 small regional fresh bread brands.
BEVERAGE
Fourth Quarter Ended Fiscal Year Ended
-------------------- -----------------
(In millions) June 28, June 29, Percent June 28, June 29, Percent
2003 2002 Change 2003 2002 Change
----------------- -------- -------- ------- -------- -------- -------
Net sales $ 700 $ 642 9% $ 2,756 $ 2,539 9%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased) net
sales:
- Strengthening
of foreign
currencies $ 68 $ -- $ 195 $ --
- Acquisitions/
dispositions -- -- 17 --
----------------- -------- -------- -------- --------
Total significant
items $ 68 $ -- $ 212 $ --
================= ======== ======== ======== ========
Total operating
segment income $ 103 $ 102 2% $ 429 $ 416 3%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased)
operating segment
income:
- Exit activities
& business
dispositions $ (1) $ -- $ (1) $ (7)
- Strengthening
of foreign
currencies 16 -- 50 --
- Acquisitions/
dispositions -- -- 3 --
----------------- -------- -------- -------- --------
Total significant
items $ 15 $ -- $ 52 $ (7)
================= ======== ======== ======== ========
Fourth Quarter Highlights
-- Improved results for U.S. retail business
-- Continued share strength in major European retail and out-of-home
markets
-- Senseo coffee system reaches more than $100 million in annual
sales
-- Brazilian business hurt by rising costs
Sara Lee Beverage is one of the largest producers of roast and ground
coffee in the world, competing in both retail and out-of-home
categories. Its primary markets are Europe, the United States and
Brazil.
Beverage net sales increased 9% in the fourth quarter, and operating
segment income increased 2%. Certain significant items affecting net
sales and operating segment income have been identified in the table
above. The remaining net sales decline of 2% reflects lower unit sales
partially offset by increased prices and an improved product mix. The
remaining operating segment income decline of 12% includes higher
profits in the company's U.S. retail operations, offset by lower
profits in Europe and Brazil. Unit volumes fell 4% during the quarter,
including a 1% decline in Europe, a 1% increase in the United States
and a 15% decline in Brazil.
Approximately 60% of the sales from this line of business come from
the company's European retail and out-of-home operations. The company
maintained its leading share positions in each of its major markets
during fiscal 2003, including number-one positions in the Netherlands,
Belgium, Spain, Denmark, Hungary and the United Kingdom.
The company's innovative Senseo coffee system continued to gain strong
consumer and retailer acceptance; sales exceeded $100 million in
fiscal 2003, up from less than $20 million last year. The product is
currently sold in the Netherlands, Belgium, France and Germany, and
will be launched in Denmark by the end of calendar 2003. In the
European out-of-home market, unit sales for the company's innovative
liquid coffee concentrate products grew more than 10% during both the
fourth quarter and full year.
In the United States, both net sales and profits in the fourth quarter
improved in the retail operations for the first time this fiscal year,
and unit volumes grew 8% as the company focused on solidifying
profitable regional positions for its Chock full o'Nuts and Hills Bros
brands. U.S. coffee foodservice units fell slightly, down 2%, as
continued weakness in traditional foodservice coffee markets offset
double-digit growth in liquid coffee concentrate volumes.
Brazil continues to be a challenging market for the company's Beverage
operations as price increases taken to cover increased raw material
and production costs caused unit volumes to decline 15%. The company
continues to believe that growth prospects in this developing market
will generate higher sales and profits over the long-term.
For the full year, net sales grew 9% and operating segment income
increased 3%. Certain significant items affecting net sales and
operating segment income have been identified in the table above. The
remaining flat net sales results reflect lower unit volumes offset by
increased prices and an improved product mix. The remaining operating
segment income decline of 11% reflects improved results in the U.S.
retail operations offset by lower income in Brazil, Europe and the
U.S. out-of-home operations. Unit volumes fell 2%, including flat unit
sales in Europe, a 4% decline in the United States and a 6% decline in
Brazil. Media advertising and promotion spending grew more than 20%
during fiscal 2003, primarily to support the Senseo coffee system.
HOUSEHOLD PRODUCTS
Fourth Quarter Ended Fiscal Year Ended
-------------------- -----------------
June 28, June 29, Percent June 28, June 29, Percent
(In millions) 2003 2002 Change 2003 2002 Change
----------------- -------- -------- ------- -------- -------- -------
Net sales $ 596 $ 534 11% $ 2,118 $ 1,962 8%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased) net
sales:
- Strengthening
of foreign
currencies $ 71 $ -- $ 147 $ --
- Acquisitions/
dispositions -- -- -- --
----------------- -------- -------- -------- --------
Total significant
items $ 71 $ -- $ 147 $ --
================= ======== ======== ======== ========
Total operating
segment income $ 123 $ 106 16% $ 369 $ 339 9%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased)
operating segment
income:
- Exit activities
& business
dispositions $ -- $ -- $ -- $ --
- Strengthening
of foreign
currencies 13 -- 33 --
- Acquisitions/
dispositions -- -- -- --
----------------- -------- -------- -------- --------
Total significant
items $ 13 $ -- $ 33 $ --
================= ======== ======== ======== ========
Fourth Quarter Highlights
-- New products and geographic expansion remain primary focus for
traditional household and body care operations
-- Direct Selling sales and profits continue strong growth
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. This line of business also includes Direct
Selling, which sells directly to consumers through an independent
sales force of more than 900,000 representatives in 17 countries.
Fourth quarter net sales increased 11%, and operating segment income
increased 16%. As identified in the table above, favorable foreign
currency exchange rates had a significant impact on results during the
period.
Unit volumes for the company's traditional household and body care
products were flat during the quarter. Shoe care volumes fell 5% as
counterfeit products in Africa negatively affected unit sales. The
company's new Kiwi Fresh Force shoe deodorizer product was launched in
the United States and France at the end of the fourth quarter and it
is expected to produce increased sales in future periods. Body care
unit sales grew 2%, reflecting continued strength for the Sanex line
of healthful skincare products. Insecticide unit volumes grew 10% in
the fourth quarter, primarily due to growth in India where the
GoodKnight brand holds a number-one position. Air care unit sales fell
8%, compared against a strong 17% increase in the year-ago period.
Ambi Pur has several new product launches planned for fiscal 2004,
including Ambi Pur Fragrance a free-standing fragrance burner that
will be introduced in the United Kingdom, France and the Netherlands
in September.
Direct Selling net sales and profits increased during the fourth
quarter, led by strong results in the company's largest market,
Mexico.
For the full year, net sales increased 8% and operating segment income
grew 9%. As identified in the table above, these results benefited
significantly from favorable foreign currency exchange rates. Unit
volumes grew 1%, including a 6% decline in shoe care, a 4% increase in
body care, a 2% increase in insecticides and flat results in air care.
INTIMATES AND UNDERWEAR
Fourth Quarter Ended Fiscal Year Ended
-------------------- -----------------
June 28, June 29, Percent June 28, June 29, Percent
(In millions) 2003 2002 Change 2003 2002 Change
----------------- -------- -------- ------- -------- -------- -------
Net sales $ 1,535 $ 1,615 (5)% $ 6,399 $ 6,455 (1)%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased) net
sales:
- Strengthening
of foreign
currencies $ 67 $ -- $ 203 $ --
- Acquisitions/
dispositions -- -- -- 18
----------------- -------- -------- -------- --------
Total significant
items $ 67 $ -- $ 203 $ 18
================= ======== ======== ======== ========
Total operating
segment income $ 156 $ 242 (36)% $ 763 $ 596 28%
======== ======== ======= ======== ======== =======
Significant items
that increased/
(decreased)
operating segment
income:
- Exit activities
& business
dispositions $ 2 $ 10 $ 26 $ (80)
- Strengthening
of foreign
currencies 3 -- 12 --
- Acquisitions/
dispositions -- -- -- (8)
----------------- -------- -------- -------- --------
Total significant
items $ 5 $ 10 $ 38 $ (88)
================= ======== ======== ======== ========
Fourth Quarter Highlights
-- Soft global markets lead to sales and profit declines
-- Marketing efforts continue behind key brands and new products
-- Cost savings from operational streamlining continue
Sara Lee's Intimates and Underwear line of 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 these categories in both North America and Europe.
Net sales fell 5% in the fourth quarter, and operating segment income
fell 36%. As identified in the table above, favorable exchange rates
contributed to both net sales and operating segment income during the
quarter. Unit volumes declined 9%, reflecting weak global markets and
reduced legwear and underwear inventory levels at key retail accounts.
Despite recent category softness, the company continued to support its
key brands and new product introductions with advertising and
promotion programs, and for fiscal 2003, these investments resulted in
strong sales growth for a number of key brands, including Playtex,
Dim, Bali, barelythere and Unno. Media advertising and promotion
spending increased 37% during the quarter, funded, in part, by nearly
$20 million of incremental savings from prior efforts to cut costs and
improve productivity.
Global intimate apparel unit volumes fell 7% in the fourth quarter,
reflecting lower category volumes and a difficult comparison against a
very strong year-ago quarter in the United States. The company's
number-one U.S. bra market dollar share continued to increase, up
nearly one percentage point to 27.9% over the most recent 12-month
period, compared to the next leading competitor with a share of less
than 20%. New product activity continues to focus on leveraging the
company's innovative technology across key brands including Playtex,
barelythere and Unno.
Global knit product unit volumes fell 6% in the fourth quarter,
combining a 7% decline for underwear and a 5% decline for activewear.
In the United States, underwear volumes fell 7%, reflecting reduced
inventory levels at key retailers. The company did increase its
number-one market shares for both men's and women's underwear
products; Hanes unit share of the men's underwear market was 37.6% for
the most recent 12-month period, up 0.3 share points, and Hanes Her
Way's comparable women's share was 34%, an increase of nearly a full
percentage point. In the women's market, the company recently
introduced Hanes Her Way Sleepwear and Hanes Authentic - a new line of
underwear for young women aged 18 to 24 that is currently being sold
at Wal-Mart locations throughout the United States. U.S. activewear
units fell 4% during the fourth quarter, reflecting competitive
pricing activity in the screenprint category and lower demand for
casualwear products. The company's Champion operations exited several
unprofitable product lines over the last 12 months, and unit volumes
for its remaining businesses increased during the fourth quarter
driven by continued gains in its performance products. Champion
recently introduced Friction Free, a line of running apparel for both
men and women with special panel inserts to prevent chafing.
Worldwide unit volumes for legwear fell 16% during the fourth quarter,
combining a 21% decline for sheer hosiery with a 10% decline for sock
unit sales. In the sheer hosiery category, the lower volume reflects
continued category weakness in the company's major global markets
combined with efforts to eliminate low-margin SKUs. Despite the lower
volumes, dollar market share in the United States for the Hanes and
L'eggs brands rose more than one percentage point to 55.6% for the
latest 12-month period. Although sock volumes declined due to lower
inventory levels at several key retail accounts, consumer take-away
for the company's Hanes and Champion branded socks remains strong. In
fact, the company increased its unit share of the U.S. sock market by
more than 1.5 percentage points over the most recent 12-month period
to 20.3%, almost twice the level of the next leading competitor, as
Hanes low profile socks for men and women have proven very popular
with consumers.
For the full year, Intimates and Underwear net sales declined 1% and
operating segment income increased 28%. Certain significant items
affecting operating segment income have been identified in the table
above. The remaining operating segment income increase of 6% reflects
favorable raw material prices and $90 million in incremental savings
from earlier programs to cut costs and improve productivity, partially
offset by a 16% increase in media advertising and promotion spending.
Unit volumes declined 3%, including a 14% decline for sheer hosiery,
flat sock volumes, a 1% decline for knit products and flat results for
intimate apparel.
Corporate Interest Expense, Tax Rate and Share Repurchase
Net interest expense was $51 million for the quarter and $198 million
for the fiscal year compared with $46 million in last year's fourth
quarter and $208 million for the fiscal 2002. Interest expense
increased in the fourth quarter as a result of favorable term
financing undertaken by the corporation in the quarter, but decreased
for the total year as the company benefited from lower interest rates.
The tax rate for the fourth quarter of fiscal 2003 was 17%, including
a one-percentage point reduction from restructuring activities,
compared to 18% in the year-ago period. For the full year, the tax
rate for fiscal 2003 was 18%, compared to 15% a year ago, which
included a three-percentage point reduction from restructuring and
business disposition activities.
During the fourth quarter of fiscal 2003, Sara Lee Corporation
repurchased 1.2 million shares of its common stock at an average price
of $17.51 per share. For fiscal 2003, the company repurchased 15.9
million shares at an average price of $19.16 per share. Approximately
53 million shares remain authorized by the Board of Directors for
repurchase.
Exit and Business Disposition Activities
During fiscal 2003 and 2002, the corporation recognized the impact of
certain exit and business disposition activities. The accounting for
certain of these activities was impacted by Statement of Financial
Accounting Standards No. 146, which became effective for actions
initiated after December 31, 2002. The financial impact of these
actions can be summarized as follows:
Exit and Disposal Activities Initiated After December 31, 2002
In April 2003, the corporation approved actions to:
-- Abandon the use of certain trademarks obtained with the
Earthgrains acquisition. A substantial portion of the trademarks
was abandoned by the close of fiscal 2003, resulting in $6 million
of accelerated amortization being recognized in the fourth quarter
of fiscal 2003. The amortization expense is reflected in the
selling, general and administrative expenses of the corporation.
-- Dispose of certain manufacturing facilities and production
capacity in the Bakery and Beverage segments. A substantial
portion of the book value of the facilities targeted for
disposition was classified as held for use on the date the actions
were approved. The corporation accelerated the depreciation on
these facilities and recognized $7 million of depreciation expense
in the fourth quarter as a result of this decision. In addition, a
$1 million charge was recognized for certain held for sale assets.
The $7 million of accelerated depreciation was recognized in the
line labeled "Cost of sales" and the $1 million charge was
recognized in the line labeled "(Income from) charges for exit
activities and business dispositions." As of July 3, 2003, all of
these plants were closed and are being held for sale.
-- Terminate individuals working in these facilities and provide
severance payments in accordance with existing benefit plans. As a
result of these actions, the corporation recognized a charge of $3
million, which is reflected in the line labeled "(Income from)
charges for exit activities and business dispositions."
Exit and Disposal Activities Initiated Prior to December 31, 2002
In the second quarter of fiscal 2003, the corporation's management
approved actions to terminate employees, exit leases and dispose of
certain assets of the Bakery segment. As a result of these actions,
the corporation recognized a charge of $22 million. In addition,
during fiscal 2003, the corporation completed certain previously
announced exit and business disposition activities for amounts more
favorable than originally estimated. As a result of the completion of
these actions, pretax operating profits in fiscal 2003 increased by
$37 million. Both the $22 million charge and the $37 million income
item are reflected on the line labeled "(Income from) charges for exit
activities and business dispositions."
In the fourth quarter of fiscal 2003, the completion of exit
activities initiated prior to December 31, 2002, had the impact of
increasing pretax net income by $2 million and this amount was
recognized on the line labeled "(Income from) charges for exit
activities and business dispositions."
For fiscal 2003, the net impact of amounts recognized on the line
labeled "(Income from) charges for exit activities and business
dispositions" increased pretax income and net income by $11 million,
and increased diluted EPS by $.01. Offsetting this was a reduction in
diluted EPS of $.01 per share resulting from the impact of accelerated
depreciation and amortization.
In fiscal 2002, the corporation's management approved a series of
actions to reduce the number of employees, exit leases and dispose of
assets. In addition, the corporation completed certain restructuring
and business disposition activities that were previously recognized in
the consolidated financial statements. For fiscal year 2002, the net
impact of these actions was to reduce pretax income, net income and
diluted EPS by $170 million, $101 million and $.12 per share,
respectively. In the fourth quarter of fiscal 2002, certain exit
activities and business dispositions were completed for amounts more
favorable than originally estimated. The net impact of these actions
was to increase pretax income, net income and diluted EPS by $13
million, $10 million and $.01 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 fourth quarter and fiscal 2003 included $31
million and $126 million, respectively, of incremental benefits over
those realized in the comparable periods of the prior year.
Outlook
Sara Lee's management currently expects diluted EPS for the first
quarter of fiscal 2004 to fall within a range of $.23 to $.28 compared
to $.38 in the year-ago period. First quarter 2003 EPS included income
from restructuring and business disposition activities of $.01 per
share, related primarily to Intimates and Underwear.
Full-year fiscal 2004 diluted EPS are expected to be in a range of
$1.51 to $1.61, compared to $1.50 in fiscal 2003.
Management expects the challenging market conditions that affected
operations in the fourth quarter of fiscal 2003, including lower
retail inventory levels, higher raw material costs and weak
foodservice markets, to continue into the first quarter of this year.
For fiscal 2004, however, four of the company's five lines of business
- Sara Lee Meats, Sara Lee Bakery, Beverage and Household Products -
are expected to show good gains in operating segment income, driven by
higher sales from new product activity, select price increases to
cover higher raw material costs and an improved economic and retail
environment. Intimates and Underwear operating segment income will be
down for the year, although improving on a year-over-year basis in the
second half as new product activity and an improved market environment
drive performance. At current exchange rates, primarily relating to
the euro, foreign currency translations are expected to have a
positive impact on fiscal 2004 results.
Webcast
Janet Bergman, senior vice president, corporate relations, will
discuss the fourth quarter and fiscal 2003 results live via the
Internet today at 9 a.m. CDT. 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 in the Investors section
of the Sara Lee corporate Web site until Thursday, August 14, 2003.
Forward-looking statements
This news release contains certain forward-looking statements
concerning Sara Lee's expected financial results for the first quarter
and full fiscal year 2004. 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) a significant reduction in Sara Lee's business with any of its
major customers, such as Wal-Mart, the corporation's largest customer,
including a reduction resulting from adverse developments in the
customer's business; (iv) the impact of declines in equity markets on
the funded status and annual expense of the corporation's defined
benefit pension plans and the impact of such market declines on
consumer spending; (v) Sara Lee's ability to continue to source
production and conduct manufacturing and selling operations in various
countries in the world due to 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 prior
restructuring initiatives; (viii) fluctuations in the cost and
availability of various raw materials; (ix) the impact of various food
safety issues on the consumption of meat products in the United States
and parts of Europe; (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 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.
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 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.
Sara Lee Corporation
Executive Summary of Performance
Fourth quarter fiscal 2003 Percentage change
----------------------------------------------------------------------
Sara Sara Intimates
Lee Lee Household and Total
Meats Bakery Beverage Products Underwear SLE
-----------------------------------------------
Net sales 8% 3% 9% 11% (5)% 3%
Significant items
impacting net sales -
Strengthening of
foreign currencies (5)% (4)% (11)% (13)% (4)% (6)%
Sales of
acquired/sold
businesses 1% 0% 0% 0% 0% 0%
-----------------------------------------------
Remaining change in
net sales 4% (1)% (2)% (2)% (9)% (3)%
Operating income(1) (14)%
Operating segment
income(2) (4)% (29)% 2% 16% (36)% (14)%
Significant items
impacting operating
segment income -
Restructuring/Business
exit costs/(income) 2% 34% 2% 1% 2% 4%
Strengthening of
foreign currencies (5)% (8)% (16)% (13)% (1)% (7)%
(Income)/Loss of
acquired/sold
businesses 0% (1)% 0% 0% 0% 0%
-----------------------------------------------
Remaining change in
operating segment
income (7)% (4)% (12)% 4% (35)% (17)%
Unit volumes(3) 2% (1)% (4)% 0% (9)% (4)%
Diluted earnings per
share(4) (14)%
Total advertising and
promotion expense(5) 32% 17% (8)% (4)% 37% 13%
Media advertising
expense (5)% 3% (4)% (11)% 110% 12%
Promotion expense 199% 52% (11)% 7% 10% 14%
---------------------------
(1) Operating income represents operating segment income less general
corporate expenses and amortization of identifiable intangibles.
(2) Operating segment income is the income generated by the lines of
business.
(3) Excludes acquisitions and divestitures.
(4) $.37 vs. $.43; restructuring and business disposition activities
decreased 4Q03 results by $.01 and increased 4Q02 results by $.01.
(5) Does not include amounts related to divested businesses.
Sara Lee Corporation
Executive Summary of Performance
Full year fiscal 2003 Percentage change
----------------------------------------------------------------------
Sara Sara Intimates
Lee Lee Household and Total
Meats Bakery Beverage Products Underwear SLE
-----------------------------------------------
Net sales 1% 10% 9% 8% (1)% 4%
Significant items
impacting net sales -
Strengthening of
foreign currencies (3)% (2)% (8)% (8)% (3)% (4)%
Sales of
acquired/sold
businesses 0% (10)% (1)% 0% 0% (2)%
-----------------------------------------------
Remaining change in
net sales (2)% (2)% 0% 0% (4)% (2)%
Operating income(1) 21%
Operating segment
income(2) 16% 1% 3% 9% 28% 15%
Significant items
impacting operating
segment income -
Restructuring/Business
exit costs/
(income) (13)% (16)% (1)% 0% (19)% (10)%
Strengthening of
foreign currencies (4)% (5)% (12)% (10)% (2)% (6)%
(Income)/Loss of
acquired/sold
businesses 0% (12)% (1)% 0% (1)% (2)%
-----------------------------------------------
Remaining change
in operating
segment income (1)% (32)% (11)% (1)% 6% (3)%
Unit volumes(3) 1% (1)% (2)% 1% (3)% (1)%
Diluted earnings per
share(4) 22%
Total advertising and
promotion expense(5) 6% 26% 22% 1% 16% 12%
Media advertising
expense 1% 27% 13% 0% 37% 13%
Promotion expense 16% 23% 28% 2% 6% 12%
---------------------------
(1) Operating income represents operating segment income less general
corporate expenses and amortization of identifiable intangibles.
(2) Operating segment income is the income generated by the lines of
business.
(3) Excludes acquisitions and divestitures.
(4) $1.50 vs. $1.23; restructuring and business disposition activities
reduced FY02 results by $.12.
(5) Does not include amounts related to divested businesses.
Consolidated Statements of Income Sara Lee Corporation (NYSE)
(in millions except per share amounts)
----------------------------------------------------------------------
Thirteen Weeks Ended Fifty-Two Weeks Ended
--------------------------- ---------------------------
June 28, June 29, Percent June 28, June 29, Percent
2003 2002 Change 2003 2002 Change
--------- --------- ------- --------- --------- -------
Net sales $ 4,631 $ 4,495 3.0% $ 18,291 $ 17,628 3.8%
--------- --------- --------- ---------
Cost of
sales 2,822 2,645 11,052 10,829
Cost of
sales -
product
line exit
costs -- -- -- (7)
Selling,
general and
administrative
expenses 1,398 1,387 5,568 5,236
(Income from)
charges for
exit
activities
and business
dispositions 2 (13) (11) 177
Interest
expense 71 80 276 304
Interest income (20) (34) (78) (96)
--------- --------- --------- ---------
4,273 4,065 16,807 16,443
--------- --------- --------- ---------
Income before
income taxes 358 430 (16.8) 1,484 1,185 25.3
Income taxes 62 79 263 175
--------- --------- --------- ---------
Net income $ 296 $ 351 (15.6) $ 1,221 $ 1,010 20.9
========= ========= ========= =========
Net income per
common share
Basic $ 0.38 $ 0.44 (13.6) $ 1.55 $ 1.27 22.0
========= ========= ========= =========
Diluted $ 0.37 $ 0.43 (14.0) $ 1.50 $ 1.23 22.0
========= ========= ========= =========
Average shares
outstanding
Basic 778 786 781 785
========= ========= ========= =========
Diluted 808 818 812 818
========= ========= ========= =========
Operating Results by Industry Segment Sara Lee Corporation (NYSE)
(in millions) Thirteen Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------- -------------------
June 28, June 29, Percent June 28, June 29, Percent
2003 2002 Change 2003 2002 Change
--------- --------- ------- --------- --------- -------
Sara Lee
Meats $ 976 $ 901 8.4% $ 100 $ 104 (4.3)%
Sara Lee
Bakery 825 803 2.8 21 30 (28.6)
Beverage 700 642 9.0 103 102 1.8
Household
Products 596 534 11.5 123 106 15.6
Intimates and
Underwear 1,535 1,615 (4.9) 156 242 (35.6)
--------- --------- ------- --------- --------- -------
Total
sales and
operating
segment
income 4,632 4,495 3.1 503 584 (13.8)
Intersegment
sales (1) -- NM -- -- --
Amortization of
identifiable
intangibles -- -- -- (30) (25) (24.4)
General
corporate
expenses -- -- -- (64) (83) 23.6
--------- --------- ------- --------- --------- -------
Total net sales
and operating
income 4,631 4,495 3.0 409 476 (14.1)
Net interest
expense -- -- -- (51) (46) (11.8)
--------- --------- ------- --------- --------- -------
Net sales and
income before
income taxes $ 4,631 $ 4,495 3.0% $ 358 $ 430 (16.8)%
========= ========= ======= ========= ========= =======
Fifty-Two Weeks Ended
----------------------------------------------------------------------
Sales Operating Income
------------------- -------------------
June 28, June 29, Percent June 28, June 29, Percent
2003 2002 Change 2003 2002 Change
--------- --------- ------- --------- --------- -------
Sara Lee
Meats $ 3,746 $ 3,704 1.1% $ 375 $ 323 16.0%
Sara Lee
Bakery 3,276 2,976 10.1 98 97 0.8
Beverage 2,756 2,539 8.6 429 416 3.3
Household
Products 2,118 1,962 7.9 369 339 8.9
Intimates and
Underwear 6,399 6,455 (0.9) 763 596 28.1
--------- --------- ------- --------- --------- -------
Total
sales and
operating
segment
income 18,295 17,636 3.7 2,034 1,771 14.9
Intersegment
sales (4) (8) 45.4 -- -- --
Amortization of
identifiable
intangibles -- -- -- (104) (77) (35.9)
General
corporate
expenses -- -- -- (248) (301) 17.7
--------- --------- ------- --------- --------- -------
Total net sales
and operating
income 18,291 17,628 3.8 1,682 1,393 20.8
Net interest
expense -- -- -- (198) (208) 4.8
--------- --------- ------- --------- --------- -------
Net sales and
income before
income taxes $ 18,291 $ 17,628 3.8% $ 1,484 $ 1,185 25.3%
========= ========= ======= ========= ========= =======
See accompanying notes to financial statements.
Notes to Financial Statements
1.) Restructuring and Business Disposition Activities
Exit and Business Disposition Activities
During fiscal 2003 and 2002, the corporation recognized the impact of
certain exit and business disposition activities. The accounting for
certain of these activities was impacted by Statement of Financial
Accounting Standards No. 146, which became effective for actions
initiated after December 31, 2002. The financial impact of these
actions can be summarized as follows:
Exit and Disposal Activities Initiated After December 31, 2002
In April 2003, the corporation approved actions to:
- Abandon the use of certain trademarks obtained with the Earthgrains
acquisition. A substantial portion of the trademarks was abandoned by
the close of fiscal 2003, resulting in $6 million of accelerated
amortization being recognized in the fourth quarter of fiscal 2003.
The amortization expense is reflected in the selling, general and
administrative expenses of the corporation.
- Dispose of certain manufacturing facilities and production capacity
in the Bakery and Beverage segments. A substantial portion of the book
value of the facilities targeted for disposition was classified as
held for use on the date the actions were approved. The corporation
accelerated the depreciation on these facilities and recognized $7
million of depreciation expense in the fourth quarter as a result of
this decision. In addition, a $1 million charge was recognized for
certain held for sale assets. The $7 million of accelerated
depreciation was recognized in the line labeled "Cost of sales" and
the $1 million charge is recognized in the line labeled "(Income from)
charges for exit activities and business dispositions." As of July 3,
2003, all of these plants were closed and are being held for sale.
- Terminate individuals working in these facilities and provide
severance payments in accordance with existing benefit plans. As a
result of these actions, the corporation recognized a charge of $3
million, which is reflected in the line labeled "(Income from) charges
for exit activities and business dispositions."
Exit and Disposal Activities Initiated Prior to December 31, 2002
In the second quarter of fiscal 2003, the corporation's management
approved actions to terminate employees, exit leases and dispose of
certain assets of the Bakery segment. As a result of these actions,
the corporation recognized a charge of $22 million. In addition,
during fiscal 2003, the corporation completed certain previously
announced exit and business disposition activities for amounts more
favorable than originally estimated. As a result of the completion of
these actions, pretax operating profits in fiscal 2003 increased by
$37 million. Both the $22 million charge and the $37 million income
item are reflected on the line labeled "(Income from) charges for exit
activities and business dispositions."
In the fourth quarter of fiscal 2003, the completion of exit
activities initiated prior to December 31, 2002, had the impact of
increasing pretax net income by $2 million and this amount was
recognized on the line labeled "(Income from) charges for exit
activities and business dispositions."
For fiscal 2003, the net impact of amounts recognized on the line
labeled "(Income from) charges for exit activities and business
dispositions" increased pretax income, and net income by $11 million
and increased diluted EPS by $.01. Offsetting this was a reduction to
diluted EPS of $.01 per share resulting from the impact of accelerated
depreciation and amortization.
In fiscal 2002, the corporation's management approved a series of
actions to reduce the number of employees, exit leases and dispose of
assets. In addition, the corporation completed certain restructuring
and business disposition activities that were previously recognized in
the consolidated financial statements. For fiscal year 2002, the net
impact of these actions was to reduce pretax income, net income and
diluted EPS by $170 million, $101 million and $.12 per share,
respectively. In the fourth quarter of fiscal 2002, certain exit
activities and business dispositions were completed for amounts more
favorable than originally estimated. The net impact of these actions
was to increase pretax income, net income and diluted earnings per
share by $13 million, $10 million and $.01 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 fourth quarter and fiscal 2003 included $31
million and $126 million, respectively, of incremental benefits over
those realized in the comparable periods of the prior year.
2.) 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
Earthgrains' 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 nine months of 2003, which is 38 days
greater than included in the first nine months of fiscal 2002. The
sales and operating profits generated by the Earthgrains business for
the first 38 days of fiscal 2003 were $284 million and $17 million,
respectively.
3.) Reclassification
Certain prior year amounts have been reclassified to conform to
current year presentation.
Short Name: Sara Lee Corporation
Category Code: FR
Sequence Number: 00007807
Time of Receipt (offset from UTC): 20030730T215922+0100
--30--VS/cg* DB/ny
CONTACT: Sara Lee Corporation
Media:
Julie Ketay, 312-558-8727
Analysts:
Aaron Hoffman, 312-558-8739
KEYWORD: ILLINOIS UNITED KINGDOM INTERNATIONAL EUROPE
INDUSTRY KEYWORD: FOODS/BEVERAGES RETAIL APPAREL/TEXTILES
CONSUMER/HOUSEHOLD CONFERENCE CALLS EARNINGS
SOURCE: Sara Lee Corporation
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