Sara Lee Corporation Presents Plans to Drive Top- and Bottom-Line Growth
Sara Lee Corporation’s (NYSE: SLE) senior management today outlined the strategies and specific growth opportunities for the company during its annual “Meet the Management” meeting with analysts held today at the Sara Lee headquarters in Downers Grove, Ill.
Brenda C. Barnes, chairman and chief executive officer of Sara Lee Corporation, and key members of her senior management team provided detailed overviews of each of the company’s businesses, as well as the corporation’s overall financial and information technology strategies.
“We’ve developed and demonstrated core capabilities to drive innovation, enter high-opportunity geographies and achieve operating efficiencies, all enabling us to deliver continued superior value to our consumers and customers,” said Barnes. “We have the right plans, the right people and the right brands in place to leverage the many growth opportunities throughout all of our businesses.”
Business Highlights
Sara Lee Food & Beverage
Presented by Christopher (C.J.) Fraleigh, chief executive officer; Kim Feil, chief marketing officer; Bill Nictakis, president, U.S. Fresh Bakery
The core driver of margin expansion will be the innovation pipeline. Since 2005, Sara Lee has represented almost 50 percent of the total new product innovation for the entire U.S. Fresh Bakery category (Source: IRI, Sara Lee Distribution Area, 52 weeks ending 7/1/07; DHC Analysis).
The business plans to launch approximately 25 new products in fiscal 2008, including:
— New flavors of Sara Lee snackable pies — Sara Lee Ultra Premium lunchmeat — Hillshire Farm Hearty Slices lunchmeat, which caters to consumers who like a thicker cut of meat
The Retail Bakery segment will focus on expanding margins, making operational improvements and growing the Sara Lee brand through innovation and improved product mix.
The bakery industry is facing additional increases in commodity costs. To offset this, Sara Lee will continue to improve the productivity of its operations and take price increases as necessary.
— Yesterday, Sara Lee’s U.S. Fresh Bakery business increased the price of the vast majority of its branded products by an average of $.10 cents at retail, and also increased prices on the majority of its non-branded business.
The Retail Meats segment will focus on value-added products and delivering top-line margin growth.
Sara Lee Foodservice
Presented by Jim Nolan, chief executive officer; Tom Hayes, chief customer officer
The business is focused on expanding margins through an improved product mix, accelerating profitable growth through innovation and building its customer management capability to drive a richer business model.
In fiscal 2008, Sara Lee Foodservice will introduce products including:
— Stuffins, a great-tasting, handheld breakfast and snack innovation under the Sara Lee and Jimmy Dean brands. Stuffins were developed to capitalize on three trends; away-from-home breakfast, snacking and portable foods. — Caffiato, an iced coffee and tea system, will make it easier for operators to serve these popular specialty beverages. — Toastworks(TM) toasted sandwiches, developed through a partnership with TurboChef Technologies, Inc., a leader in high-speed cooking technology.
Sara Lee Household and Body Care
Presented by Vincent Janssen, chief executive officer; Folkert Sneep, senior vice president, global brands
Household & Body Care (H&BC) will focus on growth through innovation, improved marketing effectiveness and servicing emerging markets.
— Fiscal 2007 marked a turnaround for this business, with market share increases in all core categories. The increases were driven by: — Increased marketing, advertising and promotion (MAP) spending by 17 percent. — Launched successful “360-degree” marketing approach, where consumers are introduced to and can interact with brands through multiple media and programs. The “360-degree” strategy supported Sanex with its award-winning “Naked” campaign and the Pyrel insecticide launch in France.
The H&BC business will introduce new products in fiscal 2008, including:
— Ambi Pur 2Motion, a unique dual-fragrance car air freshener — Kiwi Comfort Insoles, a range of six different gel-pads developed to enhance comfort in female fashion shoes — Pyrel Naturals insecticides, which use natural extracts of flowers — Sanex Invisible, which minimizes white marks on skin and clothes
Key emerging markets
— Asia — Fiscal 2007 sales were up 10 percent. — India — The H&BC business, combined with the existing joint venture with market leader Godrej, gives the business the potential to nearly triple distribution in its core product lines. — Russia — Organic growth and acquisition opportunities for insecticide business.
Sara Lee International Beverage and Bakery
Presented by Frank van Oers, chief executive officer; Marleen Vaesen, senior vice president, Coffee & Tea retail
In fiscal 2008, International Beverage will focus on maintaining its attractive margins while expanding its product portfolio and its geographic footprint.
Fiscal 2008 new product introductions will include:
— A new Senseo coffee offering, Senseo Cafe Choco, the perfect balance of freshly-brewed coffee, high-quality milk and smooth chocolate powder. — Top Quality Liquid coffee concentrate, which offers Cafitesse one-touch coffee machine users an even higher quality coffee. — Flavorit, a smart extension to our coffee machines that enables our customers to customize their coffees with various flavors.
Key emerging markets
— Russia — The new Moccona Premium Selection is a high-quality coffee, designed to capitalize on the desire for affordable luxury in this market. — In fiscal 2008, the company will focus on St. Petersburg, and based on market results, will go nation-wide in fiscal 2009. — Brazil — The world’s second-largest coffee market, measured in tons, represents 14 percent of the total coffee market in volume. It is expected that Brazil will be the world’s largest coffee market by 2010. — Sara Lee holds the number-one share position in Brazil with its combined brands. Its share has been growing over the past few years. — Sara Lee’s strategy in Brazil focuses on shifting the business from volume to value. — Focus on increasing the brand equity by upgrading the packaging from soft bags to vacuum packs, running in-store promotions and improving advertising.
In fiscal 2008, International Bakery will work to hold its share in an expanding market while driving operational efficiencies to restore margins.
Technology Cost Savings and Financial Overview
Presented by George Chappelle, chief information officer; Theo de Kool, chief financial and administrative officer, Sara Lee Corporation
George Chappelle highlighted that last week, the company “went live” with its most significant SAP implementation to date, which included trade management for Food & Beverage and Foodservice and order management for all meat and bakery items, including more than $5 billion in sales. The implementation was completed on time and within budget, with no business disruption. Other SAP implementations have been conducted outside of the United States, with expansion in Poland, U.K., Germany, Philippines, Malaysia and Singapore. The SAP implementation’s next phase focuses on supply chain, procurement and human resources in the U.S., and further expansion abroad into Hungary, Indonesia and Hong Kong. The total benefit of phase one is expected to be approximately $50 million. At the end of fiscal 2008, SAP will process 90 percent of the company’s gross sales and Sara Lee will have more than 7,000 active experienced business people using the system.
Last year, the company trained more than 10,000 people in Continuous Improvement, resulting in tens of millions of dollars in total savings.
Theo de Kool, chief financial and administrative officer, Sara Lee Corporation, noted that fiscal 2008 should show strong top- and bottom-line growth, which should drive incremental operating margin. The company’s five-year transformation costs and benefits are meeting or exceeding projections and Sara Lee plans to continue to return significant cash to shareholders. He reiterated the fiscal 2008 guidance given on August 15, 2007. Finally, de Kool detailed Sara Lee’s capital structure commitments for fiscal 2008 and beyond. He discussed that it was important for the company to maintain an appropriate cash position for the numerous commitments Sara Lee has over the next few years, a solid investment grade credit rating and the flexibility to make the right investment decisions for the company and its shareholders throughout the year.
A webcast replay of today’s meeting will be available at 7 p.m. CDT on Tuesday, Sept. 11, 2007, in the Investor Relations section of the Sara Lee corporate Web site (www.saralee.com) through the close of business on March 11, 2008.
Forward-Looking Statements
This news release contains forward-looking statements regarding Sara Lee’s business prospects, costs and cost savings and projected future operating results. In addition, from time to time, in oral statements and written reports, the corporation discusses its expectations regarding the corporation’s future performance by making forward-looking statements preceded by terms such as “expects,”"plans” or “believes.” 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. Consequently, the corporation wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Sara Lee’s actual results to differ from such forward-looking statements are factors relating to:
Sara Lee’s relationship with its customers, such as (i) a significant change in Sara Lee’s business with any of its major customers, such as Wal-Mart, its largest customer, including changes in the level of inventory these customers maintain; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment;
The consumer marketplace, such as (iii) significant competition, including advertising, promotional and price competition, and changes in consumer demand for Sara Lee’s products; (iv) fluctuations in the availability and cost of raw materials, Sara Lee’s ability to increase product prices in response and the impact on Sara Lee’s profitability; (v) the impact of various food safety issues on sales and profitability of Sara Lee products; (vi) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance; and (vii) changes in regulations that impose additional requirements on Sara Lee, such as recent requirements regarding the labeling of trans-fat content;
Sara Lee’s international operations, such as (viii) impacts on reported earnings from fluctuations in foreign currency exchange rates, particularly the European euro, given Sara Lee’s significant concentration of business in Western Europe; (ix) Sara Lee’s generation of a high percentage of its revenues from businesses outside the U.S. and costs to remit these foreign earnings into the U.S. to fund Sara Lee’s domestic operations; and (x) Sara Lee’s ability to continue to source production and conduct manufacturing and selling operations in various countries due to changing business conditions, political environments, import quotas and the financial condition of suppliers;
Previous business decisions, such as (xi) Sara Lee’s ability to generate margin improvement through continuous improvement initiatives and transitioning the entire organization to a common information technology system and the risk that the transition to a common information technology system will be disruptive to the business; (xii) Sara Lee’s ability to achieve planned cash flows from capital expenditures and acquisitions, particularly its worldwide bakery business, and the impact of changing interest rates and the cost of capital on the discounted value of those planned cash flows, which could impact future impairment analyses; (xiii) credit ratings issued by the three major credit rating agencies and the impact these ratings have on Sara Lee’s cost to borrow funds and access to capital/debt markets; (xiv) the settlement of a number of ongoing reviews of Sara Lee’s income tax filing positions in various jurisdictions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Sara Lee transacts business; (xv) changes in Sara Lee’s multi-employer pension liability; and (xvi) the continued legality of tobacco products in the Netherlands, Germany and Belgium.
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. We have provided additional information in our Form 10-K for fiscal 2007, 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.
About Sara Lee
Sara Lee Corporation (www.saralee.com) is a global manufacturer and marketer of high-quality, brand-name products for consumers throughout the world. In February 2005, the company began executing a bold and ambitious multi-year plan to transform Sara Lee into a company focused on its food, beverage, and household and body care businesses around the world. As part of its transformation plan, Sara Lee will drive growth in its key categories via such strong brands as Ambi Pur, Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi, Sanex, Senseo and its namesake, Sara Lee.