Sara Lee readies for company split
The cake maker has been divesting its less-profitable bakery businesses in North America to reallocate resources to its core meat division.
Under the plan, the international beverage business will be spun off, tax-free, into a new company. The remaining company will include Sara Lee's North American retail and food service businesses, focusing primarily on strengthening its leading market position in the meat business. The company competes with major food and consumer companies like Kraft Foods (KFT) and Nestle (NESN).
Currently, the international beverage division is the most important component for Sara Lee, accounting for more than half of its stock value.
In North America, Sara Lee is focusing heavily on the meat business with popular retail brands like Jimmy Dean, Hillshire Farm and Ball Park already occupying the biggest market shares in their respective product categories.
Sara Lee has been divesting its less profitable bakery, tea and coffee businesses in North America to reallocate resources to its core meat business. In May 2011, the company acquired Aidells Sausage, a San Francisco premium meat company, to expand its presence in the organic and natural meat segment.
Among its international operations, Sara Lee is focusing on strengthening its tea and coffee businesses in Europe and Latin America. It recently acquired Cafe Damasco, a Brazilian coffee company, and leading Dutch cafe store operator CoffeeCompany, and Norwegian House of Coffee. Sara Lee is also in the process of divesting its bakery businesses in Spain, Portugal, France and possibly Australia.
Sara Lee's input commodity prices have experienced significant volatility in the recent past. Despite efforts to offset commodity price increases with pricing and saving efforts, commodity costs increased approximately $646 million in 2011 over the prior year. This increase in commodity costs was only partially offset by approximately $468 million in pricing actions, with 6% pricing in North American Retail and International Beverage divisions and 10% in North American food service division.
The company expects commodity costs will continue to increase in 2012. Yet with cost-cutting, savings and further pricing efforts, the company hopes to reduce its fixed and variable costs and aims to boost gross margins from 32.4% to 36% by 2013-14.
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This North American food and drug retail giant is showing signs of sluggish growth.
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