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.

By Trefis Jan 12, 2012 2:26PM
Image: Bread (© Corbis)Sara Lee (SLE) is a leading manufacturer of meat, bakery and beverage products, with food services and retail channels in the U.S. and Europe. Last year the company announced plans to split into two separate, pure-play beverage and meat companies after divesting its non-core businesses by 2012.

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.


Sara Lee Stock Break-Up
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.


We have a $21 Trefis price estimate for Sara Lee, 10% ahead of the current market price. See our full analysis for Sara Lee.

Tags: KFTSLE
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

108
108 rated 1
257
257 rated 2
439
439 rated 3
626
626 rated 4
499
499 rated 5
530
530 rated 6
713
713 rated 7
522
522 rated 8
339
339 rated 9
136
136 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
SWNSOUTHWESTERN ENERGY COMPANY10
TAT&T Inc9
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.