Tags: SLE | Sara Lee | food | stocks | investing

Sara Lee Looking for New Direction

By    |   Tuesday, 31 May 2011 11:33 AM

Tough calls are easy to make in hindsight, but not when faced with navigating a rough economy with inflation ahead. Managers at U.S. foods giant Sara Lee (SLE) say the right move now is selling assets and acquiring new ones.

The company is streamlining itself into two separate business divisions, one for coffee and the other for meat products. It’s considering selling its International Bakery and North American refrigerated dough business.

It’s already sold off its North American Fresh Bakery business as well as insecticides divisions while acquiring for $87 million the Aidells Sausage Co.

Sara Lee is in talks to buy Brazilian coffee, juice, and tea producer Marata for approximately $617 million, according to various media reports. Sales fell at the International Bakery unit, but were up at its North American Retail, North American Foodservice and International Beverage divisions.

For company executives, divesting here and raising the prices there will pay off in the long run, even if it means cutting the earnings forecast for this year.

For the third quarter of the company’s fiscal year 2011 revenue rose 7 percent to $2.22 billion thanks to price hikes, although just shy of the $2.23 billion forecast by analysts polled by FactSet.

Net income was $153 million compared to a $336 million loss during the third quarter of 2010.

“On the operational side, our strategy is to cover commodity inflation through price increases and cost savings, and meanwhile continue to build our brands with superior marketing and innovation,” says Chief Executive Officer Marcel Smits in an earnings statement.

“We remain committed to this approach despite some short-term volume risk. Mainly due to this volume risk in our core businesses, as well as intense competition in our International Bakery segment, we are reducing our guidance by six cents. That said, we are optimistic about the long term prospects of our businesses.”

Two companies

Experts who follow the company say Sara Lee is in the process of becoming two separate companies, with one focused on North American meat products and the other on international coffee and teas.

That might lead to a buying opportunity if stock holders get spooked and unload shares. JPMorgan has moved to overweight from neutral on the stock and moved its price target to $23, a premium of 18.5 percent from recent trading action.

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Tough calls are easy to make in hindsight, but not when faced with navigating a rough economy with inflation ahead. Managers at U.S. foods giant Sara Lee (SLE) say the right move now is selling assets and acquiring new ones. The company is streamlining itself into two...
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2011-33-31
Tuesday, 31 May 2011 11:33 AM
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