991115 Sara Lee Profits Rise, Despite Last Year's RecallNovember 3, 1999Chicago - Sara Lee Corp. said its fiscal first-quarter profits rose, matching Wall Street forecasts, as strength in its non-food divisions more than offset weakness in the fresh meat unit, which is still reeling from last year's massive recall. Sara Lee, whose products range from Ball Park hot dogs to Hanes underwear, said it was confident it would report low double-digit earnings gains for the full year, and the stock rose. In midday New York Stock Exchange trading, shares in Sara Lee were up 11/16 at 24-7/16. Sara Lee said earnings, excluding a gain last year from the sale of its tobacco business, rose 7% to $258 million, or 28 cents per share, from $241 million, or 25 cents a share. The earnings matched Wall Street forecasts and guidance the company gave last month, when it said it expected to beat the quarterly consensus estimate. According to First Call/Thomson Financial, analysts' latest consensus estimate was 28 cents, up from 26 cents before the company's guidance on Sept. 29. Net sales for the quarter ended Oct. 2 were $4.95 billion, up 1.8% from last year's $4.86 billion. "We are especially pleased with the strong unit volume increases in our non- food operations," John Bryan, Sara Lee chairman and chief executive, said in a statement. "The increase that we reported in the first quarter gives us further confidence that our company will produce a low double-digit earnings per share gain for the full year." Analysts said the full-year forecast was reassuring, especially in the food industry where consistent earnings gains have been hard to come by lately. However, they said the company would likely struggle with problems related to last year's meat recall for one more quarter. "I thought the numbers were encouraging," said John McMillin, food industry analyst with Prudential Securities. "For a company that has been in dormancy for a while, there were some signs of life. These (meat recall) problems have lingered longer than I thought, but other parts of the company, particularly the non-food side, have really picked up." Last December, Sara Lee recalled 15 million pounds of hot dogs and deli meats after an outbreak of the food-borne illness listeria, which can be deadly for the elderly and people with weakened immune systems and can cause miscarriages. The U.S. Centers for Disease Control and Prevention linked the outbreak to 21 deaths and more than 100 illnesses in 22 states. "The meat recall continues to hurt sales, but outside of food, it was a pretty good story," said Patrick Schumann, food industry analyst with Edward Jones. Sara Lee said branded apparel sales grew 6.1% to $1.95 billion, while net income rose 9.5% to $116 million. Analysts said manufacturing and inventory problems at a key competitor, Fruit of the Loom Ltd. (NYSE:FTL - news), helped boost sales of Sara Lee's Hanes underwear. Household and body care products sales rose 12.2% to $506 million, and net income jumped 15.8% to $30 million, which the company said reflects strong unit volume growth in core categories and improved efficiency. Sales in Sara Lee's foods unit, however, fell 8.4% to $1.22 billion, and net income fell 6.4% to $50 million, still hurt by last December's recall. In addition, lower hog prices led to a drop in retail prices and contributed to the dollar sales decline, the company said. Sara Lee's global packaged meat unit volumes in particular fell 11% in the quarter as the company revamped plants to improve food safety. Sara Lee also eliminated certain underperforming meat product lines. "I thought it was an encouraging quarter," said Andrew Lazar, food industry analyst with Lehman Brothers. "They're certainly posting very solid volume gains in several of their core business units and appear to have solid earnings visibility going into next year."
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