000459 Sara Lee Posts 7% Profit Hike

Chicago - Sara Lee Corp.'s profit rose 7% in its third quarter, overcoming the continuing swoon in its food operations with strong sales of such items as underwear and insecticides.

But a 48% drop in profits at its Sara Lee Foods unit unsettled investors. Falling bakery sales worldwide and lingering fallout from the December 1998 recall that crippled the world leader in packaged meats were blamed for the food unit's decline, along with sharply higher hog costs that ate into meat profit margins.

“Most parts of its business are doing very well, but Sara Lee's clearly not operating on all cylinders,” said Robert Cummins, an analyst at Schroder & Co. Inc. in New York.

Earnings for its third quarter, ended March 31, were $262 million, or 29 cents a share, up from $245 million, or 26 cents a share, in the year-earlier period. Wall Street analysts surveyed by First Call/Thomson Financial had forecast earnings of 29 cents per share.

Sales for the quarter rose 5% to $4.88 billion, from $4.66 billion in the first three months of 1999.

For the first nine months, Sara Lee earned $909 million, or 99 cents a share, up from $905 million, or 95 cents a share, a year ago.

Nine-month revenue was $15.16 billion, up 2% from $14.81 billion.

John Bryan, the longtime chief executive officer who's leaving the post in July, said higher sales and profits in the branded apparel, foodservice and household and body care units generated “superior” cash flow and enabled the company to buy back 20 million shares during the quarter.

He also said the recently completed acquisition of Chock Full O'Nuts and Nestle's North American coffee operations had greatly enhanced Sara Lee's coffee business.

Analysts said that while the company's overall results were as expected, the problem with packaged meats led to a weaker quarter for Sara Lee Foods than had been foreseen.

“They've now lapped some of the problems of a year ago and they're still struggling,” said John McMillin of Prudential Securities. “Part of it's higher hog costs. But they're not out of the woods yet.”

Sara Lee is a global consumer packaged goods company whose leading brands include Sara Lee, Douwe Egberts, Hillshire Farms, Hanes, Coach and Playtex.

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