020445 Sara Lee Earnings Rise

Chicago - Sara Lee Corp. reported a 7 percent earnings increase, an improvement after two straight quarters of declining profits as a two-year corporate overhaul and the integration of Earthgrains Co. pay dividends.

But sagging sales volumes, including a significant falloff in coffee, left analysts unimpressed.

The consumer packaged goods giant, whose products range from Chock full o'Nuts coffee to Hanes underwear to Hillshire Farm sausages, said earnings for its third fiscal quarter were $257 million, or 31 cents a share, up from $241 million, or 28 cents a share, a year earlier.

Operating earnings also were reported as 31 cents a share. That matched the estimate of a consensus of analysts surveyed by Thomson Financial/First Call.

Sales for the three months ended March 30 were $4.2 billion, up 4 percent from $4.04 billion.

Excluding acquisitions and divestitures, unit volumes fell 3 percent on declines in meats, knit products, beverages and household products, offset by increases in underwear and legwear.

Coffee sales plunged 13 percent, which the company blamed partly on aggressive price competition from private label and low-end brands in the United States.

Sara Lee also lowered its guidance for full-year earnings to a range of $1.35 to $1.38, down slightly from the earlier $1.37 to $1.40.

Its shares fell 22 cents to close at $21.86 on the New York Stock Exchange.

Prudential Securities analyst John McMillin said sluggish internal growth rates reflect a company continuing to struggle.

"Some new problem areas surfaced with this report, particularly coffee and bread," he said. "They have the conglomerate's disease - if one business is getting a little better, some others are getting worse."

Terry Bivens of Bear Stearns also cited disappointing showings in meat and household products. "Sara Lee is a company that is suggesting to investors that better days are ahead," he said. "Indeed maybe they are. But it's hard for investors to believe it on a day like today when they report these kinds of results."

The company said it is nearing the end of the reshaping program that C. Steven McMillan launched when he replaced John Bryan as chief executive officer two years ago. It has sold all but one of the 18 business units targeted for disposal - a small bakery operation in China.

After refocusing operations on three core businesses - food and beverage, household products and intimates and underwear - Sara Lee is spending heavily to market new products and its biggest brands. Media advertising costs in fiscal 2002 are up 9 percent, largely to support a variety of new products under the Jimmy Dean, Playtex, Senseo and Ambi Pur Car names.

"We continue to make progress on the critical components of the reshaping program we announced in May 2000," McMillan said. He said facility closures and organizational restructuring resulted in an additional $24 million in savings in the quarter.

Sara Lee has eliminated more than 20,000 jobs since the overhaul began, or about 13 percent of a worldwide work force of 154,000. It said earlier this year there were no plans for further layoffs.

For the first nine months of its fiscal year, net earnings were $659 million, or 80 cents a share, down from $1.29 billion, or $1.48 a share, a decline largely reflecting a $638 million gain from the 2000 sale of PYA/Monarch, its food service distribution business.

Sales were $13.1 billion, up 3 percent from $12.7 billion.

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