021017 Sara Lee Shares Higher, Outlook Brightens

Chicago - Shares of consumer goods maker Sara Lee Corp. rose more than 8% on Wednesday, after the company raised its first-quarter earnings outlook, citing lower costs and improved sales of higher-margin products like coffee cartridges and Playtex bras with gel straps.

Sara Lee Chief Executive Steve McMillan told investors, one day after the revised guidance, that his focus in fiscal 2003 will be to pay down debt taken on from the nearly $3 billion acquisition of bread company Earthgrains in August 2001.

Growth will come from increased market share in big brands, such as Hanes underwear and Jimmy Dean meats, and the roll-out of new products like a line of fresh breads under the Sara Lee name, he said. Sara Lee, which boosted marketing spending 4% in fiscal 2002, plans to increase that spending this year by about 10%.

"We are continuing a very disciplined plan to deleverage our balance sheet," McMillan said. "I do not foresee any significant acquisition activity on our part until we retire a significant portion of the Earthgrains debt."

The company will target the bulk of its promotional spending on 28 key brands with annual revenues of $100 million or more, or the potential to reach that level, he said. They include mainstays such as Champion athletic wear and Hillshire Farm meats and rising stars such as European brands Senseo coffee and coffee machines and Unno underwear.

Shares of Sara Lee were up $1.62, or 8.1%, at $21.52 in late trading on the New York Stock Exchange. Earlier, the shares touched $21.60.

"We continue to recommend purchase due to improving fundamentals and compelling valuation," Goldman Sachs analyst Romitha Mally wrote in a research note. "Cost savings from the reshaping program...seem to be hitting the bottom line faster than the company originally anticipated."

REVISED FORECASTS

The company said late Tuesday it expects earnings of at least 35 cents a share in the quarter ended Sept. 28, compared with 26 cents a share a year earlier.

The forecast is about 21% higher than the top end of Sara Lee's prior guidance.

For the past two years, Sara Lee has been working to take out costs and improve efficiencies, selling off unprofitable businesses such as parts of its Champion line, closing plants, and consolidating disparate operations like its meat operations. It spent nearly $70 million on restructuring in fiscal 2002, while laying off some 22,000 workers, mostly in its apparel business.

"Our business portfolio in my opinion is very well positioned right now," McMillan said, adding that he would make certain that "Sara Lee invest wisely in new product development, very targeted marketing support and an enhanced organizational structure."

Besides the restructuring, other factors behind the better-than-expected results include favorable foreign currency exchange rates, lower interest expense and fewer shares outstanding, the company said.

The company on Tuesday also raised its full-year earnings outlook to a range of $1.54 to $1.60 a share, compared with $1.36 a share in fiscal 2002.

Helping profit in the first quarter are share repurchases. The company said it bought back 6.7 million shares of common stock in the quarter at an average cost of $18.28 a share. About 12 million shares remain available for future purchase under the current share repurchase program.

The company said it sees operating profit growing more than 20% in the first quarter and more than 15% in the full year.

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