Sara Lee sees Q3 profits tumble

By Anita Awbi

- Last updated on GMT

Related tags: Sara lee, Marketing, Sales, Business

Yesterday American-owned Sara Lee reported a massive 77 per cent
drop in third quarter operating profit from $189m last year to $42m
in 2006, impacted by a vast portfolio cull.

The manufacturer, famous for Douwe Egbert's coffee and Bimbo bread, said the divesture of underperforming businesses, poor returns from the international division, and unfavourable exchange rates have all worked to hurt profit margins.

Meanwhile, increased private label competition and falling retail prices have combined to hit sales figures - worsening the effect of the portfolio streamlining project.

Net sales in the international beverage division were down 2.3 per cent, international bakery division sales plummeted 11.2 per cent, and international household and personal care fell 8.5 per cent.

The North American retail meats and retail bakery divisions saw net sales rise 5.6 per cent and five per cent respectively. However these were offset by falling operating profit margins - 31.9 per cent for meats and 81.2 per cent for bakery.

CEO Brenda Barnes commentated: While we are achieving the kind of underlying improvement we expect in a number of our segments, we have yet to reach our anticipated performance levels in our other segments, but have plans in place to ensure we deliver improved results."

The firm also said yesterday it plans to sell off UK-based apparel business Courtaulds to a group led by global garment producer PD Enterprise.

This follows last week's announcement that Smithfield may acquire Sara Lee's European meats arm, following a drop in the division's anticipated selling price.

The divestures form part of a two-year company overhaul that will see Sara Lee axe businesses accounting for a total of 40 per cent of earnings.

Throughout the 1980s and 1990s the firm diversified widely, resulting in a business portfolio that strayed a long way from its core cake-making activity. As well as clothes, coffee, cosmetics, toiletries, shoe polish and air freshener, Sara Lee's expansion resulted in operations that many industry experts said provided no or very little room for all-important synergies.

Related topics: Market Trends

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