Sara Lee posts 1Q loss, adj. earnings beats view

Associated Press
This  Nov. 1, 2011 photo, shows boxes of Sara Lee Strawberry Shortcake, foreground, and Carrot Cake in Surfside, Fla. Sara Lee Corp. lost money in its first quarter as the food and beverage company coped with higher commodity costs, but its adjusted results topped Wall Street's expectations. (AP Photo/Wilfredo Lee)
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This Nov. 1, 2011 photo, shows boxes of Sara Lee Strawberry Shortcake, foreground, and Carrot Cake in …

Sara Lee Corp. posted a loss for its first-quarter as it was dragged down by higher commodity costs and charges, but its adjusted results beat expectations.

Shares of the food and beverage company jumped in trading Thursday on the news.

Sara Lee's results demonstrated that passing along higher commodity costs to consumers can pay off. Food and beverage companies have struggled to find the right balance between the prices they charge customers and the rapid increases in costs for everything from coffee beans to aluminum cans rise. Companies say they need to raise prices to offset those cost pressures but also risk losing customers if prices climb too high.

Sara Lee had struggled for the past few quarters to find the right balance and while it sacrificed some of its total sales volume during the quarter, it managed to deliver the results investors were hoping for.

The company, based in Downers Grove, Ill., reported a loss of $215 million, or 37 cents per share, for the period ended Oct. 1. That compares with net income of $194 million, or 29 cents per share, a year earlier.

After excluding charges tied to businesses it has sold off and other items, earnings from continuing operations were 18 cents per share. This beat the 17 cents per share that analysts surveyed by FactSet expected.

Revenue climbed 13 percent to $1.94 billion; analysts expected $1.96 billion.

Sara Lee is in the process of splitting its company into two publicly traded companies, which should be complete in the first half of next year. One company will be focused on North American meat brands such as Jimmy Dean and Hillshire Farm, and the other on international beverages with brands such as Pickwick and Maison du Cafe.

The company has been trimming its business slowly for years, selling off its household, beauty products and shoe care divisions to focus on food and beverages. That process has sped up in recent months as it trimmed its food and beverage portfolio further while it prepares for the creation of two smaller, more focused units. The company has sold its North American refrigerated dough business to Ralcorp Holdings Corp., its North American fresh bakery business to Mexican baking company Grupo Bimbo and a chunk of its North American foodservice coffee and tea operations to The J.M. Smucker Co. all in the span of the past year.

Sara Lee leaders said that the quarter's results show that the company is primed for its new future.

The company's coffee and tea revenue climbed on higher prices as well as the success of products such its L'OR EspressO capsules and Senseo.

North American retail revenue slipped 2 percent as higher prices were not able to offset volume declines and it struggled with higher marketing expenses for new products under its Hillshire Farm brand, such as Grilled Essentials, Gourmet Creations and Deli Carvers. However, the company expects the investment in new products to pay off soon. And in the North American foodservice and specialty meats unit, revenue rose on increased prices and volume gains.

Sara Lee maintained its fiscal 2012 earnings guidance of 89 to 95 cents per share, but it lowered its revenue expectations due to the impact of foreign exchange and some discontinued operations. The company now expects to generate revenue of $7.9 billion to $8.15 billion, down from a previous forecast for revenue between $8.5 billion and $8.75 billion.

Analysts predict earnings of 91 cents per share on revenue of $8.47 billion for the year.

The company also said it anticipates declaring and paying a special dividend of $3 per share in the first half of 2012, prior to the completion of its split.

Sara Lee shares increased $1, nearly 6 percent, to $18.61 in afternoon trading.

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Sarah Skidmore contributed to this report from Portland, Ore. Michelle Chapman contributed from New York.

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