Sara Lee Acquisitive to Drive Food Growth

Sara Lee Acquisitive to Drive Food Growth

Sara Lee Acquisitive to Drive Food Growth

 

Sara Lee Corp., the maker of Ball Park hot dogs and Senseo brew pods, may consider acquisitions to fuel growth in its food and coffee divisions, Chairman and Chief Executive Officer Brenda Barnes said.

Sara Lee, which plans to cut at least $250 million in costs over two years, is in a position to handle a large purchase, Barnes, 55, said yesterday in an interview in New York. The company has simplified its technology systems, gotten out of underperforming businesses, and introduced better products based on consumer research during the past four years, she said.

“We now have the capability to do this,” said Barnes, without specifying the amount Sara Lee would be willing to spend. “Early on, we didn’t earn the right to buy.”

Sara Lee is looking to expand its main food business to make its bread unit more profitable and increase the amount of higher-margin coffee it sells. The company, based in Downers Grove, Illinois, also will consider expanding by geographic region, Barnes said.

The company is in talks to sell its international household and body-care unit. Barnes declined to say how many bidders are being considered and said she hopes there will be a resolution soon “because we’ve been at it for a while.”

“The price has to be right, like in any negotiation,” Barnes said, adding that keeping the unit is also an option.

The Utrecht, Netherlands-based division, which makes Kiwi shoe polish, may fetch $3 billion to $4 billion, Tim Ramey, an analyst for D.A. Davidson & Co. in Lake Oswego, Oregon, said in March. The $2.3 billion-a-year business has about 8,000 employees and accounted for 17 percent of sales in the most recent fiscal year.

‘Source of Frustration’

Sara Lee’s share performance, which lags behind Kraft Foods Inc. and Kellogg Co., is “a very big source of frustration,” Barnes said. She said the company still needs to win credibility with investors now that it has proven it can deliver on its turnaround plans.

The stock had fallen 8 percent this year before today, giving the company a market value of $6.3 billion. That compares with a 7.3 percent decline for Northfield, Illinois-based Kraft and a less than 1 percent increase for Battle Creek, Michigan- based Kellogg. The Standard & Poor’s 500 Consumer Staples Index fell 4.9 percent in the period.

“Our multiple is way under the peer group,” Barnes said.

Sara Lee advanced 8 cents to $9.09 at 4:15 p.m. in New York Stock Exchange composite trading today.

U.S. Growth

Barnes said profit growth in the U.S. food business shows Sara Lee’s strategy is working.

Operating income in the North American retail meats division, which includes Hillshire Farm sandwich slices and Jimmy Dean breakfast sausages, surged 86 percent to $175 million in the most recent fiscal year. The North American Retail Bakery unit saw operating income climb last year for the first time in Barnes’s tenure.

Sara Lee, which also makes store-brand bread for Wal-Mart Stores Inc., recently signed a deal to supply “a couple hundred” more of the discount retailer’s locations, Barnes said. She declined to say how many Sara Lee already supplies. The company has worked to get more bread on its delivery trucks to improve margins.

In addition to Senseo single-cup coffee pods, Sara Lee also supplies coffee to Dunkin’ Donuts Inc. and Burger King Holdings Inc.

Centralizing the buying of ingredients and packaging, moving information technology operations to the Philippines and selling low-margin meat and dressing lines in the food-service unit have allowed Sara Lee to focus on more profitable brands, Barnes said.

“What we’ve changed most, very simply, is we’ve said we’re a consumer-goods company and we have to focus on the consumer,” she said. “So innovation is our key driver of growth.”