Sara Lee Corporation said that quarterly sales volume dropped and net income fell, as price increases to offset rising commodity costs hurt demand, helping to send shares down 2 per cent.The company also said cost savings and price increases would not fully offset the commodity inflation in its international coffee and tea business for another quarter.
Huge spikes in prices for coffee beans and meat have pressured margins for Sara Lee, which saw nearly $650 million in higher commodity costs in fiscal 2011. As a result, the company raised prices by nearly 15 per cent on average in its drinks business -which contributed to a 9 per cent drop in sales volume as consumers switched to cheaper brands or cut back altogether. The increase in prices was “pretty unprecedented, but still wasn’t enough,” said Chief Executive Marcel Smits.
He added, however, that rivals in Europe followed the company with their own price increases, helping to level the playing field.The company, which also makes Jimmy Dean sausages and Hillshire Farm lunch meat, forecast 2012 earnings that implied a growth rate below what Wall Street was expecting and “does not appear to incorporate much in the way of core gains,” according to Barclays Capital analyst Andrew Lazar.
Sara Lee plans to separate its international coffee and tea business, which includes Senseo coffee and Pickwick tea, from its North American meats business early next year. It said its 2012 forecast assumes the spin-off will occur on the last day of the fiscal year, or next July.Sara Lee’s net income fell to $111 million, or 19 cents per share, in the fiscal fourth quarter ended July 2 from $187 million, or 28 cents per share, a year earlier.
From / Gulf Today