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Earnings Preview: Sara Lee Corp.

TSN

Trades from $3

Sara Lee Corp. , one of the world’s leaders in manufacturing and marketing of a range of branded packaged meat, bakery, and beverage products, is scheduled to report its fourth-quarter 2011 financial results on Thursday, August 11, 2011.

The current Zacks Consensus Estimate for the quarter is pegged at 20 cents a share. The Zacks Consensus Estimate projects revenues to be $2,224 million for the quarter.

Third Quarter 2011 Recap

Sara Lee, which faces stiff competition from Kraft Foods Inc. and Tyson Foods Inc. (TSN - Free Report) , posted strong operating income growth for the third quarter of fiscal 2011, driven by significant improvement in operating segment income across the company, particularly in the North American Retail and International Beverage business segments and lower corporate expenses.

Adjusted earnings for the quarter were 30 cents a share compared to 29 cents during the same period of fiscal 2010. Earnings were well above the Zacks Consensus Estimate of 25 cents.

Net sales for the quarter increased 6.8% year over year to $2.2 billion, driven by 6.1% price increase and 1.3% favorable mix. This was partially offset by 3.3% decline in unit volume.

Management Guidance

The company updated the fiscal 2012 earnings per diluted share on a GAAP basis to a range of 67 cents to 71 cents. Further, management expects the pro forma earnings per share to be within 79 cents to 83 cents per share. The current Zacks Consensus Estimate for fiscal 2011 is 82 cents.

The company expects net sales to be within $8.9 to $9.0 billion range.

Fourth-Quarter 2011 Zacks Consensus

Earnings estimates for the first quarter of 2011, as provided by the analysts, range from a low of 18 cents to a high of 23 cents. Thus, the current Zacks Consensus Estimate for the quarter is pegged at 20 cents per share.

Over the past 30 days, none of the analysts revised the earnings estimate and hence the current Zacks Consensus Estimate remained at 20 cents. However, the fiscal 2011 earnings estimate dropped by a penny over the last 30 days.

Earnings History: Ahead of Zacks

With respect to earnings surprises, Sara lee has topped as well as missed the Zacks Consensus Estimate in the preceding four quarters. Over the last four quarters, the earnings surprise ranged from a negative of 55.00% to a positive of 24.00%, with the average earnings surprise being a negative 15.7%. This suggests that Sara Lee has missed the Zacks Consensus Estimate.

Recommendation

We are encouraged by Sara Lee’s focus on leveraging its consumer brands to generate sales growth. The company intends to bring in changes in the organizational structure and product portfolio, thereby improving operational efficiency.

However, commodity-price inflation and stiff competition in the branded food industry leave us concerned.

Currently SLE holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock with a short-term Hold rating.




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