Downers Grove / IL. (div) «If they spin off the bread business, they are pretty small and are very much a takeover candidate», says Ron O´Donnell, president of Montana-based Stockman Asset Management, in «Sara Lee looks to sell bread business», published by Crain´s Chicago Business. He brings to mind, that CEO Brenda Barnes has sold off nearly half of Sara Lee´s business in the past five years, shrinking the company to about 10,8 billion USD in annual sales from more than 19 billion USD. Selling the bread business would reduce that number to about 8,6 billion USD; mostly from sales of meat in the United States and coffee overseas. More profitable and faster-growing than bread, the two remaining businesses would be attractive buyout targets to larger food companies, O´Donnell says.
Its big leap into the bread-business Sara Lee Corporation made, when former CEO Steven McMillan paid 2,8 billion for Earthgrains in 2001. After taking over in 2005, Brenda Barnes tried to create a national bread brand under the Sara Lee label but faced stiff competition from cheaper store brands and regional players. U.S. sales in the mature product category declined about two percent in 2009, according to data from Symphony IRI Group that excludes sales at Wal-Mart.
Despite innovations, Sara Lee´s bread business produced only 107 million USD in operating profits over the past three fiscal years. Operating profit for the first nine months of the company´s 2010 fiscal year was 36 million USD as sales declined six percent to 1,54 billion USD. Sara Lee lost ground to top rivals in the past year as its share of bread sales fell nearly a full percentage point, Symphony IRI data show.
Stubbornly low profits in bread prevented CEO Barnes from meeting broader profitability targets and undermined her standing with investors. Sara Lee´s stock has fallen nearly 30 percent since she took over, while the S+P 500 Consumer Staples Index gained ten percent over the same period. «The bread business has been Sara Lee´s Achilles´ heel», says Erin Swanson, an analyst in Chicago at Morningstar Incorporated.
According to Crain´s Chicago Business, Hostess Brands and Campbell Soup´s Pepperidge Farm may be among the possible bidders. But in the meantime both companys said they are not interested in Sara Lee´s bread business. Sara Lee declines to comment any plans for the division.
