Sara Lee Corp. reported strong results for fiscal 2010. Operating income was up significantly for the year, driven by improved operating segment income across all five continuing business segments.
The North American Fresh Bakery segment had a challenging fiscal 2010 as price competition in the category intensified. In response to the competitive environment, the segment adjusted its pricing during the course of the year and saw its branded unit volumes starting to recover in the second half of fiscal 2010. Overall profitability of the segment, however, was flat in fiscal 2010.
In the fourth quarter of fiscal 2010, operating segment income was $ 8 m, compared to $ 23 m in the year-ago quarter, a decrease primarily due to a $ 16 m charge for a partial withdrawal liability relating to a multi-employer pension plan, higher MAP spending behind the Sara Lee brand, lower prices and lower unit volumes. These factors were partially offset by lower commodity costs, the additional 53rd week and a decrease in operating costs driven by Project Accelerate initiatives and other continuous improvement savings. Adjusted operating segment income decreased by $ 12 m, or 39.4 %, to $ 17 m in the fourth quarter, partially driven by accounting adjustments related to employee benefits and third party bread distributors. Net sales increased 4.8 % to $ 587 m in the fourth quarter of fiscal 2010, primarily due to the impact of the 53rd week and favorable sales mix into branded business, which were partially offset by lower unit volumes and lower prices. Adjusted net sales decreased 4.5 % to $ 535 m in the fourth quarter. Unit volumes, excluding the 53rd week, decreased 3.1 %, as slightly higher unit volumes for branded breads were more than offset by volume weakness in private label bakery products as a result of intense price competition in the category.
Branded volumes rose following price recalibration earlier in the year, and were helped by new products such as Sara Lee Soft & Smooth Plus breads. Although input costs, most notably wheat, are rapidly increasing, the segment is confident that it can successfully manage through this in fiscal 2011, through a combination of commodity hedging and strategic pricing. Assuming a moderately improving competitive environment, the North American Fresh Bakery segment is expected to return to its trajectory of gradually increasing profitability in fiscal 2011. However, the segment anticipates operating income to be down in the first quarter, as price levels are meaningfully lower than in the early part of fiscal 2010 and the segment is investing in both its branded and private label business to strengthen its market position. To offset these factors, cost reduction efforts have been intensified to adjust the business to the new price levels.