SARA LEE CORP. $18 (New York symbol SLE;
Conservative Growth Portfolio, Consumer sector; Shares outstanding: 590.7 million; Market cap: $10.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.saralee.com) announced in January 2011 that it would break itself into two separate, publicly traded companies.
One firm will consist of Sara Lee’s international coffee and tea businesses. The other will focus on its North American packaged meat operations. The company aims to complete the breakup by the end of fiscal 2012 (fiscal years end June 30). It will also pay a special dividend of $3.00 a share before the split.
Sara Lee is selling some of its other businesses to prepare for the breakup. For example, it recently sold its refrigerated dough business to Ralcorp Holdings Inc. (New York symbol RAH) for $545 million. This business makes private-label biscuits, crescent rolls, pizza and pie crusts and toaster pastries for supermarkets and other retailers.
As well, the company has sold its North American fresh bakery business to Mexico’s Grupo Bimbo for $709 million. Grupo Bimbo also paid $155 million for Sara Lee’s fresh bakery operations in Portugal and Spain.
If you exclude the businesses the company has sold, its sales rose 5.7% in the three months ended October 1, 2011, to $1.9 billion from $1.8 billion a year earlier. Thanks to savings from an ongoing restructuring, earnings before unusual items rose 33.3%, to $108 million from $81 million. Per-share earnings jumped 50.0%, to $0.18 from $0.12, on fewer shares outstanding.
The shares are up 5% since Sara Lee announced the split. They trade at 19.8 times the company’s likely 2012 earnings of $0.91 a share. That’s still a reasonable p/e ratio considering that Sara Lee, as a whole, will cut its costs by $180 million to $200 million over the next two years.
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