Sara Lee (NYSE: SLE ) is relying on faster-growing international markets to enhance its status as a steady performer, the company reported at a conference earlier this week.
Back in early 2005, the firm undertook a major transition to right-size its wide array of businesses and better position itself for tastier, consistent growth.
Sara Lee's presenter at the event in Chicago was Frank van Oers, helmsman of the international coffee and tea business, and soon-to-be leader of the global bakery division. He quickly highlighted that Sara Lee is smaller these days after spinning off Hanesbrands (NYSE: HBI ) to shareholders and jettisoning numerous other international apparel, nuts and snacks brands, and domestic coffee and meat snacks businesses.
Van Oers detailed what remains: the North American food-service business -- which resembles Sysco's (NYSE: SYY ) operations -- domestic retail meats and bakery operations, and international tea, coffee, bakery, household, and body care businesses. What's left today are "key food, beverage and household products businesses" that are beginning to show predictable sales growth, he said. Income trends, however, remain a work in progress, as judged by the most recent quarterly results.
He summed up recent moves as "a shift in attitude" at Sara Lee, saying they have created a more cohesive, "truly integrated company" as units have been better aligned with key consumers and geographic areas. In addition, information technology and other purchasing decisions have been centralized to better controls costs and increase negotiating clout with suppliers, which helps protect against inflation in food ingredients. For instance, corn prices are rising rapidly as ethanol producers join the field of demands along with food producers such as Sara Lee, General Mills (NYSE: GIS ) , Heinz (NYSE: HNZ ) , and Kraft (NYSE: KFT )
Prospects here at home
Van Oers went on to quantify the potential of each remaining operating unit to gain market share. Sara Lee's sales in the North American retail meats market were $2.5 billion last year, and he put the entire addressable market at $10 billion, which is 50% controlled by four top players -- Sara Lee, Kraft, ConAgra (NYSE: CAG ) , and Smithfields. Similarly, he pegged the domestic bakery market at $10 billion, of which Sara Lee reported $1.9 billion in sales last year.
Potential in the food-service business is even greater, as Sara Lee reported sales of $2.2 billion in an estimated $75 billion market that is only going to grow as time-starved consumers increasingly eat away from home.
The international picture
Van Oers' expertise lies overseas, and he sees the greatest top-line potential in international health and body care, where Sara Lee recently reported annual revenue of $1.8 billion in a "$40 billion market opportunity." He said it is the company's most profitable segment, with return on sales nearing 15%. The global bakery business is seeing competitive issues in Spain and Portugal, but the international beverage unit is another potential key growth driver.
Sara Lee holds a No. 3 position in the global market for tea, coffee, and other beverages, but has a winning brand in Senseo, which is successfully serving middle-market coffee consumers and is benefiting from the move to at-home coffee machines. It is a major player in Europe and Brazil, which happens to be the second-largest market for coffee, behind the United States. The company has operated in Brazil for more than a decade now.
The Foolish bottom line
Van Oers said he hoped the audience at the Deutsche Bank Securities Global Consumer & Food Retail Conference agreed that "Sara Lee really turned the corner" and is "truly a company transformed." After hearing the presentation, I can't conclude that Sara Lee has officially turned the corner toward consistent growth and profitability, but at least Fools have a better idea of what the key drivers to future performance are. Judging by recent results, international markets will lead the way.
For related Foolishness:
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.
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