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Sara Lee's Indigestion?

Can Motley Fool Income Investor pick Sara Lee (NYSE: SLE  ) catch a break? The diversified firm that sells everything from hot dogs to pies to underwear gave investors indigestion when it reported that first-quarter results would be hurt by higher commodity prices. Never mind the big boost in profits posted during the fourth quarter; investors see only trouble ahead, and the shares are already down more than 1% today.

The firm reported that net sales rose 11% for the fourth quarter, to $5.1 billion from $4.6 billion a year ago. Income rose to $0.44 per diluted share, an increase of 19% from the same period a year ago. For all of fiscal 2004, sales were $19.6 billion, up 7% from 2003. Net income for the year was $1.59 per diluted share, up 6% from last year's $1.50. Profits were up in every business unit except for apparel, which declined for a fifth straight quarter. Do you see much bad news here? Yeah, me either.

Unfortunately, it's not the past that concerns investors. The company said higher commodity prices on items such as pork and coffee will take a bite out of first-quarter 2005 profits. Excluding a $0.15-per-share gain for the sale of its European tobacco business, results are forecast to come in at $0.24 to $0.29 a share, well below the consensus estimate of $0.32.

But should investors really be so spooked? After all, Sara Lee says it will boost earnings from $1.59 to between $1.61 and $1.71 per share during 2005 -- and that's after an expected $250 million increase in commodity costs and $80 million more set aside for marketing. Further, free cash flow continues to rise like good dough. After dividends, free cash flow came in at just below $900 million for 2004. That's more than 50% better than last year and more than enough moola to allow Sara Lee to keep hiking its dividend, which at 3.5% already trounces the market's average payout of 1.67%.

Maybe I'm just too optimistic, but I see no reason to pull Sara Lee from the fatty five. I still think the company will continue delivering investors sweet returns on the way to high-carb heaven.

Don't be satisfied with hype stocks that provide nothing but empty promises. Get paid to invest. Give Mathew Emmert'sMotley Fool Income Investora try risk-free for 30 days.

Fool contributor Tim Beyers isn't at all about the carbs. He leaves that to people with more discipline. Tim owns no shares in the companies mentioned, and you can view his Fool profile here.

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