Get ready for a much smaller Sara Lee
The Chicago-based company announced Thursday that it will shed businesses that account for about 40% of its annual revenue. Sara Lee plans to spin off its U.S. branded apparel lines, including the Champion and Hanes brands, into a new company. Although the apparel area is a logical spinoff choice from a strategic standpoint, Sara Lee will lose a respectable business. Apparel has faced serious challenges, but in the six months ended Jan. 1, it was the firm's second fastest growing unit in terms of sales and operating income. In addition to the spinoff, Sara Lee intends to sell three other units, including its U.S. retail coffee segment, although the company will retain its new Senseo line.
Sara Lee has been reworking its mix for some time, most notably through the spinoff of its Coach leather wares business. After these new moves, though, Sara Lee will be focused on just food, beverages, and household products. However, a leaner structure alone is not a guarantee of success. Like other food and beverage outfits, such as Kraft
There is some reason to be optimistic, though, because Sara Lee seems to have its priorities in the right place. The company expects to realize between $575 million to $800 million in annualized savings through the restructuring, but that amount will be offset by the firm's plans to pour an additional $250 million into marketing and research and development. Sara Lee's success with its Senseo coffee underlines the importance of new products in capturing consumers' attention. Going forward, Sara Lee will need several more hits to stay competitive. Its new structure will give it at least a fighting chance to meet this challenge.
Mathew Emmert selected Sara Lee for Motley Fool Income Investor subscribers in November 2003. Want to discover other companies that pay big dividends? Take a free trial today.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
