Sara Lee Seeks the Right Recipe

Food, beverage, and household products firm Sara Lee (NYSE:SLE) appears to have gotten its sales trends in order since it began a "bold and ambitious multi-year plan" back in February 2005. But, overall, the company very much remains a work in progress. Does that spell opportunity for value-minded Fools?

Sara Lee reported third-quarter earnings on Thursday, with sales improving 9.2%. The international beverage and bakery divisions led the way with double-digit growth, while the North American retail meats and bakery groups posted respectable 6.2% and 6.1% growth, respectively. The only laggard was food service, which posted a 1.4% gain, though the segment accounted for only 15% of quarterly sales.

Unfortunately, operating income by division showed wild swings, making me question how much control management has over costs for ingredients, labor, and other things. The food service and household/body care segments reported impressive income growth in excess of 40%, which management attributed to higher selling prices and selling volumes that were enough to offset increased commodity costs.

However, operating income fell in both North American divisions. Management's explanation was a mirror image from the better-performing groups; namely, it wasn't able to offset higher input and other costs with selling price increases. Given the slew of other special and one-time charges, one has to wonder if Sara Lee will ever get a handle on controlling bottom-line earnings and overall profitability trends.

In the company's defense, it hasn't been a full year since it spun off Hanesbrands (NYSE:HBI) to shareholders, so core operating results are still in flux. In other words, other than the top line, Sara Lee's kitchen remains messy, but it's still hard to tell what is internal or due to the spinoff.     

The 2.4% dividend yield is somewhat helpful to income-sensitive Fools, but now-independent Kraft (NYSE:KFT) pays a higher dividend, as do rivals Heinz (NYSE:HNZ) and Unilever (NYSE:UL) (NYSE:UN). In the land of opportunity cost, the competition is winning on the income front, and each rival is also in the process of right-sizing its food-brand portfolio. Sara Lee is well along the path of getting its kitchen in order, but the food critics have yet to make a final judgment.           

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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 Ryan with feedback or to discuss any companies mentioned further.