sara lee: a compelling value...
TRANSCRIPT
Sara Lee: A Compelling Value PropositionBrenda BarnesChairman and CEO
February 17, 2009
Forward-looking statement
We caution you that our remarks this morning contain forward-looking statements about SLE’s future operations, financial performance and business conditions. These forward-looking statements are based on currently available competitive, financial and economic data, as well as management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed orimplied in these statements. Consequently, I need to caution you not to place undue reliance on forward-looking statements. We have provided additional information in our latest earnings press release and Form 10-K for fiscal 2008 that I encourage you to review concerning factors that could cause actual results to differ materially from these forward-looking statements
Sara Lee: a compelling value proposition
•Clear growth strategy •Disciplined approach to capital allocation•Strong and growing brands serving large,
expanding markets•Improving operational performance•Significant cost savings achieved, with more
to come from Project Accelerate•Improved execution will deliver strong
performance
Transformation goals
•Dramatically improve performance and better position Sara Lee for long-term growth
•Key pillars:
Organize around consumers, customers and geographic markets
Achieve operational efficiency to fund growth
Focus business portfolio
Our strategic Transformation: actions
•Sold or spun off 40% of the business•Generated $3.8 billion; redeployed to growth
businesses•Repurchased $1.9 billion in shares•Reduced debt by $2 billion
Our strategic Transformation: benefits
•Single, focused company•Common vision and strategy•Simplified organizational structure•Improved business processes and
operational efficiencies•Culture of continuous improvement
Sara Lee’s Transformation journey
•Consolidated NA operations and corporate
•Reorganized business segments
•Developed centralized infrastructure and continuous improvement
•Divested non-core businesses
•Streamlined organization
•Improved sales and marketing
•Innovation/new products pipeline
•Spun-off Hanesbrands
•Simplified international structure
•Grew investment in key emerging markets
FY05 FY06 FY07
FY08: accelerating our pace
•Significantly enhanced key customer partnerships
•Sales force focused on providing greater value add to customers
consumer and category insights and innovationsin-store merchandising
•Strong growth in our top 10 retail customers in the North American Retail and Fresh Bakery segments
•Over 25,000 displays in-store during the program
•Soft & Smooth bread penetration +43%
•Volume Sales +22%•Dollars Sales +26% •YTD Soft & Smooth +20% in
lb sales
Sara Lee Soft & Smooth and Disney
Video in Progress
Sara Lee High School MusicalWinner HSM video contest
FY08: accelerating our pace
•Successful implementation of SAP yielding savings
•Accelerated benefits from process discipline•Exited low to no margin businesses•Completed “Kitchens of Sara Lee” NA R&D
facility•Continued investment in product innovation
FY08 highlights
•Strong sales growth of 10.3%•Adjusted operating margin up 70 bps to 8.1%•Net cash flow from operating activities of
$596 million•Sara Lee brand exceeded $1 billion in sales
for the first time•Achieved share gains in most key markets•Offset commodity inflation through pricing
Note: Financial amounts only include results for businesses reported in continuing operations.Please see slides at the end of this presentation for reconciliation of non-GAAP items.
Sara Lee: then and now
$ in millions, except per employee data FY05 FY08Net sales $19,254 $13,212
Total assets $14,412 $10,830
Total debt $4,754 $3,188
Employees 137,000 44,000
Sales/employee $140,540 $300,272
Note: FY05 shown as reported prior to any acquisitions or divestitures; FY08 reflects restatement made in October 2008.
Today’s Sara Lee: a strong portfolio
17%
15%17%
20%
24%
7%
FY08 Net Sales of $13.2 billion
International Beverage
International Household and
Body Care
NA Retail
NA Fresh BakeryNA Foodservice
International Bakery
Delivering Transformation on budget
Total charges between $900 million and$1.1 billion (half cash, half non-cash)
February 2005 forecast
Total charges of $1.04 billion(66% cash)
Actual as of December 2008
Transformation delivered incremental EBIT of $214 million
Note: Excludes acquisitions/divestitures and significant items.
FY05-08
103
196
628
267
91
49
(140)
(550)9
282
(721)
0
500
1000
1500
Vo lume C entral.Infrastruct . M A P P ricingC o mmo dit iesSales M ix Lean Inf lat io n Other F X
(EBI
T)
($ in millions)
Margin Improvement
214
Sales MixPricing Commodities
Improving ability to cover commodity costs
$0
$100
$200
$300
$400
$500
FY06 FY07 FY08 1H FY09
$ in millions
Commodity price increases
Incremental pricing
Transformation helped offset impact of higher inflation
FY06-08Actual
Pricing (net of commodities) $(93)
Sales mix +$49
Lean savings/other +$267
Non-commodity inflation $(550)
Other $(140)
Total cost increase $(467)
Note: All amounts are incremental to FY05 base.
($ in millions)
Exceeded our commitment, but benefits offset by inflation
FY06-08Commitment
FY06-08Actual Variance
Margin improvementInflation
$175 $(467)$1,306
$(642)
CentralizationITShared servicesProcurement
$115 $282 +$167
Infrastructure Rationalization/
N.A. consolidation$115 $196 +$81
Total $405 $11 $(394)
($ in millions)
Note: All amounts are incremental to FY05 base
Exceeded our
commitment
2Q09: a mixed performance
•Strong North American performanceRetail net sales grew 8.4%Fresh bakery net sales increased 10.6%Food service net sales up slightlyHigher adjusted operating segment margins
•International performance impacted by weak economic environment and currency
•$(184) million of significant items•Commodity derivatives mark-to-market
losses of $(23) million
$0
$100
$200
$300
$400
$500
1H08 1H09$6,000
$6,200
$6,400
$6,600
$6,800
1H08 1H09
+ 5.0%
1H09 affected by weakening economy, currency
Adj. Net Sales($ in millions) ($ in millions) Adj. Operating Income
- 5.9%
Note: Please see slides at the end of this presentation for reconciliation of non-GAAP items.
Commodity derivative mark-to-market has impact on adjusted operating income
1H09 1H08 Change
Operating Income $386 $524 (26.4)%
Less:Foreign currencySignificant ItemsAcquisitions/Divestitures
–(23)
5
788
–
Adj. Operating Income $404 $429 (5.9)%
1H09 1H08 ChangeCommodity derivative mark-to-market $(58) $10 $(68)
NA adjusted net sales continue to grow
$300
$400
$500
$600
$700
$800
2Q08 2Q09$300
$400
$500
$600
$700
$800
2Q08 2Q09
Retail Fresh Bakery
$300
$400
$500
$600
$700
$800
2Q08 2Q09
Foodservice($ in millions) ($ in millions) ($ in millions)
+ 8.4% + 10.6% + 3.0%
Note: Please see slides at the end of this presentation for reconciliation of non-GAAP items.
NA adjusted operating segment income strong
$0
$10
$20
$30
$40
$50
$60
$70
$80
2Q08 2Q09$0
$10
$20
$30
$40
$50
$60
$70
$80
2Q08 2Q09$0
$10
$20
$30
$40
$50
$60
$70
$80
2Q08 2Q09
($ in millions) ($ in millions) ($ in millions)
+ 61.2% + 433.3% + 22.3%
Retail Fresh Bakery Foodservice
Note: Please see slides at the end of this presentation for reconciliation of non-GAAP items.
Market share continues to grow in NA Retail and Fresh Bakery
TOTAL PACKAGED MEATS CATEGORY:12 weeks = 21.5%, +1.0 share point, #152 weeks = 20.1%, +0.8 share point, #1
Note: IRI, January 11, 2009. Total packaged meats category includes lunchmeat, smoked sausage, cocktail links, hot dogs, corn dogs, breakfast sausage, bacon, protein breakfast; fresh bread share is for Sara Lee brand only.
TOTAL FRESH BREAD CATEGORY:12 weeks = 8.2%, +0.1 share point, #152 weeks = 8.4%, +0.2 share point, #1
NA foodservice growing with key accounts across channels
Weakening European economy affecting International adjusted net sales
$100
$200
$300
$400
$500
$600
$700
$800
2Q08 2Q09$100
$200
$300
$400
$500
$600
$700
$800
2Q08 2Q09$100
$200
$300
$400
$500
$600
$700
$800
2Q08 2Q09
($ in millions)
+ 4.1% - 4.9% - 3.9%
Beverage Bakery Household and Body Care
Note: Please see slides at the end of this presentation for reconciliation of non-GAAP items.
($ in millions) ($ in millions)
Declining International adjusted operating segment income due to economic challenges
$0
$20
$40
$60
$80
$100
$120
2Q08 2Q09$0
$20
$40
$60
$80
$100
$120
2Q08 2Q09$0
$20
$40
$60
$80
$100
$120
2Q08 2Q09
- 11.1% - 23.0% - 7.6%
Beverage Bakery Household andBody Care
Note: Please see slides at the end of this presentation for reconciliation of non-GAAP items.
($ in millions) ($ in millions) ($ in millions)
Outstanding single-serve performancein International Beverage
Eurodough business delivering
International Household and Body Care innovation strong globally
Macro issues facing our business
Increased competitive pressures
Increased in-home consumption
Growth ofprivate label
Declining Western European economy
Macro issues: our response
Project Accelerate
Pricing architecture
Shift promotional spend
Emphasize value proposition
InnovationIncreased competitive pressures
Increased in-home consumption
Growth ofprivate label
Declining Western European economy
Immediate plans to address Europe
Initiatives Beverage Bakery H&BC
Pricing architecture
Affordable innovation
Additional channels
Shift MAP spending to trade and promotions
SKU rationalization
Cost reduction
High priority Priority Low priority
International Beverage
•Positioning SenseoAt new distributions channelsAs the affordable coffee house experience at home As a multi-beverage system
•Launched Maison du CaféPepite D’Arome with heavy in-store support
•Emphasizing Cafitesse’slow labor costs and minimal waste to foodservice customers
International Bakery
•Expanded EuroDough refrigerated dough portfolio
•Executing pricing actions and promotions for Bimbo bread
•Launched new products with heavy in-store support
•Aggressively attacking operating costs
A BOTTLE OF OLIVE
OIL
FOR TWO BAR
CODES
International Household and Body Care
•Launching “affordable”product innovations
•Focusing on price architecture
•Shifting MAP to trade and promotional spending
•Rationalizing SKUs and lowering costs
•Air care partnerships with Henkel/Dial and Clorox
Deploy investments where we have:#1 or #2 position (or can establish)Sustainable economic model (or can establish)
• Define clear roles for each unitProfitable growthMargin focus
• Streamline the cost base and drive efficiency
Our growth and value creation strategy
Our investment priorities
MAP CapEx M&AInternational Beverage
Int. Household and Body Care
International Bakery
N.A. Retail
N.A. Foodservice
N.A. Fresh Bakery
High priority Priority Low priority
Leading NA market positions
Brand Category Share Rank
Hot Dogs 21.0% #1
Lunch Meat 11.2% #2
Smoked Sausage 28.4% #1
Protein Breakfast 52.4% #1
Breakfast Sausage 28.4% #1
Corn Dogs 47.4% #1
Frozen Pies/Desserts 23.7% #1*
Single-serve Coffee 50.0% #1
*Brand
Note: IRI, 12 months ending January 11, 2009.
Leading international market positions
Brand Category Country Share Rank
Air CareNetherlands
Spain38.8%21.0%
#1#1
Bakery Spain 42.8% #1
Body CareSpainU.K.
12.9%22.5%
#1#1
Roast & ground coffee
NetherlandsFranceSpainBrazil
58.5%22.9%21.6%20.7%
#1#2#1#1
Single-serve coffeeNetherlands
France41.9%42.1%
#1#1
Note: IRI and AC Nielsen, 12 months ending November 2008; ending January 2009 for coffee and Senseo
Strong pipeline of product innovation
Brand New Product IntroductionsRenov’AirTender Bakery BreadsWhite Bread with Olive OilPre-sliced Pies
Deli Select Ultra Thin and Hearty Slices (new varieties)
Breakfast Entrees
L’OR Pepites d’Arome IntenseCheesecake BitesOrganic Puff Pastry and Pizza DoughNaturProtect deodorantGodiva Coffee PodsHot ChocoLatte Select (coffee maker with Philips)
Jimmy Dean: a successful breakfast platform
Senseo continues to deliver strong results
Sanex NaturProtect appeals to green consumers
Video in Progress
Jimmy Dean Breakfast EntreesSenseo Latte SelectSanex NaturProtect
• Deploy investments where we have:#1 or #2 position (or can establish)Sustainable economic model (or can establish)
Define clear roles for each unitProfitable growthMargin focus
• Streamline the cost base and drive efficiency
Our growth and value creation strategy
Strong North American foundation
#1 or #2Position
Economic Model
NA Retail
NA Foodservice Mixed Mixed
NA Fresh Bakery National Brand
Locally Mixed
KnowHow To
Advantaged Niches
Role
Margin Near-TermGrowth Long-Term
Fix Mix: Margin
Margin
Upside!
Strong International foundation
#1 or #2Position
Economic Model
InternationalBeverage
InternationalHousehold and Body Care
International Bakery
In country-category combinations
Role
Growth in Depth and Breadth
Growth in Depth
Margin(Spain) Upside!
• Deploy investments where we have:#1 or #2 position (or can establish)Sustainable economic model (or can establish)
• Define clear roles for each unitProfitable growthMargin focus
Streamline the cost base and drive efficiency
Our growth and value creation strategy
Project Accelerate: building on the successes of the Transformation
Building on our Transformation, Project Accelerate will continue to drive sustainable advantage and deliver value to shareholders
Project Accelerate has company-wide initiatives with segment-specific execution
Business Process Outsourcing: Indirect
Procurement
Supply ChainSG&A Reduction
Business Process Outsourcing: IT &
Finance
BPO is progressing rapidly
• Data centers managed by HP• Telecommunications consolidated with AT&T• IBM to handle application development &
maintenance• Go live in FY09, complete in FY10• Anticipated reduction of 700 FTEs• Leverages standardized processes and IT
infrastructure• Savings in the millions of dollars
BPO indirect procurement benefits
• $2.9 billion of indirect spend• Transactional procurement and strategic
sourcing• Will cover 90%+ of all indirect spend• Significant cost reductions• Improved visibility on spending
• Changed schedules, processes and shift patterns
• Capacity increased by 25% at Claryville, KY meat plant with no additional capital outlay
• Plan to roll out to other facilities: potential capacity increases of 10 – 30%
Supply chain: driving production capacity
Other supply chain initiatives
North America• Eliminated low/no margin SKUs• Took pricing to improve margin• Re-balanced production between Foodservice and
RetailInternational• Reduced SKUs, standardized processes • European green coffee hub driving efficiencies• Targeting cost reductions of 15% in Beverage and
30% in Household and Body Care
Company-wide SG&A reduction
• Headcount• Compensation/benefits• Facilities and other assets• Continuous improvement• Process improvement
Project Accelerate improves business processes and cuts costs
• 20% reduction in reports through standardization
• 71% reduction in intercompany transactions• 61% reduction in global IT applications• 65% reduction in supplier base• 163 bank accounts closed in FY08; expect
to eliminate another 200• 45% fewer legal entities by FY10
Project Accelerate: early costs deliver significant savings
FY09 FY10 FY11
One-Time Costs
Front-end loaded$150 million over 3 years
Cost Savings $200 million – $250 million annually by FY11
Sara Lee: a compelling value proposition
• Clear growth strategy • Disciplined approach to capital allocation• Strong and growing brands serving large,
expanding markets• Improving operational performance• Significant cost savings achieved, with more
to come from Project Accelerate• Improved execution will deliver strong
performance
Long-term guidance
Note: Actual results will be impacted by future currency exchange rates, significant items or acquisitions/divestitures
Long-termNet Sales
Long-term Op. Income
NA Fresh Bakery 2-4% 10-15%
NA Retail 2-4% 6-8%
NA Foodservice 1-3% 4-6%
International Beverage 5-7% 6-8%
International Bakery 3-4% 4-6%
International Household andBody Care 5-7% 7-9%
Total Sara Lee 3-5% 8-10%
Questions & Answers
Non-GAAP ReconciliationsCAGNY 2009
64
FY08 Adjusted Sales, Adjusted Operating Income, and Adjusted Operating Margin*
FY08Net Sales $13,212Less:Foreign currencyAcquisitions/Divestitures
–2
Adj. Net Sales $13,210
Operating Income $260Less:
Tobacco proceedsForeign currency
Impairment chargesOther significant items, net
130–
(874)(98)
Adj. Operating Income $1,072Adjusted Operating Margin % 8.1%
*These adjusted measures are not impacted by foreign currency fluctuations because they show results at a single moment in time.
65
North American Retail
66
North American Fresh Bakery
67
North American Foodservice
68
International Beverage
69
International Bakery
70
International Household and Body Care
71
Total Sara Lee