Sara Lee Making Money on Tea & Coffee

Sara Lee’s earnings report this week suggests the decision to split the company into two primary business segments with tea and coffee leading the way.

The company reaffirmed its full-year guidance at $18 per share with a sales increase of 11.6 percent and revenue up 5.8 percent for the second quarter of its fiscal year. Operating margins declined to 14.6 percent from 16 percent in the previous year. Profits were down 44 percent to $469 million due largely to rising commodity prices and reduced demand for meat products and baked goods.

Coffee and tea prices were increased to cover costs and held firm. Net sales of coffee and tea in the quarter were up 12 percent. Last month the company completed its sale of the majority of its North American foodservice business to J.M. Smucker Company and acquired Tea Forte, a US based specialty tea retailer sold in 35 countries.

In his report, CEO Jan Bennink, described Tea Forte as a small acquisition in the premium tea segment. “Our normal tea is more in the mainstream to lower priced. This will be a first entrance into the high-margin and high-growth premium tea segment,” he said. “We'll leave it separate completely in the beginning and we'll try and learn from them as much as possible. We will learn the very entrepreneurial spirit, he said. “You can see them a lot in the more upscale hotels. So they're out-of-home-based and perhaps there are possibilities to move them back into the retail,” he told investors.

The firm plans an investor meeting March 14 and 15 in Amsterdam for its coffee and tea segment. Executives will brief investors in May on the firm’s meat segment. Revenue for the company is projected at $7.9 to $8.15 billion.

Source: Sara Lee