Sara Lee's news sends stock down almost 10%

Sara Lee Corp., grasping for a growth strategy, gave investors atriple dose of bad news Thursday, and its shares took their biggestone-day plunge in 15 years.

The Chicago-based company reported worse-than-expected results andslashed its earnings forecast for the current quarter, and its CEOsaid it needs to sell more of its poorly performing businesses--evenafter three years of massive restructuring.

Sara Lee's shares plunged 9.8 percent, or $1.94, to end the day at$17.80, the lowest close in nearly three years. The 9.8 percent dropwas the biggest one-day decline since January 1988.

"We have too large a part of our portfolio in businesses that areeither not growing or in significant decline," said Chairman and CEOSteve McMillan, citing as an example the hosiery business in Europe.

Analysts also have pressed Sara Lee to either increase itspresence in household products or get out of the business, whichincludes Ambi-Pur toilet and air freshener and Kiwi shoe polish.

McMillan surprised Wall Street analysts by jumping onto thecompany's earnings conference call and announcing that managers willreview every aspect of their business in order to downsize orjettison laggards and identify companies Sara Lee could buy to boostgrowth.

"It's clear to me we need to take another hard look at ourportfolio of businesses and brands to determine those that should berun dramatically differently in the future," McMillan said. Some willbe milked for cash, others downsized and some likely will be sold, hesaid.

Sara Lee's top-performing products, like its namesake desserts,Hanes underwear and Jimmy Dean sausages, together produce about 40percent of Sara Lee's revenues. The biggest performers should begenerating 60 percent to 70 percent, McMillan said.

This despite the fact that Sara Lee has steadily increasedadvertising and promotional spending on its key brands, including a50 percent increase in Sara Lee's fiscal third quarter, which endedMarch 29.

The company's overall ad spending in the fourth quarter of 2002jumped 12 percent, to $73 million, from the year-earlier period,according to Nielsen Media Research.

One analyst expressed exasperation with Sara Lee's constantrejiggering. "It almost seemed like non-core brands (half thecompany) were viewed as hopeless and were now being evaluated fordivestiture," wrote John McMillin of Prudential Securities in aresearch note. "Frankly, we are tired of Sara Lee announcing plansbefore the plans have really been drawn."

Three years ago, Sara Lee started a restructuring program thatresulted in the sale or closing of 18 businesses, including Coachleather goods and the PYA/Monarch foodservice distribution company,so it could focus on its core operations in food and beverages,intimates and underwear, and household products.

The company heightened its standing in the bread business when itbought Earthgrains Co. of St. Louis, the biggest acquisition in its61-year history, for $2.8 billion in cash and debt nearly two yearsago.

The consolidation with Earthgrains continued Thursday, as Sara Leeannounced it will cut 296 jobs when it closes three bakeries in GrandJunction, Colo.; Tucson, Ariz., and Springfield, Mo., by July 3. Thecompany had already cut more than 700 jobs and closed seven bakeriessince it acquired Earthgrains. Sara Lee now operates 53 bakery plantsin the United States.

Sara Lee also will cease making 58 of its 108 regional breads byyear's end. The brands to be sliced accounted for less than 1 percentof Sara Lee's fresh bread sales.

In the fourth quarter, Sara Lee will take a pre-tax charge of $17million to $19 million, or 1 to 2 cents per share, for the plantclosings, bread cutbacks and restructuring in its food-service coffeeoperations in the United States.

Sara Lee has been hard hit by poor sales at retailers to whom itsells clothes, and by economic, tourism and accounting woes in thefoodservice industry, which distributes Sara Lee's food torestaurants, cafeterias and other institutions. Foodservice generatesmore than 10 percent of Sara Lee's yearly $1.5 billion in sales, andapparel accounts for 35 percent.

These conditions and the pre-tax charge led Sara Lee to forecastfourth-quarter earnings of 36 to 38 cents per share, compared with 43cents in the same period a year ago. Analysts had forecast fourth-quarter profit of 46 cents.

Sara Lee also downgraded its full-year earnings forecast to $1.49to $1.51 per share, compared with its January outlook of $1.54 to$1.60.

In its fiscal third quarter, the company's net income increased4.7 percent, to $269 million, or 33 cents a diluted share, from theyear-ago quarter's $257 million, or 31 cents a share. But theincrease was primarily because of a weak dollar and a strong euroboosted sales overseas. Analysts had expected the company to earn 34cents.

Sales increased 3.6 percent, to $4.4 billion; the result wouldhave been a 2 percent drop but for the currency's effect.