Sara Lee Hikes Prices, Mulls Split

Sara Lee plans to raise prices again on its food and beverages, which could continue to affect sales, as it sorts out its future, including a planned separation into two companies, according to Reuters, a sister news service to Buyouts.

Sara Lee said in January that it planned to spin off its North American meats business into a new publicly traded company that will retain the “Sara Lee” name after takeover bids proved to be unsatisfactory. The remaining company would be an international beverage business whose name has yet to be determined. But Sara Lee said it could still be acquired before then.

The Downers Grove, Ill., company—maker of Jimmy Dean sausages, Ball Park hot dogs and Senseo coffee—had been looking at a deal to sell itself to the Brazilian strategic investor JBS SA, the world’s largest beef producer. As part of that deal, The Blackstone Group LP was considering buying the company’s beverage unit. But the publicly traded Sara Lee opted instead for a spin-off track to bring added value to its shareholders.

Sara Lee competes in categories such as packaged meats and baked goods, where consumers often consider price before brand, and Morningstar analyst Erin Lash said sales could continue to feel the pinch.

“They are going to continue to battle rising commodity costs, which ate away at their profitability,” Lash said. “These are pressures we don’t think will abate.”

Stifel Nicolaus analyst Christopher Growe said the stock was trading at a “fair multiple” considering its pending breakup.

“We see limited upside for the shares from this level given the overall soft fundamentals and the lingering questions around the tax rate appropriate for its new coffee company,” Growe said in a research note.

The also reported a weaker-than-expected profit for the latest quarter.

The company reported net income of $880 million, or $1.37 per share, for the quarter that ended on Jan. 1, up from $371 million, or 53 cents per share, a year earlier.

Excluding a gain on the sale of discontinued operations, a tax benefit and other items, earnings from continuing operations were 24 cents per share, a penny short of the analysts’ average estimate, according to Thomson Reuters I/B/E/S.

Net sales slipped 0.4 percent to $2.35 billion, as lower volumes and a weaker euro offset price increases and a larger proportion of higher-priced goods. Analysts on average were expecting $2.52 billion.

In the company’s North American meats business, which also includes Hillshire Farm lunch meat, sales rose 1 percent despite a 4.9 percent decline in volume, as the company raised prices to offset the rising commodity costs.

In the international beverage business, which includes Douwe Egberts and L’Or, net sales rose 2 percent, despite a 2 percent decline in volume.