Feb 11, 2005 By Mike Colias Associated Press Writer 4 min read

CHICAGO (AP) – Consumer products giant Sara Lee Corp. named a new chief executive officer Thursday and announced plans to sell or spin off businesses accounting for 40 percent of its overall revenue, including its apparel business that includes the Hanes and Playtex brands. The reorganization is aimed at sharpening its focus on its food, beverage and household products. Sara Lee shares rose 99 cents, or 4.3 percent, to $23.96 in afternoon trading on the New York Stock Exchange on the news.

The company named Brenda Barnes its new chief executive officer, replacing Steve McMillan, who will remain chairman until October when he retires at age 60. McMillan said the company last year recruited Barnes as his successor.

The reorganization will leave Sara Lee with a core of bakery and packaged meats businesses, including Jimmy Dean sausages and breakfast sandwiches, Hillshire Farm deli meats and Sara Lee’s own bakery and meat brands.

It also will keep its North American foodservice business, which serves restaurants, large cafeterias and food distributors.

The businesses being sold or spun off account for about $8.2 billion in annual revenue, the company said.

Sara Lee plans to spin off its $4.5 billion U.S. apparel portfolio, which also includes the Champion and Just My Size brands, into a new public company. Officials said that does not include its $1.8 billion European apparel unit, which the company is in the process of auctioning off. It disclosed that plan last month.

The Chicago-based company also said it will sell a $1.1 billion packaged meats business in Europe, a $450 million division that sells cosmetics and household products worldwide, and its retail coffee business, which includes the Chock full o’ Nuts and Hills Bros. brands.

The reorganization will lead to cash charges and expenditures as the plan unfolds over the next five years, the company said, although management has not finalized those details. It said the moves eventually will generate annual savings of between $575 million and $800 million. Layoffs, employee attrition and recruitment costs are estimated to cost $250 million, although the company did not disclose details for any work force reductions. Other costs will include trimming the number of brands in its North American bakery business, including writing down “a substantial portion” of the $327 million value of certain trademarks, and $240 million to improve its information technology systems.

The plan will organize Sara Lee into three new divisions: North American retail, which will include its bakery, meats and remaining coffee lines; North American foodservice; and international, which will include overseas food, beverage and household products such as Kiwi shoe polish and Sanex shower gels.

Corporate staff from Sara Lee’s bakery headquarters in St. Louis and its meat division, based in Cincinnati, will be centralized in Chicago, the company said.

Fewer than 300 employees work at the company’s downtown Chicago headquarters, spokeswoman Julie Ketay said. She said the company will look for a new headquarters in the Chicago area but declined to say how many employees would be transferred there.

The plan will simplify and improve operations, Barnes said during a conference call with analysts Thursday. Company officials say by 2010, Sara Lee will have roughly the same operational profits it does now despite 40 percent smaller revenue.

“I’m thoroughly convinced that the organizational changes we are making are the single most important pillar” of the restructuring, even more important than selling off the product lines, Barnes said.

The company had signaled it was considering a shake-up. But analysts said Thursday they were surprised by the scope of the initiative.

“The actions are much bolder than we anticipated,” said John McMillin, an analyst at Prudential Equity Group, in a note to investors. “What is left is a more manageable and higher margin company.”

Mark Hugh Sam, an analyst at Morningstar, called the announcement “astonishing” and said Sara Lee’s management deserves kudos for taking such drastic steps to provide value to shareholders after a long period of tepid growth.

“It appears they’ve kept the strongest of all their businesses and basically are spinning off the ones that were weaker,” he said. “Apparel really didn’t lend itself to the food business. Bras and deli meat don’t go together no matter how hard you try.”

The reorganization plan will not affect Sara Lee’s guidance for its fiscal year 2005, which ends July 2. On Thursday it reaffirmed a forecast it gave last month for earnings of 29 to 34 cents a share for the third quarter and $1.46 to $1.56 for the year.

“We have a very clear vision of what Sara Lee will look like,” McMillan said on the conference call. “These (product) categories all have tremendous potential in our portfolio.”

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On the Net:

www.saralee.com

AP-ES-02-10-05 1247EST