Analysts say European weakness to hurt Sara Lee

MILWAUKEE - Analysts say future results at Sara Lee Corp. will be dragged down by weakness in Europe as those economies continue to suffer.

Stifel Nicolaus & Co. analyst Christopher Growe wrote in a research note Thursday that Europe had been one of Sara Lee's highest-margin and fastest-growing businesses. About half of its business is overseas.

The maker of Hillshire Farm deli meats and Sara Lee breads on Wednesday lowered its outlook for fiscal 2009, citing a now-stronger U.S. dollar and having more shares outstanding, because it suspended its buyback program. On Thursday, however, it said it would again buy back shares on an "opportunistic basis" given its falling share price.

It said in its first fiscal quarter it managed to increase the North American market share for its namesake breads and other brands in a tough economy, but European sales slumped as consumers started trading down to off-brand products.

Growe said North American growth was a boon to business in the latest quarter, and he was encouraged by the company's cost-savings initiatives.

But he added, "Europe in general is challenged and presents a meaningful risk" to the company's fiscal 2009 outlook.

The company said economic pressures in Spain and France led to weak volumes in the international bakery segment. In the segment, overall unit volumes fell 11.5 percent in the quarter, while net sales were up 4 percent to $229 million, driven by price increases and favorable foreign currency exchange rates.

BMO Capital Markets analyst Kenneth Zaslow said the company will also face challenges given a slowdown in its foodservice business, as more consumers eat at home, and due to competition from private-label brands, as consumers turn to off-brand products to save money.

He also said the company, which depends less on commodities than some of its competitors, may have to pull back on price increases it took to offset high input costs.

"We would not be surprised if SLE were to reduce its European coffee prices and U.S. bakery prices, as coffee prices have recently retreated and what prices have corrected rather dramatically," he wrote.

Shares of Sara Lee fell 68 cents, or 6.7 percent, to close at $9.52 on Thursday.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.