Sara Lee 2010 Annual Report Download - page 26

Financial review
24 Sara Lee Corporation and Subsidiaries
The gross margin decreased by $97 million in 2009, driven by
higher commodity costs, the negative impact of changes in currency
exchange rates, and lower unit volumes partially offset by price
increases and savings from continuous improvement programs.
The gross margin percent declined from 36.0% in 2008 to 35.3%
in 2009 due to gross margin percent declines at North American
Fresh Bakery and International Beverage. The gross margin percent
was negatively impacted by higher commodity costs, the negative
impact of inflation on labor and other employee benefit costs and a
shift in product sales mix, which was partially offset by pricing actions.
Selling, General and Administrative Expenses
In millions 2010 2009 2008
SG&A expenses in the business
segment results
Media advertising and promotion $÷«372 $÷«309 $÷«353
Other 2,544 2,523 2,619
Total business segments 2,916 2,832 2,972
Amortization of identifiable intangibles 49 47 48
General corporate expenses
Other 237 205 232
Mark-to-market derivative
(gains)/losses 9 11 (16)
Adjustment for noncontrolling interests (7) (5) (4)
Total SG&A $3,204 $3,090 $3,232
Total selling, general and administrative (SG&A) expenses in
2010 increased $114 million, or 3.7%. Changes in foreign currency
exchange rates, primarily in the European euro, increased SG&A
expenses by $31 million, or 1.0%. The remaining increase in SG&A
expenses was $83 million, or 2.7%. Measured as a percent of
sales, SG&A expenses increased from 28.4% in 2009 to 29.7%
in 2010. SG&A expenses as a percent of sales increased in each
of the business segments, with the exception of North American
Foodservice. The results reflect the impact of higher MAP expenses
and the impact of the 53rd week partially offset by the benefits of
cost saving initiatives.
Total SG&A expenses reported in 2010 by the business segments
increased by $84 million, or 2.9%, versus 2009 primarily due to higher
MAP spending, the impact of changes in foreign currency exchange
rates, the impact of inflation on wages and employee benefits and
the impact of the 53rd week partially offset by the benefits of cost
saving initiatives.
The following table summarizes the components of the change
in sales on a percentage basis versus the prior year:
Net Sales Bridge – Components of Change vs Prior Year
Volume Price/ Impact
(Excl. 53rd Mix/ of 53rd Acq./ Foreign
Week) Other Week Disp. Exchange Total
2010 versus 2009 (3.7) % 0.9% 1.8% (1.2) % 1.4% (0.8) %
2009 versus 2008 (2.3) % 5.9% NA (0.8) % (3.4) % (0.6) %
Operating Income Operating income increased by $431 million,
or 88.6% in 2010. The year-over-year net impact of the changes in
currency rates, transformation/Accelerate charges, impairment charges
and the other factors identified in the preceding table increased
operating income by $274 million. The remaining increase of $157 mil-
lion, or 20.2%, which represents the change in adjusted operating
income, was due to lower commodity costs, the benefits of cost
saving initiatives, and an improved sales mix partially offset by
lower unit volumes and higher MAP spending.
Operating income increased by $538 million in 2009. The
year-over-year net impact of the changes in currency rates, trans -
formation/Accelerate charges, impairment charges and the other
factors identified in the preceding table increased operating income
by $475 million. In addition, the impact of commodity mark-to-market
derivative activity decreased operating income by $40 million in
2009 compared to 2008. The remaining increase in operating income
of $103 million, or 15.0%, was due to the favorable impact of price
increases, the benefits of cost saving initiatives, and a reduction
in selling, general and administrative (SG&A) costs, due in part to
lower MAP spending partially offset by higher commodity costs, and
lower unit volumes.
The changes in the individual components of operating income
are discussed in more detail below.
Gross Margin The gross margin, which represents net sales less
cost of sales, increased by $257 million in 2010, driven by lower
commodity costs, the benefits of cost saving initiatives, the favor-
able impact of changes in currency exchange rates, an improved
sales mix and the impact of the 53rd week, partially offset by the
impact of lower unit volumes and lower prices.
The gross margin percent increased from 35.3% in 2009 to
38.0% in 2010 due to gross margin percent improvements for all
business segments but primarily at North American Retail, North
American Fresh Bakery and International Beverage. The gross
margin percent was positively impacted by lower commodity costs,
a favorable shift in product mix and continuous improvement savings,
which were partially offset by pricing actions and the negative impact
of inflation on labor and other employee benefit costs.