Sara Lee 2010 Annual Report Download - page 34

Financial review
32 Sara Lee Corporation and Subsidiaries
2010 versus 2009 Net sales decreased by $72 million, or 3.3%,
while adjusted net sales, which excludes the impact of the 53rd
week, declined $124 million, or 5.7%. The sales decline was due to
a decline in unit volumes and price reductions, in response to lower
commodity costs and competitive pressure, which decreased net
sales by approximately 3%. Unit volumes decreased 3.1% due
to lower unit volumes for branded and non-branded fresh bakery
products. The lower volumes were due to increased competitive
pressure and continuing weak economic conditions.
Operating segment income increased by $18 million, or 71.7%.
The change in pension partial withdrawal liability charges, a pension
curtailment gain, Accelerate charges, the impact of the 53rd week,
accelerated depreciation and exit activities and asset and business
dispositions increased operating segment income by $21 million.
Adjusted operating segment income decreased by $3 million, or
4.2%, due to lower volumes and an unfavorable sales mix shift to
lower margin non-branded products, partially offset by the favorable
impact of lower costs for key ingredients net of pricing actions,
savings from continuous improvement programs and lower SG&A
costs driven by lower sales commissions and fuel costs.
2009 versus 2008 Net sales increased by $172 million, or 8.5%.
The increase in net sales was primarily attributable to positive
pricing actions to cover higher wheat and other input costs, which
increased net sales by approximately 6%, and an increase in unit
volumes. Unit volumes increased 3.2% due to higher unit volumes
for both branded and non-branded fresh bakery products. The increase
in branded products was due in part to increased promotional activity.
The increase in non-branded unit volumes was due to a net gain in
new private label customers versus the prior year and an increasing
shift to private label due to the weak economic conditions partially
offset by a decline in sales to restaurant and institutional customers.
Operating segment income decreased by $29 million, or 54.1%.
Operating segment income was negatively impacted by a $31 million
charge to recognize a partial withdrawal liability related to a multi-
employer pension plan as well as an increase in exit activities and
transformation/Accelerate charges. Adjusted operating segment
income increased by $5 million, or 7.2%, due to the benefit of price
increases, unit volume gains, and savings from continuous improve-
ment programs. These increases were partially offset by higher costs
for key ingredients and wages; an unfavorable sales mix shift to
lower margin private label products; higher SG&A costs driven by
higher sales commissions, and higher labor, other employee benefits
and administrative costs; and the negative impact of gains from the
early termination of certain commodity contracts in the prior year.
North American Fresh Bakery
Dollar Percent Dollar Percent
In millions 2010 2009 Change Change 2009 2008 Change Change
Net sales $2,128 $2,200 $÷«(72) (3.3) % $2,200 $2,028 $172 8.5 %
Less: Increase/(decrease) in net sales from
Impact of 53rd week 52–52 –––
Adjusted net sales $2,076 $2,200 $«(124) (5.7) % $2,200 $2,028 $172 8.5 %
Operating segment income $÷÷«44 $÷÷«26 $÷÷18 71.7 % $÷«««26 $«««««55 $«(29) (54.1) %
Less: Increase/(decrease) in
operating segment income from
Exit activities, asset and business dispositions $÷÷÷«– $÷÷÷(5) $÷÷÷5 $÷««««(5) $÷««««(3) $«««(2)
Transformation/Accelerate charges – (1) 1 (1) – (1)
Accelerated depreciation (2) – (2) – – –
Pension partial withdrawal liability charge (23) (31) 8 (31) – (31)
Pension curtailment gain 3–3 –––
Impact of 53rd week 6–6 –––
Adjusted operating segment income $÷«÷60 $÷«÷63 $÷÷«(3) 4.2 % $÷«÷63 $÷«÷58 $÷÷5 7.2 %
Gross margin % 47.4% 45.3% 2.1 % 45.3% 47.2% (1.9) %%