Chicago, IL - Sara Lee Corporation announced plans to generate $500 million in cash flow benefits through de-verticalization and outsourcing initiatives within its United States packaged meats business. Several projects have already been completed, while others will be pursued over the next two years.
These plans continue the restructuring program announced by Sara Lee in September 1997, when the company committed to de-verticalize low-return assets, sell non-core businesses, and increase its use of outsourcing. Proceeds from these activities are being used to repurchase at least $3 billion in Sara Lee common stock by the end of fiscal 2000.
Beginning this month, Sara Lee will purchase a significant portion of the turkey breast meat requirements for its Bil Mar Foods division from Cargill, Inc.'s North American Turkey Operations. Cargill is the nation's fourth-largest turkey processor. Outsourced production will now comprise more than 35% of Bil Mar's turkey breast meat supplies, reducing the asset-intensity of this business.
Bil Mar Foods markets packaged meat products to deli, foodservice and retail customers under the Sara Lee Premium, Mr. Turkey and Bil Mar brand names.
Sara Lee intends to develop further relationships with Cargill to supply its production needs. In addition to procuring fresh meat from Cargill, Bil Mar is exploring options for purchasing sliced and cooked meats from the company. Cargill today provides approximately $125 million in products to Sara Lee divisions in North America.
In July 1998, Bil Mar Foods announced that it would eliminate its Michigan turkey slaughter and boning operations by mid-January 1999. The division also announced plans to exit the remainder of its wholly owned turkey farms in Michigan, discontinue contracts with local independent turkey growers, and sell its feed mill near Holland, Mich., to the local Farm Bureau.
These actions are consistent with Sara Lee's de-verticalization strategy to reduce its fixed operating assets and focus on the greatest value-adding activities involved in building leadership brands. These initiatives will reduce Bil Mar's ongoing working capital requirements, enable the company to respond more quickly to market demand, and increase its focus on product innovation.
In addition to Bil Mar's outsourcing arrangement with Cargill, several other Sara Lee Meat divisions have begun outsourcing production of their processed meat products, while aggressively pursuing other opportunities to reduce capital intensity. These actions will reduce the corporation's fixed asset and working capital investment needs.
In addition to outsourcing, Sara Lee Meats is aggressively pursuing other opportunities to reduce its capital intensity.
In February 1998, Sara Lee entered into an arrangement with Southern Family Foods, L.L.C., which is building a new manufacturing facility in Tupelo, Miss. When operational, this plant will support future growth opportunities by supplying processed meat to Bryan Foods and other Sara Lee divisions without requiring significant capital expenditures by the company. Bryan Foods is Sara Lee's largest refrigerated meats business in the southeastern United States.
Sara Lee is also exploring innovative ways to reduce its involvement in non- core activities. As part of this strategy, Sara Lee's State Fair Foods division, the U.S. leader in corn dogs, has entered into an agreement with a utility company to provide the capital, maintenance, electrical and refrigeration service for a Texas production facility that State Fair is currently renovating and will occupy in mid-1999. Sara Lee is exploring ways to expand this concept to other facilities.
Sara Lee also expects to receive working capital benefits from improved sourcing activities for fresh meat and packaging materials.
"As we announced one year ago, our de-verticalization and restructuring program offers opportunities throughout the corporation," said C. Steven McMillan, president and chief operating officer of Sara Lee Corporation. "These initiatives enable us to reduce the capital demands on our business units, enhance our competitiveness and focus our efforts on the greater value-added activities involved in building successful brands."
Other aspects of Sara Lee Corporation's restructuring and de-verticalization program include the following:
In December 1997, Sara Lee sold nine yarn and textile plants to National Textiles, L.L.C., including the cotton buying; yarn spinning; and fabric manufacturing, finishing and cutting operations for Sara Lee Knit Products. Sara Lee Corporation completed the de-verticalization of another plant to National Textiles in August. In August 1998, Sara Lee Corporation announced several de- verticalization and restructuring transactions in its Household and Body Care line of business that, combined, will generate more than $200 million in cash and cash flow benefits. On July 1, the sale of Douwe Egberts Van Nelle Tobacco Company to Imperial Tobacco Group, P.L.C., closed. Sara Lee Corporation repurchased 27.2 million shares of common stock in the open market during fiscal 1998 for a total consideration of $1.5 billion. Since the beginning of fiscal 1999, Sara Lee has acquired an additional 5.5 million shares of stock for total consideration of $280 million.
Sara Lee Corporation is a global consumer packaged goods company with more than $20 billion in annual revenues. In addition to such leading packaged meats brands as Hillshire Farm, Ball Park, Jimmy Dean and Bryan, the corporation's brand portfolio includes Sara Lee, Douwe Egberts, Hanes, Coach and Playtex.
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