Chicago - More than 2,500 Sara Lee Corporation stockholders attended the company's 58th annual meeting in Chicago today. Company executives updated investors on Sara Lee's de-verticalization program and ongoing shift to a new “horizontal” model for doing business. Executives highlighted initiatives in each of Sara Lee's business units, where the company is concentrating on those activities from which it will derive the greatest value.
In his remarks to stockholders, John H. Bryan, chairman and chief executive officer, defined the strategy behind this new way of doing business.
“This new model means that our focus will shift away from the day-to-day management of manufacturing processes or the gathering of raw materials, and toward higher-return activities such as product development, logistics, sourcing and marketing,” Bryan said. “This model means that Sara Lee will organize to have our profits attributed to the absolutely smallest amount of assets possible,” he added.
In addition to enhancing growth opportunities for Sara Lee, Bryan noted the financial performance improvements this new emphasis will offer. During the first full year of its restructuring program, Sara Lee posted 13% earnings per share growth, a record return on invested capital (ROIC) of 17.5%, record cash flow from operations of $1.9 billion, and revenues exceeding $20 billion for the first time in the corporation's history.
Bryan emphasized the three key knowledge-based skills that have become the focus of Sara Lee's management worldwide: product design and development; supply chain management; and marketing and selling.
“These three distinct functional areas are imperative to becoming a horizontal company,” Bryan noted. “Being unconstrained by owning and maintaining unneeded fixed assets will make us quicker to market and enable us to undertake more growth initiatives with greater speed and lower risk than ever before.”
Sharing the stage with Bryan were C. Steven McMillan, president and chief operating officer; Frank L. Meysman, executive vice president and chairman of the board of management of Dutch subsidiary Sara Lee/DE; Judith A. Sprieser, executive vice president and chief financial officer; and Janet Langford Kelly, senior vice president, corporate secretary and general counsel. Earlier today, Sara Lee announced that its stockholders elected Sprieser to Sara Lee's board of directors, and that she had been elected an executive vice president of the corporation by the board.
Operations Review Highlights
McMillan reviewed the impact of Sara Lee's de-verticalization program on three of the company's five lines of business: Sara Lee Foods, Foodservice and Branded Apparel.
According to McMillan, Sara Lee's focus on product development has enabled the company's operating units to introduce innovative new products, including Ball Park Smart Creations reduced-fat hot dogs and smoked sausage; Ball Park Singles individually wrapped, microwaveable hot dogs; and Sara Lee Cheesecake Bites and Cheesecake Singles, ready-to-eat, no-thaw single servings of dessert favorites.
“New no-thaw technology makes these treats edible right out of the freezer, and they were recognized as `New Products of the Year' at our industry's leading trade exposition earlier this year,” said McMillan. “The new products meet the three basic requirements of desserts at Sara Lee: they're Immediate, Individual and Indulgent.
McMillan noted that Sara Lee's Hanes men's and boys' underwear, and Hanes Her Way women's and girls' panties, both held their number-one positions and built market share during the year.
Reviewing Sara Lee's Coffee and Tea, and Household and Body Care lines of business, Executive Vice President Frank Meysman noted many new product introductions from Sara Lee's most international businesses, in addition to several recent acquisitions
“During the past year, we complemented our European strength in roast coffee with an increased presence in the Americas,” said Meysman. “In Brazil, for example, Sara Lee has acquired the well-known Cafe do Ponto and Seleto retail coffee brands.”
Meysman also announced to stockholders that Sara Lee's Household and Body Care division this week reached an agreement to acquire French body care brand Monsavon from Procter and Gamble. This 70-year-old brand, with annual sales of approximately $45 million, positions Sara Lee as the leader in the French bath and shower category.
Restructuring Leads to Establishment of New Financial Goals
Reviewing Sara Lee's financial goals and new targets for earnings growth, profitability and financial strength, CFO Judith Sprieser explained the financial impact of the company's restructuring and de-verticalization program.
“We are discovering opportunities to move the financial performance of our company to a higher level as Sara Lee evolves to a de-verticalized enterprise,” Sprieser noted.
Because the company's earnings per share growth rate will accelerate under the restructuring program, Sara Lee increased its earnings per share growth goal to a range of 13% to 15%. To gauge profitability, Sprieser noted that Sara Lee has increased its return on invested capital goal to 20%. The corporation's new measure for financial strength will target 40% cash flow to total debt, assuring the company's ability to repay debt from cash generated by operations.
Sprieser also noted the value that Sara Lee has been able to create for its shareholders. According to Sprieser, a $100 investment in Sara Lee Corporation stock purchased on July 2, 1988, would have grown in value to $781 at the end of fiscal 1998, assuming the reinvestment of all dividends and before taxes. This is an increase of 681%, or a compound growth rate of 22.8%, over the ten-year period.
Stock Split, Dividend Increase and Stock Repurchase Plans Disclosed
Also during the meeting, John Bryan announced a stock dividend of one share of common stock for each share owned at the close of business on December 1, 1998. This is the corporation's fifth two-for-one stock split since 1983. Bryan announced an 8.7% dividend rate increase, raising the annual post-split dividend from $.46 to $.50 per share.
To facilitate Sara Lee's aggressive stock repurchase program, Bryan noted that the board of directors had authorized the repurchase of 40 million post- split shares of Sara Lee common stock, making a total of 72 million shares authorized for repurchase.
In September 1997, Sara Lee announced that it would repurchase $3 billion of its common stock over a three-year period - the most aggressive stock repurchase program in the corporation's history.
“Since that time, we have spent $1.9 billion for the purchase of almost 34 million shares,” noted Bryan. “We are pleased that this morning's additional authorization will enable us to continue buying back our shares.”
New Corporate Identity
Reflecting “the new Sara Lee,” the corporation's annual meeting was marked by the first widespread use of the company's new corporate mark, which was introduced in the company's annual report to stockholders earlier this month. The new identifier is a variation on the famous red and white “Sara Lee” script logo, visible on all Sara Lee baked goods and premium packaged meats.
The new identity leverages the value of the Sara Lee mark among consumers, investors and the public, and reinforces Sara Lee's heritage and positioning as a premier marketer of leading consumer brands. Sara Lee Corporation changed its name from Consolidated Foods in April 1985, to better communicate the company's consumer brand orientation.
“We believe there is much to be gained from aligning the corporation's identity with that of our flagship brand,” said Bryan.
Corporation's Arts Support Highlighted
A review of public responsibility initiatives focused on Sara Lee's support of the arts. Bryan noted that nearly half of Sara Lee's charitable contributions are directed to the arts. Recognizing the company's longstanding support of arts and culture, Sara Lee is one of 12 honorees, and the only corporation, to receive the prestigious 1998 National Medal of Arts. President Clinton and First Lady Hillary Rodham Clinton will present the awards at a White House ceremony on November 5.
Joining Bryan on stage was actor Gary Sinise, founding member of Steppenwolf Theatre Company, a leading Chicago theater that is also a 1998 National Medal of Arts recipient.
“Sara Lee and Steppenwolf Theatre have been great friends for many years,” said Sinise. “In fact, Sara Lee's financial support goes back more than a decade. And over the years, many Sara Lee executives have served on the Steppenwolf board of directors, sharing their business knowledge and marketing skills to help us build the Steppenwolf company - from the start, at the local and national level, and today, on a global scale.”
Bryan concluded his remarks by mentioning Sara Lee's “Millennium Gift to America” - through which works of art from the corporation's collection are being donated to museums around the world.
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