Sara Lee’s North American bread business is the US food group’s “Achilles heel”, a leading analyst has claimed amid reports the company is mulling offloading the unit.
Erin Swanson, an analyst at Monringstar, said yesterday (21 July) that the margins Sara Lee enjoys from its North American bread business are below the rest of the group despite having operations nationwide.
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“Sara Lee has struggled to turn around the North American fresh bakery business, and the segment’s operating margins continue to lag those of others in the space despite its national presence,” Swanson told just-food.
“Overall, we believe that the segment has been an Achilles’ heel for Sara Lee. The company’s strategic motivation for the sale of the higher margin international household and body care segment was to be a focused global food and beverage business, which it would be with or without the bread offerings.”
Sara Lee is in the process of selling its global body care and European detergents businesses to Unilever. The company is waiting on the EU to decide on the planned US$1.3bn sale.
Speculation over Sara Lee’s North American bread business emerged earlier this week after reports in the US said the company had hired banking advisers to set out the options for the division.
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By GlobalDataA report from Bloomberg said a formal sale process had not yet started, citing sources familiar with the situation.
However, advisers to Sara Lee have been trying to gauge interest from private-equity buyers as interest from trade buyers may be limited, Bloomberg said.
Sanford Bernstein analyst Alexia Howard said a deal would be “modestly accretive” to Sara Lee “if the price is right”.
“On balance, since the growth opportunity in bread seems limited relative to the opportunities in US meats and international beverages, and since the company has struggled to reach margins seen by best-in-class competitors despite its best efforts over the past five years, we believe that if a buyer were to be found for the business, a deal could be struck. And depending upon the price paid, the tax consequences and the resulting impact on earnings per share, this could be favourably received by shareholders,” Howard said.
However, Howard suggested a sale of the bread business could lead to the eventual break up of Sara Lee.
“If the bread business were to be sold, we then suspect that a buyer could be found for the meats business given the appetite for the US meat players to move into downstream, more value-added brands, and perhaps the international beverage business would then be spun off in order to enjoy lower tax rates overseas,” she said.
