Sara Lee plans 3-year revamping It aims to raise $3 billion for a stock buyback

CHICAGO — CHICAGO -- Sara Lee Corp. yesterday unveiled an extensive three-year plan to sell some manufacturing businesses and cut costs, aiming to raise $3 billion for a stock buyback.

Sara Lee, whose brand-name products include Hanes underwear and Sara Lee frozen desserts, plans to take a fiscal 1998 charge of $1.6 billion to sell some textile mills and other businesses with less than $1 billion in annual revenue.


Sara Lee's restructuring follows similar share-boosting moves by competitors Campbell Soup Co. and H. J. Heinz Co. Sara Lee's stock has been hindered by the company's investment in low- profit operations such as the mills.

Now, Sara Lee plans to concentrate on marketing brands including Jimmy Dean sausages, Playtex bras and Coach handbags.


"They're focusing on the business that they know best. The key thing here is brands, worldwide brands," said Marvin Roffman of Roffman Miller Associates, a Sara Lee shareholder for more than 12 years.

Sara Lee's shares rose $6 to a 52-week high of $48.56. About 9.63 million shares changed hands -- more than 10 times its three-month daily average -- making it the third-most-active stock in U.S. markets.

The cash generated from the asset sales and cost-cutting will be used for the largest buyback in Sara Lee's history. The company plans to buy back about 15 percent, or 70.5 million shares, of its outstanding stock. The amount is based on Friday's closing stock price and 480.3 million shares outstanding.

The company plans to sell most of its U.S. yarn and textile business related to its knit products: It has 13 knitwear mills. The former senior vice president in charge of knitwear, Jack Ward, is interested in buying some of the mills, the company said on a conference call.

Sara Lee also plans to sell other businesses with revenue of less than $1 billion. Sara Lee had fiscal 1997 revenue of $19.7 billion.

Sara Lee said it is handling the sales itself.

"We are going to look at all of the fixed assets around the world -- meat, bakery, intimate apparel and other operations related to -- our personal-products business," said President Steven McMillan.

As part of its plan to exit the manufacturing business -- which has high fixed costs and low returns -- it will farm out some of its work to other companies. It wasn't more specific about its cost-saving plans.


"They are responding to pressure to streamline their operations," said Tim Ramey, an analyst with Deutsche Morgan Grenfell. The magnitude of the restructuring "is a total surprise."

The moves allow the company to focus on building and marketing its leading brands, the company said. The company also sells Ball Park franks; Hillshire Farm sausages; and the clothing and hosiery lines Champion, L'eggs, Bali and Wonderbra. Personal products account for about 40 percent of Sara Lee's annual revenue, while meats and bakery items accounts for 35 percent, according to Hoover's Inc.

"We are strategically a better company being organized around brand-building rather than manufacturing," said McMillan.

The company said the $1.6 billion charge is mostly related to the sale and write-down of assets that the company has decided it doesn't need. The size and composition of the write-down will be determined by the end of the fiscal third quarter.

The sale of the yarn business would increase its cash flow $500 million in three years. The company said after-tax savings from the restructuring and cost-cutting program will be $25 million to $50 million in fiscal 1998 ending in June, rising to $100 million to $125 million by 2000.

Pub Date: 9/16/97