Record wheat prices impact Sara Lee

Wheat prices have more than doubled in the past year, and Sara Lee Corp. is increasing its bread prices.

Sara Lee Corp. will keep increasing bread prices to cover higher wheat costs and is counting on new product releases to drive profits, according to company executives at a Downers Grove meeting Tuesday.

At the first analysts meeting held at the company's new headquarters, top executives said the price of Sara Lee breads rose Monday an average of 10 cents, or 5 percent.

"We've already raised prices and have more planned," said Chief Executive Officer Brenda Barnes. "We are certainly facing these headwinds of increased commodity costs, some of them at unprecedented levels, like wheat."

D.A. Davidson & Co. analyst Tim Ramey said Sara Lee's overall prospects look solid in 2008.

However, he is skeptical Sara Lee can grow profits while introducing a wave of new products, so he is keeping his "under-perform" rating on the company.

"When you are introducing new products you have to spend money," said Ramey, based in Lake Oswego, Ore. "It is probably a little too early to call for margin increases in 2008."

The food and beverage division plans to introduce 25 new products this year, including microwaveable pies, deli meats and breads.

New products are planned across business units.

Since Barnes took the helm in 2005, Sara Lee increased its new product output by 50 percent in its U.S. Fresh Bakery category, the company said.

However, the bakery unit is where traditional 3 percent margins get squeezed as wheat prices rise.

Wheat prices climbed to a record $8.91 a bushel Tuesday at the Chicago Board of Trade and have more than doubled in the past 12 months. World consumption is forecast by the U.S. Agriculture Department to exceed production for the seventh time in eight years.

Sara Lee's price increases on bread and coffee earlier this year fell $10 million short of covering $65 million in higher costs in the quarter ended June 30, Barnes told analysts last month.

The company expects additional increases early next year "if the price of wheat keeps going north of $8," Bill Nictakis, head of Sara Lee's fresh bakery unit, told analysts. "There's no way we can cut costs quickly enough to offset the huge increase in wheat."

Sara Lee improved computer systems to streamline customers' orders for meat and bread, lowering costs by reducing the number of trips by delivery trucks, said George Chappelle, chief information officer.

The company affirmed its profit forecast, saying it expects to earn 95 cents to $1.01 a share in the year ending in June 2008.

The outlook includes an 18-cent gain from the sale of its European tobacco unit to U.K.-based Imperial Tobacco Group in 1998. Sara Lee gets annual payments from Imperial.

Barnes, 53, took charge in 2005 after flagging apparel sales hurt Sara Lee's profit. She oversaw the sale of clothing and other divisions that generated 40 percent of revenue and increased marketing of Sara Lee breads, Ball Park franks, Hillshire deli meats, Jimmy Dean meats and Senseo coffee.

The foodmaker's shares rose 15 cents to $16.13 in New York Stock Exchange composite trading. The stock is down 5.3 percent this year.