Sara Lee Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLE)") else Response.Write("(NYSE: SLE)") end if %>
Three First National Plaza
Chicago, IL 60602-4260
(312) 726-2600

UNION CITY, Ca., August 8, 1996/FOOLWIRE/ --- Sara Lee Corporation reported Q4 and Fiscal Year 1996 results yesterday morning. For the corporation as a whole, sales rose 1%. Corporate unit volumes, excluding acquisitions, also rose 1%. Operating profits increased 12%. Gross margins increased by 1.6% which primarily involves strength at Coffee and Grocery, Household and Personal Care, and their Personal Products businesses.

SG&A expense, as a percentage of sales, increased by about 0.5%. Marketing and promotion expenses in the quarter were up 9%. Profit before tax increased 16%, profit after tax increased 17.5% and primary earnings per share were up 16%.

Looking at the full year, sales rose 5%, corporate unit volumes were flat for the year, operating profits increased to12%, gross margins improved about 0.5%. SG&A expense as a percentage of sales was up slightly about 0.2%. Marketing and promotion expenses increased 10% for the full year. Pre-tax profits grew 13%. Profit after tax grew 14%. And primary earnings per share at $1.83 were up 13% versus year ago results.

PACKAGED MEATS AND BAKERY

Q4 for this line of business, which includes their meats, bakery and food service businesses showed sales up 3%, operating profits up 9%. For the full fiscal year the same line of business had a sales increase of 7% and an operating profit increase of 10%.

It was a very good year for the meat group, with higher sales and profits despite considerably higher commodity costs. Margins benefitted from a focus on value-added, better for you, and convenience items, and a deliberate strategy to exit low margin commodity categories. For both Q4 and the fiscal year reported unit volumes were down 1%. Excluding discontinued items, they estimate that their unit volumes for both periods would have actually been up slightly -- about 1%.

Farleigh Meats Europe enjoyed higher unit volumes, operating profits, and operating margins for both Q4 and the fiscal year. They announced their intent to acquire France's leading meat company and that deal closed in early July and should add approximately $850 million to the meat groups sales for fiscal 1997.

Hog costs were up about 40% year over year in Q4 and about 30% for the full fiscal year. To put that in perspective, those are very large increases and difficult ones for the meat group to compensate for over a short time period. However, they do reflect the fact that fiscal 1995 hog costs were at almost record low levels. In fact, hog costs as they are currently seeing them, are only about 7% or so above the 5-year average cost for hogs, so with a long-term perspective they're not way out of line, but it was a sharp increase year-over-year. They estimate that for both Q1 1997 and FY 1997, that hog costs will continue to rise and will be up about 15-20% over where they ended up for the fiscal 1996 year.

All told, for FY 1997 they are looking for slightly better unit volume growth with some easing of the increase in hog costs. They will continue to focus on margins for this business.

They had continued success with their fresh bakery business, offset in part by weak frozen category trends. Worldwide unit volumes for the bakery business were down 2% in Q4 and down 1% for the full year. North American units were down a little more than the overall worldwide numbers. They were down about 4% or so in Q4, about 3% for the full year. They were up for the full year in the UK and were up in Australia. Their fresh business, which they have been placing increased emphasis on, showed very strong unit volumes for both Q4 and the full year -- up over 10% for Q4 and 20% for the full year.

To reinvigorate the frozen business somewhat, they have plans in the first half of 1997 to launch several new reduced fat products. These will be their first reduced fat frozen products put back into the line since the early 1990s. The fresh business continues to see strong sales and operating profit gains. They ended FY 1996 in about 30% of US markets. They expect to move that to close to 40% by FY 1997 and expect to continue to see unit volume growth in the 15-20% range with more new products coming on board.

The Frito Lay venture continues in 4 test markets in the South. They expect to reach a decision on national roll-out by the end of this calendar year.

For FY 1997, unit volumes will probably still remain somewhat weak in Q1, but should improve as the year goes on. They are expecting to see modest increases in unit volumes in the bakery business for all of FY 1997 driven by fresh, which should achieve over $100 million in sales for FY 1997, and some of their new reduced fat products.

Food Service, which is the last part of the Packaged Meats and Bakery line of business saw unit volumes up 1% in Q4, up 3% for the full year. Q4 unit volumes were hurt at least 1% or more by Hurricane Bertha that hit the Southeast portion of the US during Q4. They saw strong increases in operating margins during both Q4 and the full year. For FY 1997 the company expects the packaged meats and bakery days sales to be up in the mid-single-digit range with the addition of $850 million from the French meat company acquisition. Operating profits, including the effect of Aost, should leave them with very solid double-digit profit gains for packaged meats and bakery for all of FY 1997.

COFFEE AND GROCERY

Q4 sales were reported down 8%. Operating profits were up 9%. For the full fiscal year, sales rose 4% and operating profits were up 14%. This completed another year of very strong profit and margin growth for the coffee and grocery business. Unit volumes were up 2% in Q4 and were up 4% for the full fiscal year. The Q4 decline in dollary sales is simply a factor of lower prices brought about by lower commodity costs as well as foreign exchange translation effects from a stronger dollar in Q4 this year versus Q4 last year.

International coffee organization coffee costs were down about 30% for both Q4 and the full fiscal year. They estimate these prices will be down about 25% in Q1 1997 versus Q1 1996 and should be down about 15% for FY 1997 versus FY 1996. The benefits from lower coffee costs which will be passed along to consumers in the form of lower prices should continue to allow coffee and grocery to report good unit volume gains in FY 1997.

They ended the year with strong market shares in their major European countries. Preliminarily, they had a 67% market share in the Netherlands, about 51% in Belgium, about 24% in Spain, 15% in France, and 31% in Denmark. With the exception of the Netherlands, which looks to be down about 1%, all of these market shares are either flat or up from where they were at this point a year ago.

For FY 1997 they expect unit volumes to be up at least modestly in Q1 and should be up throughout the year. They are looking for mid-to-high single digit sales and operating profit growth. Sales and operating profits in particular should be very strong in local currency. They are expecting a stronger dollar to depress the reported operating profit growth rates for this business during FY 1997.

HOUSEHOLD AND PERSONAL CARE

Beginning with FY 1997, they are going to be making two small rather cosmetic changes to this segment. First, they are going to rename it -- Household and Body Care -- in large part to differentiate it from personal products so that they don't repeat the word "personal" in two different lines of business. Also, they are renaming it in recognition of their increasingly strong presence in body care categories in Europe and Asia. Secondly, they are going to reorder their presentation of the four lines of business segments to group together the Packaged Meats and Bakery, Coffee and Grocery, and Household and Body Care; followed by Personal Products line of business. There is no change to any of the businesses included in these reporting segments. These are simply cosmetic changes.

For Q4 for the Household and Body Care segment, sales rose 11%, operating profits increased 28%. For all of fiscal 1996, sales were up 9%, operating profits were up 19%. Both periods included some impact from acquisitions. They acquired the body care businesses of Byer during the year and they also acquired Nuvo, which is a direct selling organization in Uruguay. The base household and body care, as well as their direct selling businesses are doing very well. In fact, in Q4, direct selling operating profits were up very strongly reflecting improvements in Mexico. They had an operating profit increase for the direct selling portion of this line of business of over 200% during the quarter.

For FY 1997, they have another change -- they hope to begin reporting unit volumes for Household and Body Care beginning, if not in Q1 1997, at least one quarter or so during the year and then continuing on after that. For FY 1997, they are looking for sales and operating profit growth of approximately 5-10%. Again, these businesses in local currencies should be stronger and they are anticipating some negative impact from a stronger dollar on the reported numbers during the year.

PERSONAL PRODUCTS

It was a mixed year for Personal Products with very strong margin gains attributable to their low costs production emphasis combined with a focus on higher margin value-added sales. The topline was somewhat disappointing relating to a weak apparel retail environment. For Q4 sales were essentially flat. Operating profits were up 10%. For fiscal 1996, sales rose 3%, operating profits increased 11%.

Geographically, operating margins, which is their primary focus for this business, increased in North America and in Europe in both Q4 and the fiscal year. Europe was especially strong with FY 1996 operating profit growth of over 50%. European operating profits, in fact, surpassed the $100 million mark, which was their previous record for this business. Pacific Rim performance was also strong, admittedly from a small base. Operating profits in the Pacific Rim increased 50% in Q4 and were up even more for the fiscal year. North American operating profits grew over 20% in Q4 after a slow start for the first half of 1996.

They have 3 major segments in Personal Products. The first is sheer hosiery. For Q4, worldwide dollar sales for sheer hosiery were down due to a combination of currency impact as well as low unit volume. Operating profits were up over 20% for Sara Lee sheer hosiery business on a worldwide basis. In the US, operating profits increased more than 15%. Their operating margins increased 3 full points in Q4 versus a year ago to over 18%. This is the focus of Sara Lee sheer hosiery business, particularly for their US operations and they are very pleased with those results.

On a worldwide basis, unit volumes in Q4 were down 6% with approximately equal declines in both the US and the European markets. For the full year, worldwide dollar sales were down slightly, but operating profits were up close to 10% and worldwide unit volumes were down 9% -- slightly lower decline in the US and slightly higher decline for the European sheer hosiery units.

Preliminary market shares (12-month numbers through May) for Sara Lee's US hosiery business had a 47% dollar share of the market, an increase of one point. In keeping with their margin focus, their price per unit in Europe rose over 20% at Dim and even rose 10% or so for Hanes here in the US to illustrate how they are refocusing their product lines to focus on higher margin products.

They have two exciting ad campaigns for the Fall. The first features Tina Turner for Hanes. For Tina, the launch coincides with her new album this Fall and Sara Lee will be sponsoring her worldwide in May of 1997. Jamie Lee Curtis will be their new spokesperson for L'eggs and that campaign should break in September.

Turning to the second of their 3 businesses within Personal Products which is knit products -- for Q4 worldwide dollar sales were down slightly, operating profits increased very sharply (up about 20%). The sales line was somewhat disappointing but profits and margins were strong in both the US and in Europe. Unit volumes in Q4 were up 3% on a worldwide basis, up 6% in the US, down slightly in Europe. In the US they had modest growth in their underwear business and very strong growth in their activewear business. Screenprint units in Q4 were up over 10%. Retail activewear units were up over 25%.

For the full fiscal year, worldwide sales were up slightly, operating profits were up over 15%, they had increased operating profits and operating margins in both the US and in Europe. Unit volumes for the full year for knit products were flat in the US and in Europe. Their market shares continued to show strength. 12-month numbers through May of 1996 shows them with a record mens and boys underwear market share (measured in units) of 35.6%, an increase of 3% over the same period a year ago. Coincidentally, their number showed that Fruit of the Loom at 34% suffered a 3% decline over the same period of time. Women's and girl's marketshare was about 29%, which is flat versus a year ago.

Sara Lee's Hanes and Champion businesses were sponsors and licensees of the Olympics. The final tally is not yet available, but they expect manufacturers sales to be somewhere around $200 million for the Olympic efforts -- less than their $250 million initial estimate, but still running at very good levels. Sales were overplanned and extraordinarily strong in Atlanta at the Olympic venues. They were somewhat underplanned elsewhere -- in retail outlets outside the immediate Atlanta area. They are, however, one of the few if not the only sponsors to come anywhere close to covering their sponsorship fee through the actual immediate sales of their products during the Olympics in addition to the long-term brand building opportunities that come with the sponsorship fees.

The long-term outlook for knit products continues to be very strong. They will continue to sell their basic knit outerwear and underwear under their Haneswear and Champion brands. They also have some exciting licensee activities underway. They are the exclusive licensee for all apparel with the Spalding brand, which is the oldest sports brand in America. This Spalding line will complement their Hanes and Hanes Her Way products and will be sold through the mass merchandise channel. And then they are also licensees for Ralph Lauren and Polo for department stores. They will be putting out a line of underwear, robes, and pajamas with the Ralph Lauren and Polo brands.

The third of the businesses within Personal Products is their foundations business. For Q4 on a worldwide basis, sales grew at a single digit rate, operating profits were up over 30%. They had double-digit operating profit increases in the US and operating profit increases in Europe that actually exceeded 100%. Worldwide unit volumes grew 4% with similar increases in both North America and in Europe. In North America, Bali and Playtex had unit growth over 10% during Q4. The reported number includes Canada and Mexico where they had fairly significant declines in unit volumes for foundations reflecting the weak economies in those markets.

For the full fiscal year, unit volumes were up on a worldwide basis 3% with slightly better growth in the US and slightly less in Europe. Preliminary market shares for 12 months through May on a dollar basis shows the foundation business at a 27.8% market share, up 1% versus a year ago. New products coming through for FY 1997 will target aging Baby Boomers with shaping products. They are also taking some of their product innovations from the US such as comfort strap and sports bras over to the European markets.

Coach passed the $500 million sales mark in fiscal 1996 compared to $18 million in sales when Sara Lee acquired Coach 11 years ago. Sales, operating profits, and units all increased over 20% during the fiscal year for Coach.

For FY 1997 for Personal Products, they are looking for a full-year operating profit increase in the mid-to-high single digits, with the second half stronger than the first half. For Q1 1997 operating profits will probably be somewhat flat. The profit growth for Personal Products in 1997 include an increased focus on cash flow and returns. On a return on investment basis, Personal Products has, by far, the lowest ROI reflecting the strong investment activity that they have pursued for Personal Products over the years. They will be scaling back some of that investment activity and focusing much more on returns. They have a target of reaching 35% ROI for Personal Products by the year 2000. Foreign currency will also be somewhat of a negative for Personal Product's reported operating profit results in 1997. Currency was a modest positive in 1996 and will probably be neutral to slightly negative in FY 1997.

Of increasing importance is the manufacturing focus of Personal Products. The manufacturing location decisions -- their decision to produce in offshore locations -- has been and will continue to be dictated by cash/tax considerations; meaning that they look to locate their Personal Products production and sourcing in locales that will give them tax advantage. Locating in some of those locales may have negative impact on gross margins over the near term because they might not be the lowest cost area in which to produce the products. In fact, as a standalone entity, on an after tax basis, the growth rate for Personal Products would be at least several points higher than they expect to be reporting in FY 1997.

As relates to Q1 this year -- there are wrap-up Olympic hospitality and ad costs that were somewhat significantly incremental over costs in 1996.

CORPORATE PERSPECTIVE AND FY 1997 OUTLOOK

Below the operating profit line, interest expense was down for Q4 and the fiscal year. Q4 relates to rates, but for the full fiscal year it is more a function of lower debt levels. A very preliminary total debt to total capital number for Sara Lee Corporation for FY 1996 will probably be somewhere around 30%.

Corporate unallocated increased in Q4 and the fiscal year to about 1.3% of sales. From 1986 to 1996, corporate unallocated as a percentage of sales has ranged from about 0.6% of sales to about 1.4% of sales and has averaged about 1.2%. So the 1.3% of sales reported this year is right in line with what they have done in recent periods.

The tax rate fell in Q4 to 32% versus 33% in Q4 1995 and versus 34% for the first 3 quarters of 1996. The full year comparison was 33.5% versus 34.1%. The decline in the tax rate relates significantly to the Personal Products offshore manufacturing focus as well as more international income. They anticipate that for FY 1997 and going forward that they will end up at a 32% tax rate.

Shares outstanding increased about 1% related to option activity. Primary earnings per share were up 16% in Q4 and 13% for the fiscal year.

They are preliminarily looking for earnings per share growth again in the low double digits for both Q1 and FY 1997. They expect the strongest operating profit growth clearly to come from packaged meats and bakery and are looking for mid-to-high single digit operating profit growth from the other 3 lines of business.

There will be higher interest expense because of the French acquisition. They are looking for a lower corporate unallocated expense. They should have hedged income falling into corporate unallocated in FY 1997 versus hedging expenses in FY 1996. They are looking for a 32% tax rate.

They would expect shares outstanding to increase about 1% without consideration of share repurchase. They have been out of the market for the past several weeks in anticipation of their earnings report. They would be allowed back in the market early next week. All things being equal, they would be very much inclined to be back in the market at that point in time. For FY 1996, Sara Lee repurchased about 3.375 million shares, with almost half of that done in Q4.

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