Sara Lee Reports Solid Improvement in Underlying Operating Results for Fourth Quarter and Fiscal 2008

Downers Grove, Ill., August 7 - Sara Lee Corp. today announced that net sales for fiscal 2008, ending June 28, 2008, were $13.2 billion, an increase of 10.3% compared to $12.0 billion in the prior year. The strong overall net sales growth was driven by favorable foreign currency exchange rates, most notably the euro, price increases to cover higher input costs and an increase in consolidated unit volumes. Net sales grew in all six of the business segments with particularly strong growth in international beverage (+22.9%), international bakery (+16.1%), household and body care (+12.2%) and North American retail bakery (+9.2%). The corporation's adjusted net sales – which exclude acquisitions/divestitures and present fiscal 2007 net sales at fiscal 2008 foreign currency exchange rates – increased 4.6% in fiscal 2008, primarily driven by strong top-line growth in North American retail bakery (+9.2%) and international beverage (+8.6%). For the fourth quarter of fiscal 2008, Sara Lee reported net sales of $3.5 billion, up 12.2% over the comparable period last year, while adjusted net sales rose 5.5%.

“Sara Lee had a very good year. As anticipated, we had a strong fourth quarter, with virtually every business segment delivering improved underlying business results,” said Brenda C. Barnes, chairman and chief executive officer of Sara Lee Corp. “I am pleased to report that we met the high-end of our full-year adjusted earnings per share outlook and exceeded our adjusted operating margin guidance. We also are very encouraged that the strength of our brands allowed us to offset the unprecedented levels of commodity and other input costs through pricing and helped deliver market share gains and increased operating margins.”

As announced on July 22, 2008, the corporation incurred non-cash, pre-tax impairment charges of $874 million ($850 million after-tax) in the fourth quarter of fiscal 2008, associated with the goodwill balances at its North American foodservice bakery and Spanish bakery business units and write-downs of certain other assets in North America.

Sara Lee reported operating income of $237 million for fiscal 2008, compared to $562 million for fiscal 2007, a decrease of 57.7%. However, adjusted operating income – which excludes the impact of significant items and acquisitions/divestitures and presents fiscal 2007 results at fiscal 2008 foreign currency exchange rates – increased 13.9% to $1,072 million in fiscal 2008 from $940 million in the prior year.

For the fourth quarter of fiscal 2008, Sara Lee reported an operating loss of $529 million due to the non-cash impairment charges mentioned on the prior page, compared to income of $151 million for the year-ago period. Adjusted operating income, however, was $386 million in the fourth quarter of fiscal 2008, up 56.4% from $246 million in the prior-year period.

In fiscal 2008, diluted EPS as reported were a loss of $.14 per share versus income of $.68 per share in fiscal 2007. In the fourth quarter of fiscal 2008, diluted EPS as reported were a loss of $.98 per share, compared to income of $.16 per share for the year-ago period.

Adjusted EPS from continuing operations were $.83 per share in fiscal 2008, compared to $.77 in fiscal 2007.

Other Fiscal 2008 Highlights

• Net cash from operating activities was approximately $600 million in fiscal 2008, compared to $492 million in fiscal 2007, which includes $10 million and $88 million of cash generated by discontinued operations, respectively. This year-over-year increase was primarily driven by an increase in earnings before non-cash impairment charges.
• Media advertising and promotion (MAP) spending for continuing operations increased 4.9% in fiscal 2008, driven by higher MAP spending in international beverage and household and body care.
• Net interest expense was $100 million for fiscal 2008, a decrease of $33 million compared to fiscal 2007, primarily resulting from a lower debt level.
• General corporate expenses were $254 million in fiscal 2008, compared to $352 million in fiscal 2007, a decrease primarily due to lower costs associated with the business transformation and lower pension and other benefit plan costs, as well as non-recurrence of costs related to corporate hedging programs.
• In fiscal 2008, the corporation repurchased 19.7 million shares of its common stock at an average price of $16.02 per share, for a total cost of $315 million. The company did not repurchase any shares of its common stock in the fourth quarter. At the end of fiscal 2008, approximately 25 million shares remained authorized by the board of directors for repurchase.
• The effective tax rate for continuing operations for fiscal 2008 was 146.7%, compared to a tax benefit of (2.6)% in fiscal 2007. These tax rates were impacted by various significant items. For further explanation on the tax rate, see the table "Fiscal 2008 Tax Rate Reconciliation."

Business Performance Review

North American Retail Meats

• Net sales increased 6.4% to $643 million in the fourth quarter of fiscal 2008, as an 8.5% increase in retail meat sales was partially offset by a 19.4% decline in non-retail commodity meat sales. The increase in retail meat sales was driven by favorable sales mix, price increases and higher unit volumes. Adjusted net sales also increased 6.4%.
• Net sales for the full year increased 3.0% to $2.4 billion. Adjusted net sales also increased 3.0%.
• Operating segment income was $48 million in the fourth quarter, compared to $27 million in the year-ago period. The increase was primarily the result of price increases, favorable sales mix, lower MAP spending and lower SG&A costs. Fourth quarter operating segment income included charges for impairments, exit activities and transformation costs of $33 million compared to $14 million in the prior-year period. Adjusted operating segment income was $81 million in the fiscal 2008 fourth quarter, compared to $41 million in the prior year’s period.
• Operating segment income for the full year was $175 million, compared to $94 million last year. Adjusted operating segment income was $208 million, compared to $206 million in fiscal 2007.

Unit volumes increased 0.4% in the fourth quarter, consisting of an increase of 3.8% for retail meats and significantly lower unit volumes for non-retail commodity meats (see footnote on "Net Sales Bridge" table). During the fourth quarter, each of the major retail meats brands – Jimmy Dean, Hillshire Farm, Ball Park and Sara Lee – increased market share according to Information Resources, Inc. (IRI) share data (12 weeks ending June 29, 2008). Ball Park hotdogs started the summer grilling season strong with a share increase of 1.2 points versus last year to reach 20.9% according to the IRI data. For the full year, unit volumes for the segment increased 2.1%.

North American Retail Bakery (includes Senseo coffee)

• Net sales increased 12.7% to $590 million in the fourth quarter of fiscal 2008, primarily driven by higher selling prices to offset increased input costs and by unit volume growth. Adjusted net sales also rose 12.7%.
• Net sales for the full year increased 9.2% to $2.2 billion. Adjusted net sales also rose 9.2%.
• Operating segment income was $26 million in the fourth quarter, compared to $2 million in the year-ago period. The improvement was primarily driven by price increases, lower transformation-related expenses and strong unit volumes. Adjusted operating segment income was $29 million, compared to $26 million in the prior year.
• Operating segment income for the full year was $55 million, compared to a loss of $2 million in fiscal 2007. Adjusted operating segment income was $59 million, compared to $46 million in the prior year.

Unit volumes increased 4.2% in the fourth quarter, driven by volume growth across the fresh bakery and branded frozen bakery businesses. The Sara Lee brand maintained its position as the No. 1 fresh bread brand in America with a 7.7% share according to IRI data (12 weeks ending June 29, 2008). Unit volumes for the segment were up 1.3% for the full year.

Foodservice

• Net sales of $545 million were up 5.7% in the fourth quarter of fiscal 2008, primarily driven by higher prices and higher unit volumes, which were partially offset by an unfavorable sales mix. Adjusted net sales were up 5.5%.
• Net sales for the full year were $2.2 billion, up 1.1%. Adjusted net sales increased 0.9%.
• The segment reported an operating segment loss of $430 million in the fourth quarter, primarily due to $454 million in impairment charges in the foodservice bakery business, compared to operating segment income of $22 million in the prior year’s fourth quarter. Adjusted operating segment income in the fourth quarter increased 15.0% to $30 million.
• The segment reported an operating segment loss for the full year of $318 million due to the impairment charges in the fourth quarter. Adjusted operating segment income declined 7.5% for the year.

Unit volumes increased 2.0% in the fourth quarter, as growth in private label bakery products was partially offset by volume softness in foodservice meats and beverage, the latter primarily for traditional roast and ground coffee as a result of competitive and economic pressures. Unit volumes were down 3.1% for the full year.

International Beverage

• Net sales increased 22.2% to $881 million in the fourth quarter of fiscal 2008, primarily driven by favorable foreign currency exchange rates, higher prices and favorable sales mix into higher margin single-serve and instant coffees at retail and into Cafitesse liquid coffee concentrate at foodservice. Adjusted net sales rose 5.9%.
• Net sales for the full year increased 22.9% to $3.2 billion. Adjusted net sales rose 8.6%.
• Operating segment income was $172 million, up 52.1% from $114 million in the fourth quarter of fiscal 2007, primarily driven by favorable foreign currency exchange rates, positive sales mix and lower SG&A costs. Adjusted operating segment income increased 29.8% to $179 million.
• Operating segment income for the full year increased to $547 million from $317 million. Adjusted operating segment income rose 9.2% to $562 million.

Unit volumes, excluding acquisitions/divestitures, decreased 1.3% in the fourth quarter, as volume increases for Senseo single-serve coffee, instant coffees and Cafitesse liquid coffee concentrate could not fully offset lower unit volumes from multi-serve roast and ground coffee and hot tea. International beverage unit volumes were up 1.5% for the full year.

International Bakery

• Net sales increased 17.8% to $243 million in the fourth quarter of fiscal 2008, primarily driven by favorable foreign currency exchange rates and price increases to cover higher input costs. This was partially offset by lower unit volumes and an unfavorable sales mix shift into private label bread in Spain. Adjusted net sales rose 1.9%.
• Net sales for the full year increased 16.1% to $929 million. Adjusted net sales increased 3.0%.
• The segment reported an operating segment loss of $385 million in the fourth quarter, compared to income of $6 million in the year-ago period with the decrease due to $400 million in impairment charges in the Spanish bakery business. Adjusted operating segment income was $16 million, flat compared to the prior-year period.
• The segment reported an operating segment loss of $346 million for the full year, compared to income of $38 million for fiscal 2007. Adjusted operating segment income for the full year was $63 million, basically flat compared to fiscal 2007.

Unit volumes decreased 2.7% in the fourth quarter, resulting from weak unit volumes in Spain, in part due to a national transportation strike, and lower unit volumes in Australia, partially due to the planned exit of certain product lines. Unit volumes for the year were basically flat.

Household and Body Care

• Net sales increased 9.9% to $617 million in the fourth quarter of fiscal 2008, due to favorable foreign currency exchange rates. The effect of higher unit volumes and favorable sales mix were offset by increased trade promotional activity. Adjusted net sales were basically flat.
• Net sales for the full year increased 12.2% to $2.3 billion. Adjusted net sales rose 2.2%.
• Operating segment income increased 47.4% to $117 million in the fourth quarter, primarily driven by favorable foreign currency exchange rates, higher unit volumes, lower MAP spending and continuous improvement savings. These factors were partially offset by the effect of price promotions and an increase in labor costs. Adjusted operating segment income increased 32.5% in the fourth quarter to $118 million.
• Operating segment income for the full year increased 15.7% to $315 million. Adjusted operating segment income increased 3.3% to $323 million in that period.

Unit volumes increased 1.1% in the fourth quarter, primarily driven by strong unit volumes in air care, body care and shoe care. In the fourth quarter, Sara Lee successfully launched the innovative Ambi Pur Renov’Air air freshener in Spain and the Sanex NaturProtect deodorant line in Belgium, Greece, Denmark, Spain, France and the United Kingdom. Unit volumes for insecticides were soft due to unseasonably cool weather in Southern Europe. In fiscal 2008, unit volumes for the segment, excluding acquisitions/divestitures, rose 4.6%.

Guidance

Sara Lee currently expects full-year fiscal 2009 diluted EPS from continuing operations to be in the range of $1.12 to $1.20 per share, which includes $.22 per share of tobacco sales proceeds received in the first quarter of fiscal 2009 from the sale of its tobacco business in fiscal 1999. Actual results may differ from this guidance due to future significant events that may occur, the nature, timing and financial impact of which are not yet known.

Form 10-K and Webcast

The company expects to file its Form 10-K for fiscal 2008 with the Securities and Exchange Commission on Wednesday, Aug. 27, 2008. Please note that the company’s financial information is preliminary and subject to change pending the company’s filing of its Form 10-K. Sara Lee Corporation’s review of its results for fiscal 2008 will be broadcast live via the Internet today at 9 a.m. CDT. During the webcast, the company will discuss fiscal 2008 results and provide an outlook for fiscal 2009. The live webcast can be accessed in the Investor Relations section on www.saralee.com and is anticipated to conclude by 10 a.m. CDT. For people who are unable to listen to the webcast live, a recording will be available on the website two hours following the completion of the webcast until Friday, Feb. 6, 2009.

Forward-Looking Statements

This release contains forward-looking statements regarding Sara Lee’s business prospects, costs and operating results, including statements contained under the heading “Guidance.” In addition, from time to time, in oral statements and written reports, the corporation discusses its expectations regarding the corporation’s future performance by making forward-looking statements preceded by terms such as “expects,” “likely” or “believes.” These forward-looking statements are based on currently available competitive, financial and economic data and management’s views and assumptions regarding future events. Forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Consequently, the corporation wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Sara Lee’s actual results to differ from such forward-looking statements are factors relating to:

• Sara Lee’s relationship with its customers, such as (i) a significant change in Sara Lee’s business with any of its major customers, such as Wal-Mart, its largest customer, including changes in the level of inventory these customers maintain; and (ii) credit and other business risks associated with customers operating in a highly competitive retail environment;
• The consumer marketplace, such as (iii) significant competition, including advertising, promotional and price competition, and changes in consumer demand for Sara Lee’s products; (iv) fluctuations in the availability and cost of raw materials, Sara Lee’s ability to increase product prices in response and the impact on Sara Lee’s profitability; (v) the impact of various food safety issues and regulations on sales and profitability of Sara Lee products; and (vi) inherent risks in the marketplace associated with new product introductions, including uncertainties about trade and consumer acceptance;
• Sara Lee’s international operations, such as (vii) impacts on reported earnings from fluctuations in foreign currency exchange rates, particularly the European euro, given Sara Lee’s significant concentration of business in Western Europe; (viii) Sara Lee’s generation of a high percentage of its revenues from businesses outside the U.S. and costs to remit these foreign earnings into the U.S. to fund Sara Lee’s domestic operations; and (ix) Sara Lee’s ability to continue to source production and conduct manufacturing and selling operations in various countries due to changing business conditions, political environments, import quotas and the financial condition of suppliers;
• Previous business decisions, such as (x) Sara Lee’s ability to generate margin improvement through continuous improvement initiatives and transitioning the entire organization to a common information technology system and the risk that the transition to a common information technology system will be disruptive to the business; (xi) Sara Lee’s ability to achieve planned cash flows from capital expenditures and acquisitions, particularly its worldwide bakery business, and the impact of changing interest rates and the cost of capital on the discounted value of those planned cash flows, which could impact future impairment analyses; (xii) credit ratings issued by the three major credit rating agencies and the impact these ratings have on Sara Lee’s cost to borrow funds and access to capital/debt markets; (xiii) the settlement of a number of ongoing reviews of Sara Lee’s income tax filing positions in various jurisdictions and inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which Sara Lee transacts business; and (xiv) changes in the expense for multi-employer pension plans that Sara Lee participates in.

In addition, the corporation’s results may also be affected by general factors, such as economic conditions, political developments, interest and inflation rates, accounting standards, taxes and laws and regulations in markets where the corporation competes. Sara Lee undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

About Sara Lee Corporation

Each and every day, Sara Lee (NYSE: SLE) delights millions of consumers and customers around the world. The company has one of the world’s best-loved and leading portfolios with its innovative and trusted food, beverage, household and body care brands, including Ambi Pur, Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi, Sanex, Sara Lee and Senseo. Collectively, these brands generate more than $13 billion in annual net sales covering approximately 200 countries. The Sara Lee community consists of 44,000 employees worldwide.

¹ The term “adjusted net sales” and other “adjusted” financial measures are explained and reconciled to each item’s most comparable U.S. generally accepted accounting principles measure at the end of this release.

² See “Reconciliation of Diluted EPS from Continuing Operations to Adjusted EPS from Continuing Operations” in the “Impact of Significant Items on Income from Continuing Operations and Net Income” table.