Sara Lee (see chart here) missed its estimates yet again, and the CEO had no shortage of excuses for the poor performance (read article here). Let’s see, since taking over in 2005 the new CEO has made the company smaller by selling businesses for cash, yet hasn’t found any growth markets for investment. So the money’s gone, but no new businesses. She has centralized everything from headquarters to R&D to cut costs, but there has been no improvement in profitability nor new product development. She keeps talking about a turnaround, yet the equity value peaked in 2005 (when she was hired) and since has declined a third – reaching a 5-year low earlier in 2008.
What we see at Sara Lee are lots of excuses, but no real performance improvement. The CEO wants us to keep waiting for her "turnaround plan" to work, but so far – no signs. And if GE, IBM and P&G are "battleships" which are hard to turn, Sara Lee is at best a mere destroyer which should be swift and able to maneuver quickly. So saying its size has been the problem (after 3 years and several business and asset sales) is a misstatement.
I’ve predicted poor performance for Sara Lee ever since the new CEO took over (to much ballyhoo and several interviews including magazine covers). Why? Because her plan has always been to contract and rely on Defend & Extend tactics – in a company where the results clearly indicated that a new Success Formula was needed rather than trying to Defend the old broken one. As a result, every quarter we hear excuses about why she needs only a little more time, and investor patience, to reach the goals she set 3 years ago. This time the blame is all on rising commodity and energy prices. Like Roseanne Rosanadana said on Saturday Night Live over 25 years ago "it’s always something."
While she was intent to cut costs and shrink, the CEO should have been Disrupting the old Lock-ins and implementing White Space to transform the company. Without those actions, Sara Lee will remain a perpetual underperformer. Even though Sara Lee is in suburban Chicago, adopting the Cubs refrain of "wait until next year" is not good business leadership. Sara Lee needs new leadership that will create the opportunity for future success – rather than constantly trying to find past glory with D&E actions that just keep weakening the company and producing below-average performance for investors. If you’re a still an investor in Sara Lee – why? If you’re an employee, are you prepared for the next layoff or eventual take-over that will end your job? If you’re a supplier, have you insured your receivables? No business can make below-average rates of return forever, milking or selling assets to keep the company afloat. And with no signs of Disruption or White Space anywhere on the Sara Lee horizon we can only expect the ongoing demise to continue.