Sara Lee Case

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Sara Lee retrenched seven of its business units in 2006 in order to focus itsresources on its more profitable industries. The company’s goal is to boost its saleslines by at least 2 percent and increase its profit margin to 12% by 2010. Bydeveloping three competitive capabilities in each of its remaining business units,Sara Lee looks to improve its net profits within the next few years. Divested Businesses Analysis Sara Lee divested seven of its units, including: direct sales, U.S. retail coffee,European apparel, European snacks, and U.S. and European meats. The companyfollowed a strategy which allowed it to increase its corporate profits, since most of its business units it retrenched were unprofitable. By 2006, five business units hadnegative net profit margins and negative operating margins. Four of those unitshad negative margins of more than 10%, with different units seeing steady or sharpdeclines in revenues in profits since 2004. The only two profitable units were the direct selling unit and the Europeansnack lines. These two lines were seeing declining revenues and operating margins,except in 2006, when both lines increased their margins. Divesting the snackbusiness was a correct decision, since it was only producing net profits of $3 million,which would not help the business to increase its shareholders’ wealth. Plus, thecompany received a $70 million after-tax gain, more than 22 times the current netprofit. Selling its direct sales business was not a good decision, since it was stilldrawing a 27% profit margin and income of $54 million. The business compliments its current household and body care line within Sara Lee International. The unitexposed the company to other markets, while it could have allowed the company tofind potentials for its other products in those markets. Though the direct selling linewas still profitable for the company, Sara Lee

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