Calls of Note Part 2

- Wachovia is somewhat cautious on Sara Lee (NYSE:SLE) noting that while 6/27's announcement of a European Meats sale and pending Branded Apparel spin bring theco closer to its goal of creating a leaner and more-focused structure, they remain concerned over lingering portfolio weakness. Trends have remained weak through FQ3 (top line down -1.4% on flat volume) and while North America exhibits glimmers of progress (accelerating bakery and meat growth), Europe remains weak and persistent cost pressure has further limited EPS growth. Firm is lowering their FQ4 EPS estimate from $0.32 to $0.28.

While restructuring limits the ability to construct adequate comps, International volumes have declined in two of FY06's three quarters (flat in FQ2) and sales declines accelerated in FQ3. Any positive, early Transformation effects appear most pronounced in North America -- margins have risen +180bps, ytd, and FQ3 sales and margin both expanded (+540bps and +330bps, respectively).

Firm remains on the sidelines and await data points indicating the "new" Sara Lee is driving stable top line and margin expansion. Firm's valuation range of $14-16 reflects their belief that SLE should trade at a 15-20% discount to the packaged food group on a CY2006E P/E basis.

Notablecalls: While I'm not very familiar with the name the wording of the call and weak chart do suggest there is further downside in store.