Sara Lee Able to Pass on Rising Costs

Like all food producers, Sara Lee is dealing with soaring costs of basic commodities. Unlike many, however, it has been able to pass those costs on to consumers.

The trouble is, most of its other costs are rising, too. Forbes.com lists them in the first paragraph of its article about the company's third-quarter earnings report: "labor, distribution, warehousing and advertising."

In other words, pretty much everything is costing the company more, and that doesn't bode well. Even though it doubled its profits in the third quarter, the company still failed to beat expectations, and executives said it likely would continue to do so. And much of the profit gain came thanks to the falling dollar.

Sales rose by more than 10 percent at Sara Lee, which makes frozen foods, breads and such products as Jimmy Dean sausages and Ball Park Franks.

An interesting little nugget from the company's conference call with analysts: As Brenda Barnes, Sara Lee's CEO, put it, the company is "operating in a virtually unprecedented time" in terms of not only the rising costs if commodity inputs, but also in their volatility.

Wheat, in particular, has seen tremendous ups and downs â€" mostly ups â€" in recent months.

There has been a lot of speculation that this will ease in the near future, as speculators withdraw from the commodities market, demand stabilizes, and supplies firm up. Sara Lee apparently disagrees. "The fluctuations we have seen we have never seen before going up as much and down again a couple of days later," said CFO Theo de Kool. "So we don't base our price policy on the flavor today but more of a long-term view, and the long-term view is that wheat cost is not going to be materially cheaper than it is today."