* EPS $0.41 including items vs year earlier $0.32

* Raises 2010 earnings forecast

* Sees price cuts on some products

* Shares rise 3.5 pct
(Adds company comments, updates stock price, adds byline)

By Brad Dorfman

CHICAGO, Nov 5 (Reuters) - Sara Lee Corp (SLE.N: Quote, Profile, Research) posted
higher-than-expected quarterly earnings and raised its
full-year earnings forecast on Thursday, and its shares rose
3.5 percent.

The company also said it will cut prices and spend more to
market selected products, including in the bakery and coffee
segments, as commodity prices come down and retail store brands
battle with food manufacturers for market share.

"You've got lots of people fighting for the consumer dollar
right now," Chief Executive Brenda Barnes said during a
conference call with analysts. "It's just a little more intense
right now."

Analysts had questioned whether the food industry was
heading into a profit-sapping price war.

Sara Lee executives stressed that the actions the company
would take to build market share, which also include promotions
behind new products, would be selective.

"Where and when and how we take it is a very scientific
approach," Barnes said in an interview.

The maker of Sara Lee bread and Jimmy Dean sausage said
profit rose to $284 million, or 41 cents a share for the first
quarter that ended Sept. 26, compared with $230 million, or 32
cents a share, a year earlier.

Earnings were boosted by a 19 cent-a-share contingency
payment related to the 1999 sale of the company's European
tobacco business, the last such payment the company is due to
receive.

Sara Lee announced in September that it would sell its
personal-care brands such as Sanex and Brylcreem to Unilever
Group (ULVR.L: Quote, Profile, Research) for $1.87 billion. It also said then it had seen
significant interest in its household products business, which
includes Ambi Pur air freshener and Kiwi shoe polish.

Excluding one-time items and the tobacco payment, earnings
were 19 cents a share. Analysts on average forecast 16 cents a
share, according to Thomson Reuters I/B/E/S.

EXPENSES FALL

Corporate expenses fell to $58 million in the quarter from
$99 million a year earlier, largely due to a $32 million
increase in the market value of commodities derivative
contracts the company holds.

Sara Lee has cut other costs and pared its business in
order to boost profit. Operating margin in the quarter rose to
12.6 percent from 10.5 percent a year earlier.

Sales from continuing operations fell 7.4 percent to $2.59
billion, pressured by unfavorable currency exchange rates,
lower volume and planned business exits.

The company said it now expects 2010 earnings per share of
90 to 96 cents a share, excluding one-time items, compared with
its previous forecast of 84 to 90 cents a share.

Sara Lee's shares were up 42 cents at $11.82 on the New
York Stock Exchange on Thursday afternoon, after rising to
$11.91, the highest level in a year, earlier in the session.
(Reporting by Brad Dorfman, editing by Gerald E. McCormick,
Maureen Bavdek and Matthew Lewis)