By Martinne Geller

NEW YORK (Reuters) - Sara Lee Corp <SLE.N> will sell its North American bakery business to Mexico's Grupo Bimbo <BIMBOA.MX> for $925 million, the latest move to shrink what was once a sprawling company that sold everything from hot dogs to underwear.

After the sale, in which Bimbo will also assume $34 million in debt, Sara Lee will focus on meats and coffee, with brands like Hillshire Farm lunch meat and Senseo coffee pods.

The North American bakery unit generated $2.13 billion in sales in the fiscal year ended October 2, out of $10.79 billion for the entire company.

"It was not a make-it-or-break-it piece for Sara Lee," said D.A. Davidson analyst Tim Ramey, noting that the company may look more attractive without that low-margin business, which has been pressured by higher wheat costs and discounts on supermarket store shelves. Ramey worked for Sara Lee when the company bought the business in 2001.

Sara Lee shares rose 3.8 percent after it announced the deal and raised its fiscal 2011 earnings forecast.

"This does mark the end of a dark chapter in Sara Lee's history -- the $2.6 billion transaction was much celebrated back in 2001 and while that transaction included other pieces of business, this suggests a material loss for Sara Lee on that purchase nine years ago," Stifel Nicolaus analyst Christopher Growe said in a research note.

Because of the sale of the bakery business, Sara Lee said it plans to accelerate its share buyback plans. It expects to complete the repurchase of $2.5 billion to $3 billion in stock by July 2012.

For Bimbo, the acquisition is part of its push to become one of the largest players in North American bakeries. The company bought the U.S. bread-making unit of Canada's George Weston Ltd <WN.TO> for $2.38 billion in December 2008.

Grupo Bimbo, which also makes Thomas' English muffins and Brownberry bread, would have the rights to the Sara Lee brand for fresh baked goods globally, except for Western Europe, Australia and New Zealand.

Bimbo said it plans to invest more than $1 billion in the United States over the next five years.

The companies expect the deal to close in the first half of 2011.

Sara Lee said the sale would help it focus on its core coffee and meat businesses, which fueled sales in the latest quarter, and to make acquisitions. Over the last several years, Sara Lee has dramatically reshaped its business by dropping a number of brands. This included spinning off underwear maker Hanesbrands Inc <HBI.N>.

The company said that under the deal with Bimbo, it would retain the right to sell Sara Lee branded frozen desserts and protein products, like sliced deli meats.

EARNINGS DISAPPOINT

In the first quarter of fiscal 2011, which ended on October 2, sales volume rose 4.4 percent in Sara Lee's North American retail business and 1.7 percent in its international beverage business, which includes Douwe Egberts coffee. Volume declined in the bakery business.

Overall volume fell 2 percent.

"Every segment was a disappointment," Ramey said.

Net income fell to $194 million, or 29 cents per share, from $287 million, or 41 cents per share, a year earlier.

Earnings from continuing operations, excluding special items, were 13 cents per share, missing analysts' average estimate of 17 cents, according to Thomson Reuters I/B/E/S.

Net sales slipped 0.5 percent to $2.58 billion, hurt by the weaker euro.

Sara Lee expects fiscal 2011 earnings per share of 92 cents to 99 cents from continuing operations, up from its prior forecast of 88 cents to 95 cents.

Sara Lee shares rose 56 cents, or 3.8 percent, to $15.36 on the New York Stock Exchange.

(Reporting by Martinne Geller and Phil Wahba. Editing by Lisa Von Ahn and Robert MacMillan)