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| American Italian Pasta Company Reports Second Quarter FY2004 Results |
- Second quarter revenues of $113.3 million, up 2.4% despite category
volume declines
- Net Income of $7.6 million and diluted EPS of $.41, which includes
$2.6 million pre-tax of new product development and start-up expenses
for reduced carbohydrate products
- Excellent initial demand for new reduced carbohydrate pastas generated
$7.9 million in revenues during the quarter
KANSAS CITY, Mo., April 28 /PRNewswire-FirstCall/ -- American Italian Pasta Company (NYSE: PLB) today announced results for the second fiscal quarter 2004, which ended April 2, 2004. The Company issued a previous press release on April 12, 2004 regarding changing pasta market conditions, AIPC's strategic priorities in this environment and lowered guidance for 2004. This release should be read in conjunction with that release and the content of both releases will be discussed in a conference call at 10:00 am Eastern Time today. Revenues for the quarter were $113.3 million, up 2.4% over $110.7 million in the second quarter of fiscal 2003. Revenue growth was driven primarily by the Company's introduction of a line of reduced carbohydrate pastas during the quarter. Net Income was $7.6 million and diluted earnings per share were $.41 for the quarter, compared to $8.9 million and $.48 in the year ago quarter, respectively. Pre-tax earnings in the current quarter were reduced by $2.6 million of new product development and start-up expenses, while pre-tax earnings in the year ago quarter were reduced by $3.5 million of acquisition related expenses. Cash flow from operations was $6.2 million for the quarter, while capital expenditures were $5.6 million. Retail revenues grew by 2.7% on volume declines of 2.6%. Retail consumption of dry pasta, as measured by ACNielsen, declined by 7% in volume for the 13 weeks ended March 20, 2004. Retail revenues were impacted by a number of factors, including: 1) strong branded revenue performance, up more than 10% versus the prior year, due primarily to initial shipments of reduced carb pastas; 2) dramatic growth in the Company's Specialty business as we continued to expand this strategic growth platform to include low carb pastas under the Atkins Quick Quisine(TM) brand; 3) revenues from the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA) of $1.5 million versus $600,000 in the year ago quarter; and 4) a decline in Private Label and Club revenues reflecting overall category performance. Institutional revenues grew by 1.6% on volume declines of 3.6%. Our Ingredient revenue declined over 20% versus prior year, which was not anticipated. Weaker consumer demand for our customers' products was "compounded" by trade and our customers' inventory adjustments. Given we are an additional step removed from the consumer in this business, we have less visibility and control over expected performance. Growth in our Food Service, International, and Contract businesses helped to mitigate the declines in our Ingredient business. During the quarter, we incurred $2.6 million of new product development and start-up costs. These costs represent the upfront "investment" in a portfolio of new products that we expect to help mitigate the impact of general pasta consumption declines. These costs included: -- Formulation development and product testing of a portfolio of low and
reduced carb products;
-- Incremental manufacturing and logistics costs including unplanned
downtime on dedicated lines, efficiency losses, and excess product
waste;
-- Overcoming limited short-term raw material availability and sourcing
issues (blending, transportation, etc.); and
-- Research and development, quality assurance, outside testing and other
direct product development costs.
We are encouraged that new product operational performance is approaching our budgeted cost estimates. We currently expect to record additional New Product Development and Start-up Costs of between $1.0 and $1.5 million in the third quarter of 2004. Excluding new product development and start-up expenses, gross margins were 30.7% for the quarter, compared to 31.9% in the year ago quarter. Increased per unit costs, attributable to lower than expected volumes, our expanded manufacturing and logistics capacity, higher inventories, and inflationary factors were the primary drivers of lower margins. Average prices were higher during the quarter as the higher per unit selling prices of the Company's reduced carb products and the CDSOA payment offset pricing and promotion investments made to increase market share of our base retail products. Selling and marketing costs increased by $1.6 million over the year ago quarter as the Company increased the promotional and marketing support for its brands, and general administrative costs were up by $.4 million, primarily on increased investments in information technology. Operating profit was $13.9 million (12.2% of revenue), compared to $15.5 million (14.0% of revenue) in the year ago quarter. Interest expense was $2.6 million, $0.3 million higher than year ago, due primarily to lower capitalized interest in the current quarter. Operating cash flows for the quarter and the year to date period were reduced by a significant increase in inventory and a significant reduction in accounts payable. The reduction in accounts payable is related to cost reduction programs with suppliers, and the inventory investment is tied primarily to higher valued inventory in the system. Year-to-date operating cash flow is $17.4 million with capital expenditures of $14.3 million. Timothy S. Webster, President and CEO, stated, "These results were below our internal targets. We are encouraged, however, by the performance relative to the 7% category decline and the rapid progress we made to develop and launch our new reduced carb products. Earnings were impacted significantly by the new product costs, higher per unit manufacturing costs, and pricing reductions and promotional support increases targeting volume and market share gains in our base business. We are adapting rapidly to these changing category and market conditions, but in the short-term it is much more difficult to predict volume and market share development and there is significant downward pressure on earnings and our key strategic goal of increased free cash flow generation. Mr. Webster provided additional outlook over the balance of the year. "For the second half of fiscal year 2004, we believe that the consumer trends driving declines in traditional pasta consumption and sales will continue. "At this time, we are the leading manufacturer and marketer of low carb pasta (Atkins) and reduced carb pasta (where we have first mover advantage), however, it is too early to predict and quantify consumer demand for this new category of pasta products. We believe that our new products could become the market leader in an important new segment of the pasta market. However, we do not believe that in the short term, new product volumes will compensate for volume declines of traditional pasta. "With our new product offering, we expect to strengthen the image and market share of our power regional brands. In spite of the current pressure on financial results, we intend to implement in full our planned new consumer marketing program with a major awareness program in May and June, supporting our excellent distribution level. "Additional factors which may affect performance for the second half of fiscal 2004 include the following: 1) a higher expected tax rate of 34% for the second half; 2) higher interest costs than previously estimated; 3) higher per unit manufacturing costs given reduced production volumes in our expanded manufacturing and logistics infrastructure and certain inflationary cost factors; 4) higher selling and marketing spending related to the new product introduction and increased support for our brands; and 5) upfront costs that we may incur to right-size our cost structure for the future. "As we've previously stated, we expect to be strong cash generators over the next few years. While we no longer expect to generate $50 - $60 million in operating cash flow less capex, we still expect to generate strong cash flow in the second half of fiscal 2004 for dividend payments and debt reduction driven by cash earnings, inventory reductions, and lower levels of capital expenditures than in prior periods. "Because of the depth and magnitude of pasta market changes, it is not possible at this time to predict our future results with a reasonable amount of certainty. We have initiated a number of commercial strategies focused on growth and market share gains. Furthermore, we are carefully evaluating adjustments to our cost structure and inventory levels to position ourselves for the future. Although these initiatives could produce second half earnings in line with prior year results, there remain significant risks and uncertainties that include the timing and realization of planned cost reduction programs, as well as targeted operational adjustments; the actual contribution from the new reduced carb products; and most importantly, the potential continued rapid declines in pasta consumption." Horst W. Schroeder, Chairman of the Board, commented, "We believe that the rapidly changing market conditions have confronted our industry with significant challenges. The change in consumer preferences and resulting volume declines may actually increase price competition in the short term, and should be increasing the pressure on needed capacity rationalization in the pasta industry. We believe we remain the low cost producer and market share leader in pasta, with a strong financial position as the one-stop-shop for all of our customers' pasta requirements. All of this makes us confident we will profitably advance our leadership position in the pasta industry." Conference Call and Webcast AIPC will conduct a conference call today at 10:00 a.m. Eastern Time that will be webcast live at www.aipc.com . A webcast replay will be made available shortly after the call and will be available for 30 days. Founded in 1988 and based in Kansas City, Missouri, American Italian Pasta Company is the largest- and the fastest-growing producer and marketer of dry pasta in North America. The Company has five plants that are strategically located in Excelsior Springs, Missouri; Columbia, South Carolina; Kenosha, Wisconsin; Tolleson, Arizona; and Verolanuova, Italy. The Company has approximately 710 employees located in the United States and Italy. The statements by the Company contained in this release regarding second half 2004 estimates and outlook are forward-looking and based on current expectations. Actual future results could differ materially from those anticipated by such forward-looking statements. The differences could be caused by a number of factors, including, but not limited to, our dependence on a limited number of customers for a substantial portion of our revenue, our ability to manage rapid growth, our ability to obtain necessary raw materials and minimize fluctuations in raw material prices, the impact of the highly competitive environment in which we operate, reliance exclusively on a single product category, our limited experience in the branded retail pasta business, our ability to attract and retain key personnel, our ability to cost-effectively transport our products and the significant risks inherent in our recent international expansion. For additional discussion of the principal factors that could cause actual results to be materially different, refer to our Annual Report on Form 10-K dated December 30, 2003, filed by the Company with the Securities and Exchange Commission, any amendments thereto and other matters disclosed in the Company's other public filings. The Company will not update any forward-looking statements in this press release to reflect future events.
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
(in thousands, except per share amounts)
Three Months Three Months
Ended Ended
April 2, 2004 April 4, 2003 % Change
Revenues
Retail $85,208 $82,944 2.7%
Institutional 28,139 27,708 1.6%
113,347 110,652 2.4%
Cost of goods sold 78,542 75,371 4.2%
New product development
and start-up expenses 2,627 -- N/A
Gross profit 32,178 35,281 -8.8%
28.4% 31.9%
Selling and marketing expense 14,384 12,743 12.9%
General and administrative
expense 3,921 3,545 10.6%
Acquisition-related expenses -- 3,511 N/A
Operating profit 13,873 15,482 -10.4%
12.2% 14.0%
Interest expense, net 2,589 2,249 15.1%
Income tax provision 3,723 4,363 -14.7%
Net income $7,561 $8,870 -14.8%
6.7% 8.0%
Basic Earnings
Per Common Share:
Net income per common share $0.42 $0.50 -16.0%
Weighted average common
shares outstanding 17,996 17,727
Diluted Earnings
Per Common Share:
Net income per common share $0.41 $0.48 -14.6%
Weighted average common
shares outstanding 18,602 18,421
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
(in thousands, except per share amounts)
Six Months Six Months
Ended Ended
April 2, 2004 April 4, 2003 % Change
Revenues
Retail $160,182 $164,194 -2.4%
Institutional 54,764 53,494 2.4%
214,946 217,688 -1.3%
Cost of goods sold 148,287 148,830 -0.4%
New product development
and start-up expenses 2,627 -- N/A
Gross profit 64,032 68,858 -7.0%
29.8% 31.6%
Selling and marketing expense 27,972 26,336 6.2%
General and administrative
expense 7,170 6,357 12.8%
Acquisition-related and
plant start-up expenses -- 4,939 N/A
Operating profit 28,900 31,226 -7.4%
13.4% 14.3%
Interest expense, net 5,486 4,676 17.3%
Income tax provision 7,726 8,757 -11.8%
Net income $15,688 $17,793 -11.8%
7.3% 8.2%
Basic Earnings
Per Common Share:
Net income per common share $0.87 $1.00 -13.0%
Weighted average common
shares outstanding 18,021 17,781
Diluted Earnings
Per Common Share:
Net income per common share $0.84 $0.97 -14.6%
Weighted average common
shares outstanding 18,621 18,423
AMERICAN ITALIAN PASTA COMPANY
Consolidated Balance Sheet
(in thousands, except per share amounts)
April 2, October 3,
2004 2003
Assets
Current assets:
Cash and temporary investments $6,621 $6,465
Trade and other receivables 49,106 51,730
Prepaid expenses and deposits 15,554 12,692
Inventory 87,812 78,760
Deferred income taxes 2,435 2,435
Total current assets 161,528 152,082
Property, plant and equipment:
Land and improvements 14,998 14,867
Buildings 133,240 132,035
Plant and mill equipment 379,222 355,767
Furniture, fixtures and equipment 28,269 25,266
555,729 527,935
Accumulated depreciation (134,950) (122,811)
420,779 405,124
Construction in progress 7,064 18,996
Total property, plant and equipment 427,843 424,120
Other assets 198,822 194,293
Total assets $788,193 $770,495
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $32,980 $42,416
Accrued expenses 21,012 18,480
Income tax payable 269 1,096
Current maturities of long-term debt 4,990 2,554
Total current liabilities 59,251 64,546
Long-term debt 304,884 300,778
Deferred income taxes 68,436 61,666
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 10,000,000 -- --
Class A common stock, $.001 par
value: Authorized shares - 75,000,000 20 20
Class B common stock, $.001 par
value: Authorized shares - 25,000,000 -- --
Additional paid-in capital 229,782 227,234
Dividends declared (3,379) --
Treasury stock (51,598) (46,585)
Unearned compensation (1,259) (891)
Retained earnings 180,183 164,495
Accumulated other comprehensive loss 1,873 (768)
Total stockholders' equity 355,622 343,505
Total liabilities and stockholders' equity $788,193 $770,495
SOURCE American Italian Pasta Company
-0- 04/28/2004
/CONTACT: Warren Schmidgall, EVP & Chief Financial Officer of American
Italian Pasta Company, +1-816-584-5636, or wschmidgall@aipc.com /
/Web site: http://www.aipc.com /
(PLB)
CO: American Italian Pasta Company
ST: Missouri
IN: FOD REA
SU: ERN CCA
AM-CM
-- CGW028 --
0279 04/28/2004 09:00 EDT http://www.prnewswire.com
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