Minneapolis-based International Multifoods Corp, a manufacturer and marketer of branded consumer foods and foodservice products, has reported Q1 2003 earnings of US$4.9m, compared to US$2.1m for the same period a year ago.
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Net sales for the Q1 ended 1 June were US$779.6m, compared with US$664.3m in the prior year. Operating earnings increased to US$16.9m, up from US$7.1m year on year.
The company said that the increase in Q1 earnings primarily reflects the contribution from its acquisition of the Pillsbury desserts and specialty products business in November 2001, partially offset by the higher interest expense associated with the acquisition.
As a result, the company recorded a non-cash, after-tax charge of US$41.3m, related to its foodservice distribution business. Including the impact of the change in accounting principle, the company reported a net loss of US$36.4m in the Q1 2003.
“We are off to a good start this year, with EPS on an operating basis coming in above expectations,” said Gary E. Costley, chairman and CEO: “These results validate our strategy to focus on our branded food manufacturing businesses. We are confident that Multifoods is well positioned for a year of substantial earnings improvement.”
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By GlobalDataNet interest expense increased to $9 million, up from $3.6 million in the first quarter of last year, due to the debt incurred to complete the Pillsbury desserts and specialty products acquisition. The company’s effective tax rate in the quarter before the change in accounting principle was 38 percent, even with a year ago.
Capital expenditures totaled $4.9 million as the company continued to invest in building its U.S. consumer foods infrastructure and positioning its food manufacturing businesses for growth. Projected fiscal 2003 capital expenditures remain at approximately $40 million. Operating cash flow in the first quarter was $31.3 million. This strong performance was due principally to improvements in working capital and operating earnings.
Q1 operating results in manufacturing
The company’s food manufacturing business is comprised of three reporting segments: US Consumer Products, US Foodservice Products and Canadian Foods.
Q1 operating earnings in food manufacturing totalled US$15.9m, up from US$5.5m last year driven by the 2001 Pillsbury brands acquisition. Net sales were US$210.4m, compared with US$112.4m a year ago. Excluding results from the acquisition and adjusting for currency effects, sales increased about 5%.
In US Consumer Products, shipments on a comparable basis increased 11% in the Q1, and unit volume continued to improve as a result of brand-building initiatives, more effective merchandising and distribution gains. The company continued to implement new promotions to build brand equity with consumers and clearly differentiate each brand.
“Our US Consumer Products division had a solid Q1, which, in many respects, reflects the success of the investments we began making in these brands late last year and strong execution,” Costley said. “In the four-week period ending 25 May, volume was up significantly in nearly all product categories. We remain focused on increasing the value of our brands among customers and consumers to ensure sustainable, long-term growth.”
In US Foodservice Products, sales were up about 11% as a result of the addition of the Pillsbury non-custom foodservice baking mix business. Excluding the Pillsbury business, sales were essentially flat. Earnings in US Foodservice Products were affected by higher commodity costs and the write-down of an advance to a supplier that filed for bankruptcy. During the quarter, the company reported volume growth in its new line of thaw-and-serve muffins.
In Canadian Foods, Q1 sales increased 10%, primarily on volume growth in commercial flour, consumer ethnic grain-based products and consumer condiments. The company continued to experience strong demand in the quarter for its new Bick’s mini Snack ‘Ems pickles, which appeal to consumers seeking a healthy snack alternative. Operating earnings were down slightly, primarily reflecting higher condiment manufacturing costs.
Q1 operating results in distribution
Operating earnings in Multifoods Distribution Group were US$4.6m, up 7% from US$4.3m in last year’s Q1. The increase in operating earnings reflects continued improvements in productivity, and lower delivery and warehouse costs. Net sales rose 3% to US$569.2m, from US$551.9m a year ago. Volume in the sandwich segment was up 24%, which helped offset softness in the vending channel and the rationalization of accounts in the independent pizza segment.
“We are pleased with the ongoing improvements in Multifoods Distribution Group’s performance,” Costley said. “The company is continuing to explore strategic alternatives for the distribution business, and we expect to complete the review process and make a decision on this business this fiscal year.”
Outlook
The company continues to expect to deliver earnings of US$1.9 to US$2 per share in fiscal 2003, and Q2 earnings per share before unusual items to be in the range of 26 cents to 28 cents. About 50% of the company’s earnings are expected to be generated in the Q3 2003.
“Looking forward, we remain confident in our ability to meet our financial targets this fiscal year and in our long-term prospects for the brand new Multifoods,” Costley said.
