Centennial, Colorado, November 8, 2007 – Penford Corporation, a leading supplier of ingredient systems for food and industrial applications, today reported record sales and profits for the year ended August 31, 2007. Net income and earnings per diluted share for fiscal 2007 more than tripled to $13.5 million, or $1.46 per share, despite a non-cash charge of $2.4 million or $0.16 per share, up from last year's net income of $4.2 million, or $0.47 per share. Quarterly net income was $4.3 million, or $0.45 per diluted share, compared to net income of $2.6 million, or $0.28 per diluted share last year. Included in annual and fourth quarter 2007 operating income was an accrual of $2.4 million in connection with a pending 2004 lawsuit. The Company recorded the non-cash charge in the operating results for the Industrial Ingredients segment as a loss contingency; the amount to be determined at final disposition of the matter may be higher or lower than the accrual.
Fiscal 2007 Consolidated Fourth Quarter and Annual Results
Fourth quarter consolidated sales increased $11.9 million, or 14.1%, to an all-time high of $96.2 million from $84.3 million a year ago. Sales rose on higher average unit pricing and product mix improvements in all businesses, new product introductions by the North American Food Ingredients segment as well as favorable foreign currency exchange rates. Gross margin as a percent of sales widened to 20.8% from 16.5% a year ago on revenue gains, improved corn procurement costs in the Industrial Ingredients business and increased manufacturing efficiencies in the Food Ingredients and Australian segments. Operating expenses increased $0.5 million due to employee costs and legal fees. Consolidated operating income was $7.1 million, which includes the $2.4 million charge described above, up 65% from $4.3 million last year.
Sales for fiscal 2007 expanded 13.8% to $362.4 million from $318.4 million a year ago on better unit pricing and product mix in all business segments and stronger foreign currency exchange rates in
Australia and New Zealand. Consolidated gross margin increased 42.8% to $64.2 million and, as a percent of sales, to 17.7% from 14.1% a year ago, due to sales growth and improved production efficiencies worldwide. Operating expenses increased to $31.4 million from $29.5 million last year, but declined as a percent of sales to 8.7% compared with 9.3% a year ago. Fiscal 2007 consolidated operating income more than doubled to $23.6 million. This compares with consolidated operating income of $9.3 million last year. Included in 2007 operating income was a charge of $2.4 million accrued as a loss contingency in connection with a pending 2004 lawsuit.
Interest expense of $5.7 million in fiscal 2007 was $0.2 million less than in fiscal 2006 due to reduced interest-bearing debt balances and lower floating interest rates. Interest expense of $0.4 million associated with the expansion of the Company’s wet milling capabilities at its Cedar Rapids facility was capitalized during the year. A total of $20.0 million of costs attributable to the construction project had been capitalized as of August 31, 2007. Income tax expense increased to $6.0 million from $1.0 million last year as the Company expanded earnings in higher tax rate jurisdictions. Net income and earnings per diluted share were $13.5 million, or $1.46 per share, which includes an accrual of $2.4 million, or $0.16 per diluted share recorded as a loss contingency in connection with the previously mentioned pending 2004 lawsuit. Annual sales, gross margins, operating profits, net income and earnings per share all represent record performance levels for the Company.
Fourth Quarter Fiscal 2007 Segment Results
The Company’s North American Industrial Ingredients business reported that quarterly sales increased $6.9 million, or 15.5%, to $51.3 million from $44.4 million last year. Higher unit prices in every category and mix improvements contributed $4.7 million of the $6.9 million revenue growth. The impact from passing through higher corn prices to customers added $5.8 million. Total volumes declined 9% as paper industry customers closed plants to align capacity with demand. However, operating rates for coated and uncoated free-sheet categories are now above 90%, a favorable condition that the Company believes will reinforce the value proposition for Penford’s high performance processing ingredients which enable customers to run their plants at greater utilization rates. Gross margins improved by $4.2 million, or 58%, on increased pricing and more effective corn procurement strategies. Gross margin as a percent of sales increased to 22.4% from 16.5% a year ago. Operating income rose 26.2% to $5.4 million despite the negative impact of the $2.4 million charge discussed above, from $4.2 million last year.
Quarterly sales in the North American Food Ingredients business grew 9.1% to $16.1 million from $14.8 million last year on increased average selling prices and a higher margin product mix. Revenue from potato coating applications, equal to about half of the total mix, decreased 4%. Non-coating sales, which trade at a premium price to coating products, rose 25%. The protein, dairy and soups/sauces/gravy categories expanded at double-digit rates. Sales of products with formulations designed for the pet chew and treat markets contributed over half of the sales gain in this segment during the quarter. Gross margin increased 25.5% to $5.1 million from $4.0 million last year, reflecting revenue expansion and improved production efficiencies. Operating income rose 26.1% to $2.8 million from $2.2 million a year ago.
Fourth quarter revenue at the Company’s Australia/New Zealand business was $28.9 million, up $3.6 million from last year, primarily due to a 12% increase in Australian Dollar currency exchange rates. Higher unit pricing offset the impact of $0.9 million in additional wheat costs caused by a continuing drought in the region. Manufacturing costs declined and gross margin improved 31.4% to $3.4 million and, as a percent of sales, expanded to 11.9% from 10.3% a year ago. Operating income of $1.7 million for the fourth quarter grew by 150% over last year’s operating income of $0.7 million.
"The strong fourth quarter finish completes an outstanding year for the Company," said Tom Malkoski, Penford Corporation President and Chief Executive Officer. "Each business achieved record sales this year. Customers are validating value propositions Penford offers by purchasing more high-margin applications. Our products are being manufactured more efficiently. The management team in each segment has built a sustainable position for competitive success by delivering superior total value through service, innovation and product performance."
About Penford Corporation
Penford Corporation develops, manufactures and markets specialty natural-based ingredient systems for various applications, including papermaking, textiles and food products. Penford has nine locations in the United States, Australia and New Zealand.