Penford Reports Second Quarter 2008 Earnings

Centennial, Colorado, April 9 - Penford Corporation, a global leader in renewable, natural-based ingredient systems for food and industrial applications, today reported that net income for its second quarter of fiscal year 2008, which ended on February 29, 2008, increased to $2.3 million, or $0.21 per diluted share, compared to net income of $1.7 million, or $0.19 per diluted share, for the same quarter in fiscal 2007.

On December 12, 2007, the Company issued 2.0 million shares of common stock in a public offering. The net proceeds of $47.2 million were used to repay outstanding debt. This transaction increased weighted average shares by 1.7 million for the quarter ended February 29, 2008.

Consolidated sales rose 3% to $87.9 million from $85.2 million a year ago due to improved average unit pricing worldwide, mix improvements in North American Food Ingredients and higher Australian Dollar exchange rates. Gross margin as a percent of sales declined to 13.1% from 14.5% last year on higher raw material and manufacturing costs. Operating expenses as a percent of sales declined to 7.6% from 8.6% last year. Income from operations decreased by $0.8 million on increased spending for research and development and lower gross margins. Second quarter non-operating income increased to $0.8 million from $0.2 million a year ago. The reduction in the effective tax rate for the second quarter to 19% resulted from the closure of tax items from prior years.

Interest expense decreased $1.1 million in the second quarter of fiscal 2008 to $0.6 million compared to $1.7 million last year. The decrease in interest expense was due to the reduced debt balances plus the decline in the interest rates since last year’s second quarter. Interest expense of $0.5 million and $0.1 million associated with the Company’s ethanol construction project was capitalized in the quarters ended February 29, 2008 and February 28, 2007, respectively. Approximately $38.7 million of the $59.5 million debt outstanding at February 29, 2008 is attributable to the Cedar Rapids ethanol project.

Reported net income for the first half of fiscal 2008 was $5.5 million, or $0.53 per diluted share, compared to net income of $4.3 million, or $0.47 per diluted share, a year ago. Consolidated sales for the six months ended February 29, 2008 grew 7% to $182.7 million and operating income expanded 5% to $8.4 million from $8.0 million the prior year.

Second Quarter Fiscal 2008 Segment Results

North American Industrial Ingredients segment sales rose 5.1% to $49.1 million in the second quarter. Higher unit prices increased revenue by $2.6 million and higher volumes contributed $0.9 million. Quarterly gross margin improved by $0.6 million to $7.4 million from $6.8 million last year. Gross margin as a percent of sales increased to 15.1% from 14.5% a year ago. Unusually severe weather in the Midwest increased operating costs by approximately $1.0 million during the second quarter. Despite this challenge, operating income grew 25% to $4.6 million from $3.6 million last year.

In the North American Food Ingredients business, quarterly revenues increased 7.4% to $15.6 million from $14.6 million last year on higher unit prices and mix improvements. Growth categories of bakery and cheeses expanded by more than 50% in the quarter and sales of core coatings products grew 4%. Operating income for the second quarter was comparable to last year at $2.2 million as higher spending on research projects and trial activity for new products offset increased gross margins.

Revenue at the Company’s Australia/New Zealand business declined 2.7% to $23.5 million from $24.1 million a year ago as the business migrated its mix of product offerings to those with higher returns. Second quarter grain costs were $2.3 million higher than a year ago. Pricing programs implemented to mitigate the higher input costs successfully offset $1.7 million of the higher grain costs in the second quarter. The business is also continuing to advance manufacturing rationalization and previously announced headcount reductions. Severance expense of $0.1 million was recorded in the second quarter, reflecting workforce reductions in the New Zealand manufacturing facility. The business restructure plan included a program of importing grain into Australia to supplement shortages in domestic supply during the second quarter of fiscal 2008. However, delays in receiving government approval to process these imports required the Company to purchase raw materials from alternate sources. These factors increased second quarter input and manufacturing costs by $1.0 million. The business reported a second quarter loss from operations of $2.0 million.

“The Company improved revenue and net income despite challenging procurement and operating conditions during the second quarter,” said Tom Malkoski, Penford Corporation President and Chief Executive Officer. “Weather in the Midwest has normalized, and our North American businesses have been producing at planned levels since the beginning of the third quarter. Australian operations began processing imported grain in the second quarter and have now shifted to lower cost local grain supplies. We continue to expect solid performance in our second half of fiscal 2008.”

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.

Penford Corporation Financial Highlights		Three months ended								Six months ended
(In thousands except per share data)		February 29, 2008				February 28, 2007				February 29, 2008				February 28, 2007
		(unaudited)
Consolidated Results
Sales		$	87,889			$	85,241			$	182,750			$	170,741
Net income		$	2,315			$	1,706			$	5,477			$	4,279
Earnings per share, diluted		$	0.21			$	0.19			$	0.53			$	0.47
Results by Segment
Industrial Ingredients:
Sales		$	49,076			$	46,713			$	98,286			$	90,685
Gross margin			15.1	%			14.5	%			16.2	%			14.1	%
Operating income			4,568				3,649				10,265				6,830
Food Ingredients – North America:
Sales		$	15,642			$	14,561			$	31,718			$	29,801
Gross margin			26.8	%			27.8	%			27.6	%			29.7	%
Operating income			2,207				2,160				4,859				5,013
Australia/New Zealand:
Sales		$	23,458			$	24,104			$	53,402			$	50,628
Gross margin			(0.4	)%			6.6	%			5.7	%			7.9	%
Operating income (loss)			(2,045	)			(57	)			(2,120	)			751

		February 29,				August 31,
		2008				2007
		(unaudited)