PENX (MM)

Penford Corporation (Nasdaq: PENX), a leader in renewable ingredient systems for industrial and food applications, today reported that consolidated sales for the quarter ended May 31, 2011 increased 38% to $85.2 million from $61.9 million a year ago. Loss from continuing operations was $0.7 million, or $0.06 per diluted share, for the quarter ended May 31, 2011 compared with a loss from continuing operations of $5.8 million, or $0.49 per diluted share last year. Third quarter fiscal 2011 results reflect an increase in accounts receivable reserve of $0.6 million in the Industrial Ingredients business.

A table summarizing quarterly financial results is shown below:

Penford Corporation – Financial Highlights (In thousands) Q3 FY11     Q2 FY11     Q1 FY11     Q4 FY10     Q3 FY10   Industrial Ingredients: Sales $ 61,596 $ 56,591 $ 53,930 $ 45,633 $ 42,010 Gross margin 2,609 1,458 2,904 (1,907 ) (3,847 ) Operating income (loss) (734 ) (1,103 ) 142 (5,098 ) (6,847 ) Depreciation and amortization 2,712 2,696 2,713 2,716 2,709   Food Ingredients: Sales $ 23,637 $ 17,713 $ 18,336 $ 17,369 $ 19,899 Gross margin 7,808 5,385 6,353 5,406 7,112 Operating income 5,517 3,576 4,808 3,698 5,018 Depreciation and amortization 510 553 561 555 564   Consolidated: Sales $ 85,233 $ 74,304 $ 72,266 $ 63,002 $ 61,909 Gross margin 10,418 6,843 9,257 3,499 3,265 Operating income (loss) 2,506 488 2,969 (2,796 ) (4,091 ) Depreciation and amortization 3,598 3,618 3,643 3,642 3,631  

Food Ingredients Third Quarter Fiscal 2011 Results

• Food Ingredients reported record quarterly sales of $23.6 million, up 19% from the prior year on growth in existing accounts and from new product introductions in the companion pet and gluten-free bakery segments.
• Gross margin improved 10% on new product gains and lower unit processing costs.
• Operating income reached an all-time quarterly record of $5.5 million compared with a previous record of $5.0 million one year ago.

Industrial Ingredients Third Quarter Fiscal 2011 Results

• Revenue increased 47% to a record $61.6 million from $42.0 million a year ago reflecting higher corn prices that were passed through to customers, additional ethanol volumes and growth of specialty starch-based additives. Industrial starch net average selling prices for calendar 2011 rose at double-digit levels from a year ago.
• Ethanol sales grew to $28.1 million from $14.6 million as spot prices for ethanol rose 65% from last year. Company results improved while industry crush margins were comparable to prior year as corn costs outpaced ethanol prices.
• Sales of specialty industrial starches grew by 33% from a year ago. This category includes the Company’s Liquid Natural Additive products and the novel technology launched in November to replace fluorochemicals in food packaging applications. The Company announced the introduction of PEN-COTE® natural binder products last month that replace synthetic latex in coated paper and paperboard applications, including a newly available dry version.
• Segment gross margin expanded $6.5 million as increased prices, greater facility throughput rates and lower unit manufacturing costs offset higher raw material costs. Industry net corn costs more than doubled from a year ago.
• The operating loss of $0.7 million includes a $0.6 million charge to increase the accounts receivable reserve related to a paper industry customer that announced closure of its mill operations.

Consolidated Financial Third Quarter Fiscal 2011 Results

• Cash flow from operations was $1.7 million including a $4.4 million contribution to the Company’s pension plans.
• Interest expense, which includes dividends on preferred stock, was $2.4 million compared with $1.9 million last year.
• Income tax expense reflects the non-deductibility of dividends and discount accretion on preferred stock.
• Outstanding bank debt on the Company’s $60 million revolving credit facility was $22.9 million.

Conference Call

Penford will host a conference call to discuss third quarter fiscal 2011 financial and operational results today, July 7, 2011 at 9:00 a.m. Mountain time (11:00 a.m. Eastern time). Access information for the call and webcast can be found at www.penx.com. To participate in the call on July 7, 2011, please phone 1-877-407-9205 at 8:50 a.m. Mountain time. A replay will be available at www.penx.com.

About Penford Corporation

Penford Corporation develops, manufactures and markets specialty, natural-based ingredient systems for a variety of industrial and food applications. Penford has five manufacturing and/or research locations in the United States.

The statements contained in this release that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements can be identified by the use of words such as “believes,” “may,” “will,” “looks,” “should,” “could,” “anticipates,” “expects,” or comparable terminology or by discussions of strategies or trends. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such forward-looking statements, and the Company does not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this release and those described from time to time in other filings with the Securities and Exchange Commission which include, but are not limited to: competition; the possibility of interruption of business activities due to equipment problems, accidents, strikes, weather or other factors; product development risk; changes in corn and other raw material prices and availability; the Company’s inability to comply with the terms of instruments governing the Company’s debt; the effects of the current economic recession as well as other changes in general economic conditions or developments with respect to specific industries or customers affecting demand for the Company’s products, including unfavorable shifts in product mix; unanticipated costs, expenses or third party claims; interest rate, chemical and energy cost volatility; changes in returns on pension plan assets and/or assumptions used for determining employee benefit expense and obligations; unforeseen developments in the industries in which Penford operates; and other factors described in the “Risk Factors” section in reports filed by the Company with the Securities and Exchange Commission.

       

Penford CorporationFinancial Highlights

Three months endedMay 31

Nine months endedMay 31

(In thousands except per share data) 2011     2010 2011     2010 (unaudited) (unaudited)   Consolidated Results of Operations   Sales $ 85,233   $ 61,909   $ 231,802   $ 191,272       Loss from continuing operations $ (709 ) $ (5,758 ) $ (1,948 ) $ (6,503 ) Income (loss) from discontinued operations, net of tax   -     (218 )   -     16,312   Net income (loss) $ (709 ) $ (5,976 ) $ (1,948 ) $ 9,809   Loss per share, diluted – continuing operations $ (0.06 ) $ (0.49 ) $ (0.16 ) $ (0.58 ) Income (loss) per share, diluted – discontinued operations   -     (0.02 )   -     1.43   Income (loss) per share, diluted $ (0.06 ) $ (0.51 ) $ (0.16 ) $ 0.85   Consolidated Cash Flows   Cash flow provided by (used in) continuing operations: Operating activities $ 1,741 $ (2,054 ) $ (219 ) $ 9,560 Investing activities (2,237 ) (463 ) (5,640 ) 16,437 Financing activities   432     2,517     5,771     (31,537 ) (64 ) - (88 ) (5,540 ) Net cash flow provided by (used in) discontinued operations   -     -     -     (270 ) Total cash used $ (64 ) $ - $ (88 ) $ (5,810 )   Consolidated Balance Sheets       May 31,     August 31, 2011 2010 (unaudited)   Current assets $ 72,501 $ 61,115 Property, plant and equipment, net 107,841 111,930 Other assets   33,711   35,363 Total assets   214,053   208,408   Current liabilities 29,237 26,000 Long-term debt 24,713 21,038 Redeemable preferred stock 37,725 34,104 Other liabilities 40,692 43,694 Shareholders’ equity   81,686   83,572 Total liabilities and equity $ 214,053 $ 208,408  

Penford CorporationConsolidated Statements of Operations

   

Three months endedMay 31

   

Nine months endedMay 31

(In thousands except per share data) 2011     2010 2011     2010 (unaudited) (unaudited)   Sales $ 85,233 $ 61,909 $ 231,802 $ 191,272   Cost of sales   74,815     58,644     205,285     171,317   Gross margin 10,418 3,265 26,517 19,955   Operating expenses 6,664 6,312 17,093 18,854 Research and development expenses   1,248     1,044     3,462     3,165     Income (loss) from operations 2,506 (4,091 ) 5,962 (2,064 )   Interest expense 2,380 1,904 6,953 5,324 Non-operating income (expense), net   (12 )   (2,606 )   77     (1,997 )   Income (loss) before income taxes 114 (8,601 ) (914 ) (9,385 )   Income tax expense (benefit)   823     (2,843 )   1,034     (2,882 )   Loss from continuing operations (709 ) (5,758 ) (1,948 ) (6,503 )   Income (loss) from discontinued operations, net of tax   -     (218 )   -     16,312     Net income (loss) $ (709 ) $ (5,976 ) $ (1,948 ) $ 9,809    

Weighted average common shares and equivalents outstanding, diluted

12,262 11,796 12,247 11,396   Loss per share, diluted – continuing operations $ (0.06 ) $ (0.49 ) $ (0.16 ) $ (0.58 ) Income (loss) per share, diluted – discontinued operations   -     (0.02 )   -     1.43   Income (loss) per share, diluted $ (0.06 ) $ (0.51 ) $ (0.16 ) $ 0.85