Fiscal Second Quarter 2007 Highlights: KANSAS CITY, Mo., Nov. 2
/PRNewswire-FirstCall/ -- Premium Standard Farms, Inc.
(NASDAQ:PORK), a leading vertically integrated provider of pork
products, today announced results for its fiscal year 2007 second
quarter ended September 23, 2006. Fiscal Second Quarter Results Net
sales for the quarter increased 3.4%, or $7.2 million, to $220.4
million, compared to $213.2 million during the second quarter of
fiscal 2006. With respect to the same period last year, net sales
were positively impacted by a $13.4 million improvement in live hog
prices, as well as a $2.3 million improvement year-over-year
related to lean hog futures. However, these gains were partially
offset by an $8.5 million decrease in production volume, primarily
due to the negative impact from health-related issues in the
Company's production segment. Net income for the fiscal second
quarter was $4.3 million, or $0.13 per diluted share, compared with
a net income of $12.2 million, or $0.39 per diluted share, in the
same period last year. Net income for the second quarter of fiscal
2007 includes a charge of $1.6 million as a result of costs related
to the proposed merger with Smithfield Foods, Inc., as well as $7.4
million in charges for the settlement of a portion of an
outstanding legal case and reserves for other similar cases
pending, which combined, after-tax totals approximately $0.18 per
diluted share in charges. "Despite the current operating
environment being more difficult than last year, we are pleased to
report solid second quarter results. Our overall results were
favorably impacted by rising lean hog prices, and we expect hog
prices to continue to remain above historic averages for the
remainder of this fiscal year. Our export sales for the second
quarter were flat versus very strong growth in the second quarter
of last year, when we experienced a 55% increase in export volume.
However, we saw a marked improvement in sales growth within our
food service channel," commented John Meyer, CEO and President of
Premium Standard Farms. "Conversely, our production operations were
impacted by health issues across the segment, which reduced
production volume by 6.1% year-over-year. We continue to focus on
improving health within our production operations and are
encouraged by early results of our circovirus vaccination programs
currently being implemented. While we expect to see more favorable
comparisons in volume toward the end of fiscal 2007 as a result of
the improvements made in recent months, we would expect near-term
health issues to remain." Mr. Meyer continued, "In the recently
published Quarterly Hogs & Pigs Inventory Report, the USDA
reported a 1.8% increase in breed stock. Additionally, the industry
has started operating at new capacity levels, and as such has been
recording the highest daily slaughter levels on record. While we
believe these levels are likely to be absorbed by current demand,
the increased pork supply levels have put pressure on meat prices
in recent months." First Half Fiscal 2007 Results Net sales for the
first six months of fiscal 2007 were $426.6 million compared to
$458.5 million last year. With respect to the same period last
year, net sales were negatively impacted by a $19.8 million
decrease in production volume combined with a decline in results
related to lean hog futures of $12.7 million. These factors were
partially offset by a $0.6 million improvement in live hog and
wholesale pork prices. Net income in the first six months of fiscal
2007 was $11.9 million, or $0.37 per diluted share, compared to net
income of $27.6 million, or $0.88 per diluted share, in the same
period last year. The results for the first six months of fiscal
2007 included a $1.6 million charge for merger-related activities,
as well as a $7.4 million charge for the settlement of a portion of
an outstanding legal case and reserves for other similar cases
pending, which combined, after-tax totals $0.18 per diluted share.
Results for the first six months of fiscal 2006 included a $21.7
million pre-tax charge from the early extinguishment of debt,
representing an after-tax charge of $0.43 per diluted share.
Operational Results Processing Segment Net sales in the processing
segment increased $9.4 million from $195.2 million to $204.6
million in the second quarter of fiscal 2007 compared to the prior
year. Processing volume for the second quarter of fiscal 2007
increased 1.6% compared to the same period last year, which was the
result of increased capacity utilization at the Company's Clinton,
NC facility. This increased volume, combined with a 3.2%
improvement in pork product sales prices, were the primary drivers
behind the 4.8% increase in overall processing sales. In the second
quarter of fiscal 2007, the Company experienced solid sales growth
in its food service business. For the six months ended September
23, 2006, sales in the processing segment decreased 2.2% to $395.5
million from $404.4 million in the comparable period last year.
This decline was largely the result of a 1.5% decrease in volume
processed during the first six months of fiscal 2007, which can be
primarily attributed to reduced productivity from the Company's hog
production segment. Production Segment Production sales decreased
by 1.2% to $143.2 million in the second quarter of fiscal 2007 from
$144.9 million in the comparable period last year. This decline can
be attributed to a 6.1% decrease in volume across the segment
primarily relating to health issues. However, this reduction in
volume was partially offset by a 3.8% improvement in hog sale
prices. Additionally, during the quarter, the Company benefited
from a $2.3 million improvement in results related to lean hog
futures contracts compared to the same period in the prior year.
Net sales decreased by 13.1% to $274.9 million from $316.5 million
in the first six months of fiscal 2007. This primarily resulted
from a 6.5% decrease in overall production volume relating to
health issues, coupled with a 3.0% decline in live hog sale prices.
Premium Standard Farms' results were also negatively impacted
during the first six months of fiscal 2007 due to a $12.7 million
decrease in results related to lean hog futures contracts recorded
compared to the same period in the prior year. In the near-term,
the Company expects to see a continued negative impact on
production volume due to remaining health issues throughout the
segment, but expects to see more favorable results toward the end
of fiscal 2007 as a result of improvements made during the year.
Fiscal Second Quarter Developments On September 18, 2006, Premium
Standard Farms and Smithfield Foods announced their plans to merge.
Under the terms of the merger, each share of Premium Standard Farms
will be converted into the right to receive 0.678 of a share of
Smithfield Foods' common stock plus $1.25 in cash. The transaction
is expected to close in the first quarter of calendar 2007, subject
to approval by certain regulatory agencies. As discussed in the
Company's 8-K filed on September 22, 2006, the Company has settled
a portion of an outstanding legal case for the sum of $4.5 million.
In connection with and in consideration of this settlement and
other similar cases pending, the Company recorded an expense of
$7.4 million as a selling, general, and administrative expense.
Outlook While hog prices have remained steady since late July and
are expected to remain above historic averages for the remainder of
the fiscal year, the Company continues to expect lean hog prices
and pork prices at levels lower than previously experienced in
fiscal 2006. As a result, the Company expects net sales and net
income in fiscal 2007 to remain at lower levels than the prior
year. The Company's Milan, MO expansion continues to remain on
schedule and on budget. As noted in previous releases, this
expansion will take the daily maximum processing capacity to 10,000
head per day and enhance plant capacity by 35% and total company
capacity by 15%. About Premium Standard Farms Premium Standard
Farms is one of the largest vertically integrated providers of pork
products in the United States, producing consistent, high quality
pork products for the retail, wholesale, foodservice, export, and
further processor markets. Premium Standard Farms is the nation's
second largest pork producer and sixth largest pork processor, with
approximately 4,300 employees working at farms and processing
facilities in Missouri, North Carolina, and Texas. This news
release contains "forward-looking statements" within the meaning of
the federal securities laws. Naturally, all forward-looking
statements involve risk and uncertainty and actual results or
events could be materially different. Although we believe that our
expectations are based on reasonable assumptions, we can give no
assurance that our goals will be achieved. Important factors that
could cause actual results to differ include: economic conditions
generally and in our principal markets; competitive practices and
consolidation in the pork production and processing industries; the
impact of current and future laws, government regulations and
fiscal policies affecting our industry and operations, including
environmental litigation, laws and regulations, trade embargoes and
tariffs; developments relating to our pending merger with
Smithfield, including the costs relating to the proposed merger and
disruption from the transaction making it more difficult to
maintain relationships with customers, employees or suppliers;
uncertainties relating to litigation involving us; domestic and
international transportation disruptions; food safety; the
availability of additional capital to fund future commitments and
expansion and the cost and terms of financing; the extent to which
we are able to manage animal health issues; feed ingredient costs;
fluctuations in live hog and wholesale pork prices; customer
demands and preferences; and the occurrence of natural disasters
and other occurrences beyond our control. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed
might not occur. A copy of the Company's Form 10-Q for the second
quarter of fiscal 2007 will be available on the internet at
http://www.psfarms.com/ . Premium Standard Farms, Inc. and
Subsidiaries Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) 13 and 26 weeks ended September 23,
2006 and September 24, 2005 (in 000's except share and per share
data) (Unaudited) 13 Weeks Ended 26 Weeks Ended September September
September September 23, 24, 23, 24, 2006 2005 2006 2005 Net sales
$220,396 $213,231 $426,554 $458,538 Cost of goods sold 195,760
186,350 383,037 374,590 Gross profit 24,636 26,881 43,517 83,948
Selling, general and administrative expenses 15,612 5,686 22,184
13,119 Loss on early extinguishment of debt 92 - 92 21,707 Other
income (264) (72) (479) (356) Operating income 9,196 21,267 21,720
49,478 Interest expense (income): Interest expense 1,759 2,096
3,704 5,291 Interest income (325) (21) (712) (152) Interest
expense, net 1,434 2,075 2,992 5,139 Income before income taxes
7,762 19,192 18,728 44,339 Income tax expense 3,493 6,962 6,869
16,737 Net income $4,269 $12,230 $11,859 $27,602 Unrealized gain
(loss) on interest rate swap, net of tax (3,212) 1,822 (507) 212
Comprehensive income $1,057 $14,052 $11,352 $27,814 Earnings per
share: Basic $0.13 $0.40 $0.38 $0.89 Diluted $0.13 $0.39 $0.37
$0.88 Weighted average number of common shares outstanding: Basic
31,648,502 30,928,524 31,620,574 30,928,524 Diluted 31,837,590
31,332,313 31,822,175 31,236,245 Dividends declared per share $0.06
$0.06 $0.12 $0.12 DATASOURCE: Premium Standard Farms, Inc. CONTACT:
Investor contact, Steve Lightstone, CFO, Premium Standard Farms,
Inc., +1-816-472-7675 Web site: http://www.psfarms.com/
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