Premium Standard Farms profit falls; shares drop

KANSAS CITY, Mo - Premium Standard Farms, Inc., a leading vertically integrated provider of pork products, today announced its first quarter results for the period ended June 24, 2006.
calendar icon 5 August 2006
clock icon 4 minute read

Fiscal First Quarter Results

Net sales for the quarter totaled $206.2 million, compared to $245.3 million during the first quarter of fiscal 2006. This decrease can be primarily attributed to the 9.6% decline in live hog prices and a 4.6% decline in meat prices, reduced volume in both the production and processing segments, and a decrease in results related to hog hedging futures.

Net income for the first quarter was $7.6 million, or $0.24 per diluted share, compared to net income of $15.4 million, or $0.49 per diluted share, for the first quarter of fiscal 2006. Results for fiscal 2006 included a $21.7 million charge from the early extinguishment of debt, representing an after tax charge of $0.43 per diluted share.

"Over the last several quarters, the entire protein industry has experienced an increasingly difficult operating environment, which had a negative impact on our results. In April and May, live hog and meat prices declined rapidly as concerns of an oversupply in the entire protein complex loomed. However, these expectations have been tempered as the anticipated surplus did not materialize, which resulted in increases in both live hog and meat prices toward the end of June," commented John Meyer, President and Chief Executive Officer of Premium Standard Farms. "While these macro-economic trends are beyond our control, we have focused our efforts on the factors where we can improve results. We have instituted a number of programs with the goal of increasing productivity and efficiency at our farms and in our processing facilities, as well as improving sales margins."

Mr. Meyer continued, "We experienced a year-over-year decline in both our production and processing volume during the quarter relating primarily to animal health issues. We continue to make enhancements to our processes and further improve animal health at our hog production facilities. We are already seeing signs of improvement with the health issues that caused the declines in production volume, which we expect to see reflected in our results by the end of fiscal 2007."

Outlook

The Company recently announced several organizational changes that will intensify its focus on operational excellence, sales and margin growth, and business development. We believe these ongoing changes position Premium Standard Farms for long-term success. In addition to the appointments of Calvin Held to Vice President of Process Improvement and Blake Day to Vice President of Business Development, Premium Standard Farms has added and filled a number of key positions in both the food service and retail sales segments designed to improve upon the company's sales process and margins.

The company's export business was softer in the first quarter of 2007 than in previous quarters, particularly compared to the first quarter of last year when export sales increased 72%. The softness Premium Standard Farms experienced was in the first two months of the quarter, as June showed a marked improvement. While the company does not expect to produce export growth levels similar to those in fiscal 2006, the Company does expect solid export growth for the year. Domestically, demand was steady in the first quarter.

Mr. Meyer concluded, "In addition to striving for operational excellence, we remain committed to positioning Premium Standard Farms for long-term growth. We continue to identify and pursue both external and organic growth opportunities that will complement our Milan, MO plant expansion, which is progressing as planned."

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