USA: Dreyer's Grand Ice Cream reports increase in Q2 EPS
Oakland, California-based ice cream producer Dreyer's Grand Ice Cream has reported fiscal results for its Q2 ended 29 June 2002, that reflect continued growth in sales and favourable dairy raw material costs, partially offset its recently announced transaction with Nestlé and the write-off of its investment in a dairy commodity exchange.
As a result, Dreyer's earned US$0.31 per diluted common share in the quarter, compared with earnings of US$0.20 per diluted common share reported in the Q2 2001.
On 16 June 2002, Dreyer's signed a merger and contribution agreement with Nestlé Holdings, whereby common stock of the company will be exchanged for a 100% ownership interest in the Nestle Ice Cream Co (NICC). This transaction will result in Nestlé owning 67% of the outstanding shares of the company. This transaction will be recorded as a "reverse acquisition" under the purchase method of accounting. During the Q2, the company incurred US$2.9m of such costs. The company currently estimates that it will incur total merger-related transaction costs for fiscal 2002 in the range of US$19m to US$22m.
Consolidated net sales for the 13-week period ended 29 June were US$376.8m, an increase of 12% over net sales of US$335.4m in the Q2 2001. The company reported net income in the quarter of US$11.6m, a US$4.6m increase over net income of US$7.04m in the Q2 2001.
Consolidated net sales for the H1 were US$667.2m, an increase of 16% over net sales of US$574.8m in the same period last year. The company reported year-to-date net income of US$12.9m, a US$10.3m increase over net income of US$2.6m in the same period of 2001.
Net sales of Dreyer's branded products increased 6% for the Q2 to US$204.6m, 54% of total net sales, down from 58% in the Q2 2001. The growth of the brands was primarily driven by strong sales of the superpremium portfolio, which strengthened relative to the Q1 2002. Sales growth in premium brands, while positive, slowed relative to Q1 trends.
Net sales of partner brands, products distributed for other manufacturers, increased 22% in the quarter. The increase was driven primarily by increased sales of distributed novelty products, Ben & Jerry's superpremium products and Healthy Choice ice cream. Partner brand sales accounted for 46% of total net sales, up from 42% in the Q2 2001.
The company concluded that its investment in Momentx Corp. was not recoverable and as such recorded a US$1.1m write-off to other (loss) income during the quarter. Momentx is an e-market solution provider for the dairy, food and beverage industries. During the Q2 2002, the company determined that Momentx's ongoing shortfalls to its business plan have negatively impacted the recoverability of the company's investment.
Dreyer's gross profit increased by US$11.8m to US$53.9m, representing a 14% gross margin for the Q2 compared with a 13% gross margin in the same quarter of 2001. The improvement in gross profit was driven primarily by lower dairy costs and higher volume, partially offset by increases in distribution expenses.
Dairy raw material costs accounted for a US$9.7m pre-tax benefit in the Q1 versus last year, net of the results of butter trading activities.
Selling, general and administrative expenses increased by US$1.05m to US$29.3m for the quarter and represented 8% of net sales, compared with US$28.3m, or 8% of net sales, in the same quarter of 2001. The increase in expenses reflects higher administrative expenses, partially offset by reduced amortisation expense due to the impact of a change in the accounting for amortisation of goodwill.
Beginning with the Q1 2002, Dreyer's began reporting sales net of certain marketing and promotion expenses that were previously included in selling, general and administrative expenses. Prior period expenses have been retroactively restated for comparative purposes with no effect on net income as previously reported.
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