Interstate Bakeries Corporation (NYSE:IBC), the nation's largest wholesale baker and distributor of fresh branded bread and cake, yesterday reported financial results for its twelve-week first quarter ended August 26, 2000.

Net sales increased 1.3 percent for the quarter, driven by improved pricing. Operating income for the quarter was $50,106,000, or 6.1 percent of net sales. Earnings per share on a diluted basis were $0.41 compared to the prior year's $0.47.

For the twelve weeks ended August 26, 2000, IBC reported:
  • Net sales of $819,694,000 in comparison to the prior year's $809,473,000.
  • Operating income of $50,106,000, 6.1 percent of net sales, compared to the previous year's $58,799,000, or 7.3 percent of net sales.
  • Net income of $26,885,000, or 3.3 percent of net sales, in comparison to the prior year's $33,226,000, or 4.1 percent of net sales.
  • Diluted earnings per share of $0.41 compared to the previous year's $0.47.
"Our quarterly operations were adversely affected by unabated fuel price escalation, both diesel and natural gas, and weak sales performance in the Northeast and Northwest," said Chairman and CEO, Charles A. Sullivan. "For the quarter, we showed gross margin improvement associated with manufacturing efficiencies and other cost savings, but overall sales increases were not enough to offset the increase in costs to deliver and sell our product."

Mr. Sullivan noted that the favorable gross profit performance reflects good operational progress at IBC's new plant in Biddeford, Maine, as the Company began to enjoy some of the cost-savings benefits of this major investment. In a similar vein, two new bakeries at Tacoma, Washington, and Knoxville, Tennessee, are scheduled to be fully operational in the second quarter of this year and will replace less efficient bakeries.

"We continue to invest in projects that will drive costs out of our system and enhance manufacturing efficiency," he said. "In addition, the recent settlement of our expired labor contract with the New England Teamsters will allow us to move forward with efficient realignment of our routes in the New England market area. We expect to see meaningful cost savings from that realignment."

The Company's weakness in sales volume is mostly situated in the Northeast and Northwest. Mr. Sullivan attributed much of the Northeast's decrease to the lingering effects of the Teamsters' strike and Biddeford's original start-up problems. In the Northwest, the new plant's start-up problems have negatively impacted sales.

"With our strong line-up of brands, a powerful direct store delivery system in both markets and excellent retail customer relationships, we are confident of our ability to solve these short-term sales issues and return these major business segments to their historic level of importance to our Company's overall profitability. To successfully restore profit margins and drive earnings growth, we must be more effective in increasing the sales volume of our higher-margin branded products from those two regions," he said.

"In the near term, we will focus on activities that will improve our margins to more historic levels. This will include placing a renewed emphasis on increasing sales through better price realization on promotions and improved performance in the Northeast and Northwest markets, reducing our sales distribution costs and achieving more of the efficiencies and related cost-reduction benefits from our major capital investments at Biddeford, Tacoma, Knoxville, and Rocky Mount, North Carolina," he said.

On July 24, 2000, IBC announced an agreement with Ralston Purina Company ("RPC") to purchase 15,498,000 shares of IBC's common stock at market prices, reducing common shares outstanding to approximately 51 million. That transaction, completed September 1, 2000, reduced RPC's holdings of IBC common stock to 29.5 percent. IBC also amended the shareholder agreement with RPC requiring RPC to reduce its IBC common stock ownership to no more than 15 percent by August 1, 2004, and 10 percent by August 1, 2005. IBC continues to have the first right on RPC's disposal of any IBC common stock. To fund the stock acquisition, as well as repay all its outstanding senior notes, IBC secured a new 364-day bank term loan and amended its existing revolving credit agreement. The new term loan is expected to be refinanced on a long-term basis by a public debt offering during the next year.

"While stock repurchases still remain a strategic option for the future, we will focus our strong cash flow towards the pay-down of these new borrowings, as well as investment in capital projects and value-added acquisitions should viable candidates become available," Mr. Sullivan said.

Interstate Bakeries Corporation is the nation's largest wholesale baking company, with 66 bread and cake bakeries located in strategic markets from coast to coast. The Company is headquartered in Kansas City, Missouri.

For information on the Company, please contact: Frank W. Coffey, Senior Vice President & Chief Financial Officer, Interstate Bakeries Corporation, 12 E. Armour Boulevard, Kansas City, Missouri 64111; 816/502-4000.


Twelve Weeks Ended
August 26, August 21,
2000 1999
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Net sales $ 819,694 $ 809,473
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Cost of products sold 384,220 380,714
Selling, delivery and administrative
expenses 359,852 344,370
Depreciation and amortization 25,516 25,590
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769,588 750,674
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Operating income 50,106 58,799
Interest expense -- net 6,532 5,637
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Income before income taxes 43,574 53,162
Income taxes 16,689 19,936
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Net income $ 26,885 $ 33,226
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Earnings per share:
Basic $ 0.41 $ 0.47
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Diluted $ 0.41 $ 0.47
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Average shares outstanding:
Basic 65,232 70,312
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Diluted 65,472 70,821
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August 26, June 3,
2000 2000
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Current assets $ 348,415 $ 341,147
Property and equipment -- net 882,147 886,078
Other assets 421,238 424,700
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$1,651,800 $1,651,925
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Liabilities and Stockholders' Equity:
Current liabilities $ 322,936 $ 330,457
Long-term debt 412,000 385,000
Other long-term liabilities 342,924 344,791
Stockholders' equity 573,940 591,677
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$1,651,800 $1,651,925
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