Interstate Bakeries Corporation (NYSE: IBC), the nation's largest baker and distributor of fresh branded bread and cake, yesterday reported lower operating income and earnings per share for its 12-week second quarter ended November 18, 2000. The Company's operating income was $32,676,000 compared to the previous year's $50,143,000, while earnings per share on a diluted basis were $0.22, compared to the prior year's $0.40.

IBC Chairman and Chief Executive Officer Charles A. Sullivan termed the quarter difficult. Net sales for the quarter rose 0.9 percent in comparison to the prior year, driven by improved pricing. Margins were severely impacted by higher labor-related expenses and increased energy costs, including natural gas for bakery ovens, fuel for the Company's distribution fleet and higher utility costs, particularly in it's fourteen California bakeries.

Mr. Sullivan said he anticipates the earnings difficulties to persist over the short-term, but emphasized IBC has implemented specific programs and action plans that are expected to deliver an improvement in longer-term profitability.

Summarizing the Company's financial performance for the 12-week quarter ended November 18, 2000:

  • Net sales of $817,813,000, an increase of 0.9 percent over the prior year's $810,600,000.
  • Operating income of $32,676,000, or 4.0 percent of net sales, compared to last year's $50,143,000, or 6.2 percent of net sales.
  • Net income of $11,386,000, or 1.4 percent of net sales, compared to the previous year's $27,938,000, or 3.4 percent of net sales.
  • Diluted earnings per share of $0.22 compared to the prior year's $0.40.

For the first 24 weeks of the fiscal year, IBC reported:

  • Net sales of $1,637,507,000, an increase of 1.1 percent over the prior year's $1,620,073,000.
  • Operating income of $82,782,000, or 5.1 percent of net sales, compared to the prior year's $108,942,000, or 6.7 percent of net sales.
  • Net income of $38,271,000, or 2.3 percent of net sales, compared to the previous year's $61,164,000, or 3.8 percent of net sales.
  • Diluted earnings per share of $0.65 compared to the prior year's $0.87.

Top line growth has been hampered by the continuing weakness of bread sales in the Northeast and Northwest, combined with sluggish cake sales nationally. Sales were particularly impacted by the residual effects of last spring's New England Teamsters' strike in the Northeast and the post start-up problems at IBC's new Tacoma bakery in the Northwest. On a more positive note, bread sales outside the Northeast and Northwest were up over 3% this quarter reflecting improved pricing.

Mr. Sullivan said: ``The start-up delays and other operational inefficiencies are generally behind us, and the settlement of our labor contract has allowed us to move forward with efficient realignment of our distribution routes in the New England market. That is positive news regarding a reduction in sales distribution costs and now sets the stage for focusing the sales force on programs that are intended to recoup sales volume lost during those earlier months.''

Mr. Sullivan said the Company likely would not see a financial performance improvement before the fiscal fourth quarter. But he said strategies were in place and being implemented to drive earnings growth. They include:

  • Increasing volume in the Northeast and Northwest through expansion of new products.
  • Improving the efficiency and productivity of IBC's product distribution system by the realignment of routes in New England and other parts of the country. ``Better overall route productivity, particularly in the Northeast and Northwest, is essential to our success and is a first step toward ensuring higher route averages and reduced selling expense,'' Mr. Sullivan said.
  • Protecting margins. ``In response to the higher energy costs, we will continue to review pricing, and make changes as appropriate,'' he said.
  • Continuing to emphasize better price realization on promotions to drive increased sales.
  • Continuing to invest in projects that will drive costs out of the system and enhance product quality and manufacturing efficiency.
  • New management leadership in the Northwest and Northeast. ``This has been accomplished, and work is underway to ensure improved operational and sales distribution performance,'' he said.

Looking to the future, Mr. Sullivan said: ``The fiscal third quarter will be challenging, not unlike the second. We are confident our short-term sales issues will be solved. Ingredient costs will remain reasonable since we have commodity purchase contracts in place through the balance of the fiscal year. We will also continue to maintain discipline on operational costs.''

Interstate Bakeries Corporation is the nation's largest wholesale baking company with 65 bread and cake bakeries located in strategic markets from coast-to-coast. The Company is headquartered in Kansas City, Missouri.

Editor's Note: Interstate Bakeries Corporation will conduct a conference call regarding this 2nd Quarter Earnings Release on Tuesday, December 12, at 9 a.m. (CST). The call will begin at 8:50 a.m. Contact the conference call operator at 800/275-3210.

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

                    INTERSTATE BAKERIES CORPORATION
                   CONSOLIDATED STATEMENT OF INCOME
                     (000S EXCEPT PER SHARE DATA)

                                Twelve Weeks       Twenty-Four Weeks
                                    Ended                Ended
                             ------------------  ---------------------
                             Nov. 18,  Nov. 13,   Nov. 18,   Nov. 13,
                               2000      1999       2000       1999
                             --------  --------  ---------- ----------
Net sales                    $817,813  $810,600  $1,637,507 $1,620,073
                             --------  --------  ---------- ----------
Cost of products sold         391,859   378,963     776,079    759,677
Selling, delivery and
 administrative expenses      367,699   355,749     727,551    700,119
Depreciation and
 amortization                  25,579    25,745      51,095     51,335
                             --------  --------  ---------- ----------
                              785,137   760,457   1,554,725  1,511,131
                             --------  --------  ---------- ----------

Operating income               32,676    50,143      82,782    108,942
Interest expense - net         13,305     5,442      19,837     11,079
                             --------  --------  ---------- ----------
Income before income taxes     19,371    44,701      62,945     97,863
Income taxes                    7,985    16,763      24,674     36,699
                             --------  --------  ---------- ----------
Net income                   $ 11,386  $ 27,938  $   38,271 $   61,164
                             ========  ========  ========== ==========
Earnings per share:
  Basic                      $   0.22  $   0.40  $     0.66 $     0.88
                             ========  ========  ========== ==========
  Diluted                    $   0.22  $   0.40  $     0.65 $     0.87
                             ========  ========  ========== ==========

Average shares outstanding:
  Basic                        51,207    69,407      58,253     69,893
                             ========  ========  ========== ==========
  Diluted                      51,408    69,855      58,473     70,371
                             ========  ========  ========== ==========



                 CONSOLIDATED CONDENSED BALANCE SHEET
                                (000S)

                                  Nov. 18,     June 3,
                                    2000        2000
                                 ----------  ----------
Assets:
  Current assets                 $  340,718  $  341,147
  Property and equipment - net      884,870     886,078
  Other assets                      422,794     424,700
                                 ----------  ----------
                                 $1,648,382  $1,651,925
                                 ==========  ==========
Liabilities and Stockholders'
 Equity:
  Current liabilities            $  694,173  $  330,457
  Long-term debt                    239,000     385,000
  Other long-term liabilities       337,823     344,791
  Stockholders' equity              377,386     591,677
                                 ----------  ----------
                                 $1,648,382  $1,651,925
                                 ==========  ==========