- Record revenues were up 27.5% on 21.0% volume growth
- EPS increases 15.0% to $0.46; operating profit grows 22.0%
- Operating margin climbs to 19.6% and 11.0% after-tax
- Borden pasta brands acquisition completed in July
- Existing guidance for FY 2001 confirmed; initial guidance for FY 2002 provided
American Italian Pasta Company (NYSE: PLB), yesterday announced record results for the third fiscal quarter of 2001 ended June 29, 2001. The Company also confirmed it is comfortable with the First Call consensus earnings per share of $1.73 for fiscal 2001, excluding unusual charges, and provided initial guidance for fiscal 2002.
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For the quarter, revenues rose 28% to $77.3 million from $60.6 million in the fiscal 2000 third quarter on 21% volume growth. Volume growth was strong in all business units, in particular private label with 31% growth and ingredient with 66% growth. Revenue growth exceeded volume growth, primarily reflecting the benefits of higher per-unit revenue associated with the Mueller’s acquisition. Fully diluted earnings per share were $0.46, up 15% over the comparable period last year.
Timothy S. Webster, President and Chief Executive Officer, said, “We are very pleased to report on an outstanding quarter that delivered record revenue and earnings per share. Volume and revenue performances were outstanding across the Company. Not only did the ingredient and private-label businesses perform exceptionally well, revenues from our brands and branded outsourcing businesses grew 35%. Food service experienced double-digit growth, and we began to see significant revenue contributions from our Italian facility as well.
“The strong branded performance was driven by the first full quarter of volume from our ADM/Gooch outsourcing, increased prices on the Mueller’s brand, and the additional revenue benefit of the Mueller’s acquisition,” continued Webster. “Partially mitigating these results were Mueller’s brand volumes, which were off 14% during the quarter. The Mueller’s brand went through a significant transition in the quarter-we introduced new packaging, new prices and a new line of “Made in Italy” products. The impact of the Mueller’s volume decline on revenue and profits was not significant as evidenced by the outstanding financial results during the quarter. We expect volume trends to improve in the fourth quarter as a result of our re-launch and increased trade marketing activity.”
Webster also highlighted the performance of the Company’s new Italian facility. “We continue to be pleased with the progress of our Italian expansion. During the quarter, we began shipping new Mueller’s imported items and grew the number of U.S. private-label customers sourcing our ”Made in Italy“ pasta to nine. We also successfully secured two strategic European industrial customers, Kraft and Heinz, during this quarter and will begin shipments to retailers in the U.K. and Germany in the fourth quarter.”
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By GlobalDataHorst W. Schroeder, Chairman of the Board, said, “This was a truly outstanding quarter for our Company in many ways. There was exceptional performance of all key business units. Italy is ramping up nicely. We won our first piece of outsourcing business in Europe and made our first shipment to this customer last week. We now have an exciting opportunity to profitably grow our presence in the branded business in the U.S. market, with the recently announced strategic acquisition of the seven Borden brands.”
Schroeder continued, “In addition to all the previously mentioned accomplishments, we just completed a rigorous, long-range planning process and have re-committed ourselves to our goal of 15% to 20% top- and bottom-line growth for the next three years. The plan reinforces our single-minded focus on dry pasta and lays out significant opportunities to invest in the market to drive down costs and further enhance our low-cost producer status. We continue to reap the benefits of the facility investments we made over the past five years and expect to show steady improvement in our balance-sheet and income-statement-return ratios in spite of planned increases in marketing spending.”
Acquisition of Borden Pasta Brands Complete; New Financing Secured
On June 4, 2001, AIPC announced that it had reached a definitive agreement to acquire seven strong regional pasta brands from Borden Foods. The all-cash transaction-valued at $67.5 million plus inventory-was completed on July 16, 2001.
In conjunction with the acquisition, the Company secured a new five-year, $300 million revolving credit facility to replace the Company’s previous $190 million facility. The revolver includes $100 million of dual currency availability in Euros or U.S. dollars to finance the Company’s international business in Italy. Webster commented, “We are extremely pleased with the strength of our bank group, led by Bank of America, and with the favorable terms of the financing.”
The Company also announced it will take an unusual charge in the fourth quarter of fiscal 2001 for acquisition-related costs and it will also take an extraordinary charge as required by accounting rules to write off unamortized costs associated with the previous line of credit.
Guidance for Fiscal 2001 and 2002
The Company confirmed that it remains comfortable with its expectations of full-year 2001 earnings per share of $1.73, excluding unusual charges related to acquisitions and the new credit facility.
For fiscal 2002, the Company said that it expects to earn $2.09 to $2.15 per share. “This range reflects our unchanged target of double-digit growth and a significant contribution from the brands we acquired in FY2001 and allows for increased marketing investments towards share and volume growth. However, this is very preliminary. We are in the middle of our detailed fiscal-year budgeting process and will provide additional guidance during the fourth-quarter earnings release and conference call scheduled for October 31, 2001.”
Financial Discussion
Net revenues for the quarter totaled $77.3 million, a $16.7 million or 27.5% increase over the $60.6 million reported in the third quarter of fiscal 2000. Retail and institutional net revenues increased by 23.5% and 38.6%, respectively. The increase in retail net revenue was primarily due to higher per-unit selling prices of the Mueller’s brand products following the November acquisition by AIPC, and higher private-label and branded volumes. The increase in institutional net revenue was driven by the significant gains in ingredient and food service volumes, partially offset by lower contract volumes.
Gross profit for the quarter totaled $25.3 million, an increase of $7.6 million or 42.7% over the $17.7 million reported in the third quarter of 2000. The increase was primarily attributable to revenue growth associated with increased volumes, and the higher per-unit selling prices of Mueller’s products, partially offset by higher raw material and other inputs. The gross margin percentage for the third quarter was 32.7% compared with 29.2% in the third quarter of fiscal 2000. This percentage increase was primarily due to incremental gross profit on Mueller’s brand sales as a result of the brand’s acquisition in the first 2001 fiscal quarter.
Selling, marketing, general, and administrative costs were $10.1 million for the quarter, an increase of $4.8 million or 91.1% over the $5.3 million reported in the third quarter of 2000. This increase was as expected and is primarily due to higher marketing costs associated with higher retail revenues, as well as the incremental marketing, personnel, and goodwill amortization costs associated with the Mueller’s brand acquisition.
Operating profit for the quarter totaled $15.1 million, a $2.7 million or 22.0% increase over the $12.4 million reported in the third quarter of 2000. Operating profit as a percentage of net revenues was 19.6% versus 20.5% reported in the third quarter of 2000. Generally, the lower percentage is a factor of changes in sales mix and the pass-through of higher input costs.
Interest expense for the quarter totaled $2.2 million, an increase of $1.0 million over the $1.1 million reported in the third quarter of 2000. The increase was related to borrowings associated with the Mueller’s acquisition, the prior-year stock repurchase program, and capital expenditures. Year-to-date cash flow from operations was up 43.4% to $35.2 million versus $24.5 million year-to-date in 2000.
Income tax expense for the quarter totaled $4.5 million, compared to $4.0 million reported in the third quarter of 2000, reflecting effective tax rates of approximately 34.5% and 35.5%, respectively. The decrease in the effective rate reflects the Company’s ongoing efforts to minimize taxes.
Net income for the quarter totaled $8.5 million, an increase of $1.2 million or 17.0% over the prior year quarter, and third quarter 2001 earnings per fully diluted share was $0.46, an increase of 15.0% over the prior year quarter of $0.40.
Founded in 1988 and based in Kansas City, Mo., American Italian Pasta Company is the largest- and the fastest-growing producer and marketer of dry pasta in North America. The Company has four plants that are strategically located in Excelsior Springs, Mo., Columbia, S.C., Kenosha, Wis. and Verolanuova, Italy. The Company has approximately 550 employees located in the United States and Italy.
The statements contained in this release regarding: the potential impact of the acquisition of seven Borden Foods pasta brands, the Company’s top- and bottom-line growth goals for the next three years, the impact of Mueller’s volume trend in the fourth quarter of fiscal year 2001, expectations of balance sheet and income statement ratios and guidance for FY 2001 and FY 2002 are forward looking and based on current expectations. Actual future results could differ materially from those anticipated by such forward-looking statements. The differences could be caused by a number of factors, included but not limited to our dependence on a limited number of customers for a substantial portion of our revenue, our ability to manage rapid growth, our ability to obtain necessary raw materials and minimize fluctuations in raw material prices, the impact of the highly competitive environment in which we operate, reliance exclusively on a single product category, our limited experience in the branded retail pasta business, our ability to attract and retain key personnel, our ability to cost-effectively transport our products and the significant risks inherent in our recent international expansion. For additional discussion of the principal factors that could cause actual results to be materially different, refer to our Annual Report on Form 10-K dated December 22, 2000, filed by the Company with the Securities and Exchange Commission (Commission file No. 001-13403), any amendments thereto and other matters disclosed in the Company’s other public filings. The Company will not update any forward-looking statements in this press release to reflect future events.
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
Three Months Three Months
Ended Ended
June 30, June 30,
2001 2000 % Change
Revenues
Retail $54,998 $44,531 23.5%
Institutional 22,302 16,091 38.6%
Total revenues 77,300 60,622 27.5%
Cost of goods sold 52,018 42,909 21.2%
Gross profit 25,282 17,713 42.7%
32.7% 29.2%
Selling and marketing expense 7,638 3,836 99.1%
General and administrative
expense 2,510 1,475 70.2%
Operating profit 15,134 12,402 22.0%
19.6% 20.5%
Interest expense, net 2,161 1,146 88.6%
Income tax provision 4,482 3,996 12.2%
Net income $8,491 $7,260 17.0%
11.0% 12.0%
Basic earnings per common share:
Net income per common share $0.49 $0.40 22.5%
Weighted average common shares
outstanding 17,498 17,933
Diluted earnings per common share:
Net income per common share $0.46 $0.40 15.0%
Weighted average common shares
outstanding 18,353 18,323
AMERICAN ITALIAN PASTA COMPANY
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
Nine Months Nine Months
Ended Ended
June 30, June 30,
2001 2000 % Change
Revenues
Retail $155,467 $131,872 17.9%
Institutional 63,267 51,856 22.0%
Total revenues 218,734 183,728 19.1%
Cost of goods sold 150,974 131,895 14.5%
Gross profit 67,760 51,833 30.7%
31.0% 28.2%
Selling and marketing expense 20,700 12,101 71.1%
General and administrative
expense 6,755 4,647 45.4%
Provision for acquisition
expenses 1,827 — N/A
Operating profit 38,478 35,085 9.7%
17.6% 19.1%
Interest expense, net 5,762 3,475 65.8%
Income tax provision 11,287 11,425 -1.2%
Net income $21,429 $20,185 6.2%
9.8% 11.0%
Basic earnings per common share:
Net income per common share before
non-recurring provision for
acquisition expenses $1.30 $1.11 17.1%
Provision for acquisition
expenses, net of tax $(0.07) — N/A
Net income per common share $1.23 $1.11 10.8%
Weighted average common
shares outstanding 17,360 18,166
Diluted earnings per common share:
Net income per common share before
non-recurring provision
for acquisition expenses $1.26 $1.08 16.7%
Provision for acquisition
expenses, net of tax $(0.07) — N/A
Net income per common share $1.19 $1.08 10.2%
Weighted average common
shares outstanding 18,050 18,623
AMERICAN ITALIAN PASTA COMPANY
Consolidated Balance Sheet
(Unaudited)
(in thousands, except per share amounts)
June 30, September 30,
2001 2000
Assets
Current assets:
Cash and temporary investments $10,281 $6,677
Trade and other receivables 33,601 27,479
Prepaid expenses and deposits 8,023 4,424
Inventory 35,165 28,390
Deferred income taxes 2,241 2,989
Total current assets 89,311 69,959
Property, plant and equipment:
Land and improvements 8,123 7,159
Buildings 92,833 85,157
Plant and mill equipment 263,450 230,383
Furniture, fixtures and equipment 10,912 10,011
375,318 332,710
Accumulated depreciation (75,887) (64,769)
299,431 267,941
Construction in progress 24,231 43,727
Total property, plant and equipment 323,662 311,668
Other assets 49,879 2,144
Total assets $462,852 $383,771
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $18,829 $12,261
Accrued expenses 12,713 8,352
Income tax payable 874 841
Current maturities of long-term debt 1,552 1,564
Total current liabilities 33,968 23,018
Long-term debt 158,028 138,502
Deferred income taxes 33,101 23,847
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value:
Authorized shares – 10,000,000 — —
Class A common stock, $.001 par value:
Authorized shares – 75,000,000 19 18
Class B common stock, $.001 par value:
Authorized shares – 25,000,000 — —
Additional paid-in capital 200,888 177,725
Treasury stock (34,394) (31,362)
Notes receivable from officers (61) (61)
Retained earnings 75,662 54,233
Accumulated other comprehensive income (loss) (4,359) (2,149)
Total stockholders’ equity 237,755 198,404
Total liabilities and stockholders’ equity $462,852 $383,771
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