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May 3, 2002

USA: Aurora Foods says turnaround continues in Q1, to close West Seneca bagel plant

St. Louis, Missouri-based Aurora Foods, a producer and marketer of branded foods, said it has made steady progress in its turnaround during its Q1, ended 31 March 2002. Net sales for the quarter were US$215.8m, down from US$230.1m a year ago. Including a pre-tax charge of US$20.1m, however, Q1 net sales were US$198.1m.

St. Louis, Missouri-based Aurora Foods, a producer and marketer of branded foods, said it has made steady progress in its turnaround during its Q1, ended 31 March 2002.

Net sales for the quarter were US$215.8m, down from US$230.1m a year ago. Including a pre-tax charge of US$20.1m, however, Q1 net sales were US$198.1m.

Also including this charge, the Q1 net loss was US$12.9m, before the cumulative effect of accounting changes, compared with a net loss of US$7.8m in the same year-ago period.

“This has been a quarter of good progress in our turnaround,” said chairman and CEO James T. Smith: “In line with our strategy to build long-term growth, we are registering steady unit-volume increases overall, and we are reducing unnecessary costs throughout the business. Most importantly this quarter, our brands are growing, our costs are declining and our business is getting stronger.”

Unit volume improves

Aurora reported that unit volume increased 0.3% in the Q1 versus a year ago. The strong volume of most baking-related and breakfast products was offset by a significant decline in Van de Kamp’s seafood. Stronger-than-expected industry sales of private-label shrimp during Lent reduced the sales and consumption of traditional fish products. Conversely, Mrs. Paul’s volume increased slightly versus year ago behind the introduction of its new Shrimp Bowl meals, which offset a similar decline in its fish products. On a six-month basis, total company unit volume has increased 4.6% versus year-ago levels.

Cutting costs

Aurora saud that it is making significant progress on its strategy to reduce unnecessary costs. In the Q1, excluding the charge, Aurora reduced total marketing costs by US$8m even while unit volume was increasing.

In addition, distribution and fixed- and variable-manufacturing costs fell by US$2.6m in the Q1. Part of that savings came from moving distribution to the newly purchased St. Elmo facility, which is expected to produce savings of about US$5m in 2002 and about US$8m on an annualised basis.

In keeping with its cost-effectiveness programmes, Aurora will close its West Seneca, NY, Lender’s bagel manufacturing facility by 2 July, because its Mattoon, Illinois, facility, the world’s largest bagel bakery, has sufficient capacity to meet production needs.

This closing will result in the loss of 204 jobs, but Smith insisted: “This was a difficult but necessary decision as we continue to upgrade the effectiveness and efficiency or our operations.

Building brands

Aurora introduced several important line extensions in the Q1, including Duncan Hines Candy Shop brownies, Lender’s New York Style bagels and Mrs. Paul’s Shrimp Bowls. In the last few weeks, the company joined with retailing behemoth Wal-Mart to introduce a new line of Lender’s Premium Cream Cheese, which is shipping to over 500 Wal-Mart Super Centers.

Taking charge

“The company has faced an enormous number of challenges since it launched its turnaround,” Smith said.

“These challenges have included difficulties in identifying reliable information to accurately estimate our costs across many departments in the company, and were especially compounded by bankruptcy of our sales broker in 2001.

“Faced with this reality, we have steadily built our business, while putting in place the necessary processes and data systems to adequately manage the business. The new processes we have in place represent the culmination of our hard work to understand the business we inherited. These new processes are now allowing us to manage our business with a much higher degree of certainty.”

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