The Earthgrains Company (NYSE: EGR) announced yesterday that it expects to report third-quarter results below the consensus of analyst expectations.
The analyst consensus for third-quarter earnings, excluding estimates for the impact of a labor strike, is $0.50 per diluted share. Earthgrains is projecting earnings of between approximately $0.34 and $0.37 per diluted share, excluding the expected strike impact and other unusual charges.
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The lower results projected for the quarter, which ended Jan. 2, 2001, primarily stem from lower than expected sales in domestic baking operations, higher fuel and energy costs, and foreign-exchange and tax-rate impacts.
Earthgrains expects the strike impact in the third quarter to reduce earnings by approximately $0.37 per share, which is $0.17 greater than estimated by analysts. The analysts’ earnings consensus for the quarter, including analysts’ $0.20 per share estimated strike impact, is $0.30 per diluted share.
Net revenue for the third quarter is expected to be approximately $782 million. Earthgrains will also report charges related to plant closings and accounts receivable in the quarter’s results. Projections for those unusual charges are given later in this press release.
The estimated financial results discussed in this press release are based on preliminary information. Final results will be announced Jan. 23, 2001. In conjunction with announcing final results, the company will also provide additional earnings guidance for the remainder of fiscal year 2001 and for fiscal year 2002 and will also discuss plans to improve performance and enhance margins.
“Recovery from the labor strike and continued cost escalation, particularly for fuel and energy, made for a very challenging quarter,” said Earthgrains Chairman and CEO Barry H. Beracha. “We are executing action plans that address key issues and opportunities. During the quarter, we focused on recovering from the strike. We have been able to emerge without losing major customers or shelf space. Nonetheless, the strike did impact costs and revenues in the quarter, and the recovery process brought additional challenges to a business where day-to-day execution is crucial.
“We remain focused on improving U.S. bakery sales, reducing costs, and enhancing efficiencies. We are continuing to seek additional price increases to cover increasing costs. We have begun system-wide cost-containment measures, and we expect further plant and route consolidation in the near term. We will continue to align our cost structure to return margins as soon as possible to at least pre-strike levels.
“Sales initiatives include continued focus on shifting our mix of products sold to higher-margin premium and super-premium products, introduction of new products, implementation of new sales incentive programs, and executing targeted consumer marketing initiatives. We will discuss these plans more fully on Jan. 23 when we release final results for the quarter.”
Labor Strike Impact
Ten days of a 28-day domestic labor strike that began Aug. 26, 2000, fell in the third quarter. By the end of the strike on Sept. 22, 2000, employees at 26 bakeries and one refrigerated-dough plant engaged in work stoppages.
The impact of the strike lowered third-quarter earnings by approximately $0.37 per diluted share. The second-quarter impact to earnings was approximately $0.13 per diluted share.
Earthgrains continued operating all but two bakeries and continued serving markets during the strike in order to preserve customer relationships. In addition to revenue impacts, the company incurred significant incremental costs for overtime, temporary labor, security, travel, purchased goods, and transportation and distribution.
Projected Earnings Including Unusual Charges
Earthgrains will record charges in the third quarter in connection with two bakery closings and a review of accounts receivable. Including these charges and the strike impact, Earthgrains expects to report a third-quarter loss of between $0.31 and $0.34 per diluted share.
* Earthgrains will take a pretax restructuring charge of approximately
$11.5 million ($7.2 million after tax, or $0.18 per share).
The charge is for costs of writing off fixed assets, for employee
severance and benefits, and for other related closing expenses
associated with the previously announced shutdowns of company bakeries
in Des Moines, Iowa, and Louisville, Ky. The closings were announced
Dec. 1, 2000, along with that of the company’s bakery in
Rockford, Ill., which was acquired with Metz Baking Co.
The costs related to the Rockford closing will be charged against
Metz reserves established at the time of the acquisition.
* The company will take a pretax accounting charge of approximately
$8.5 million ($5.4 million after tax, or $0.13 per share). The charge
is being taken to appropriately reflect collectibility of accounts
receivable based on a full review after the centralization of accounts
receivable within Earthgrains’ Financial Shared Services Center.
Third-Quarter Earnings Release and Analyst Conference Call
Earthgrains will release results for the third quarter before the New York Stock Exchange opens on Jan. 23, 2001. An analyst conference call will be held at 10 a.m. EST to discuss results, future earnings guidance, and company action plans.
The analyst conference call will be broadcast live via the Internet and is available to the general public. Interested shareholders, investors and consumers may listen to the broadcast by visiting the Earthgrains corporate web site, www.earthgrains.com . The webcast will also be archived and will be accessible through the web site.
About Earthgrains
Earthgrains, the makers of Earth Grains, IronKids, Grant’s Farm and Colonial/Rainbo breads, operates fresh-bakery and refrigerated-dough businesses in the United States and Europe. The company is the second-largest packaged bread and baked goods producer in the United States, operating 61 bakeries in the South, Southeast, Midwest, Upper Midwest, Southwest and West.
Cautionary Note: To provide the clearest possible description of Earthgrains’ business and outlook, this report contains forward-looking statements based on Earthgrains’ best current information and reasonable assumptions about anticipated developments. However, because of the risks and uncertainties that always exist in any operating environment or business, Earthgrains cannot make any assurances that these expectations will prove correct. Actual results and developments may differ materially, depending upon prices of raw materials, fuel, commodities and other goods purchased; the ability of the Company to realize projected savings from productivity and product-quality improvements; the ability of the Company to continue to participate in industry consolidation and to successfully integrate acquired businesses; labor costs and labor relations, legal proceedings to which the Company may become a party; competitive pricing; economic conditions in the Company’s countries of operations; including currency values and interest rates; the impact of the European monetary union; and other factors.
Further information on factors that could affect Earthgrains’ financial and other results is included in the Company’s filings with the Securities and Exchange Commission.
