Minneapolis-based International Multifoods Corp, a manufacturer and marketer of branded consumer foods and foodservice products, has posted Q4 fiscal 2002 diluted earnings per share, excluding unusual items, of 30 cents, compared with 15 cents in the Q4 of fiscal 2001.
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Q4 net earnings before unusual items were US$5.9m, up from US$2.9m year on year.
The company’s Q4 results include the contribution from the Pillsbury® desserts and specialty products business, acquired in November 2001, and the incremental interest expense for acquisition-related borrowings.
Net sales for the 13-week quarter, ended 2 March, totalled US$768.9m, up 13.2% from US$679.5m in the prior year, a 14-week period. Excluding sales from the acquired brands, the extra week in last year’s Q4 and the impact of negative currency, sales increased 6.8%. Operating earnings before unusual items were US$17.9m, compared with US$9.7m year on year.
“We ended the year with good momentum, and as we enter our new fiscal year, we are solidly positioned to deliver year-over-year improvements in earnings per share each quarter,” said Gary E. Costley, Multifoods chairman and CEO: “Fiscal 2002 was a transformational year for Multifoods. We completed our acquisition of the Pillsbury desserts and specialty products business, which added to our portfolio valuable brands such as Pillsbury in the US retail baking aisle, Hungry Jack®, Martha White®, Pet®, Farmhouse®, Softasilk® and Robin Hood®.
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By GlobalData“The acquisition strengthens our market position in grain-based foods, improves our profitability and significantly increases our free cash flow. Most importantly, it enabled us to attract and bring together a talented team of people with branded food company experience, a wide variety of abilities, and the passion and energy to enhance Multifoods’ competitiveness and deliver long-term profitable growth and shareholder value.”
The company’s total gross profit margin improved to 9.1% in the Q4 from 6.9% in the year-earlier period. Net interest expense increased US$4.9m compared with Q4 fiscal 2001, reflecting higher debt balances related to the acquisition. The company’s effective tax rate in the Q4 was 38.2%, compared with 38% last year. The average number of diluted shares outstanding in the quarter was 19.3 million, compared with 19 million in the prior year.
Including unusual items, Q4 net earnings were US$4.9m, or 25 cents per diluted share, compared with US$2.7m, or 14 cents per diluted share, a year ago. In the quarter, the company recognized unusual pre-tax charges totalling US$1.4m, or uS$1m after tax. These charges were related to efforts to right-size the US foodservice manufacturing and distribution businesses, and included employee severance costs.
Q4 operating results by business
North America Foods. Excluding unusual items, Q4 fiscal 2002 operating earnings in Multifoods’ North America Foods manufacturing group were US$15.9m, up from US$9.5m last year. Net sales totalled US$220.8m, compared with US$120.4m in the Q4 of fiscal 2001. Excluding results from the brands acquired in November 2001, currency effects and last year’s extra week, sales increased 8.4%.
“In the quarter, the performance in US consumer products helped offset softness we anticipated in our US foodservice products and Canadian foods businesses,” Costley said. `Our focus last year was on building for the future. In addition to completing the acquisition of the Pillsbury desserts and specialty products portfolio, we invested in our US foodservice and Canadian condiment operations to position the businesses for future growth and efficiencies.”
Costley added: “We are making good progress in integrating the acquired businesses and have accomplished a great deal in the first 140 days since closing. We have added more than 100 new employees to the Multifoods team and successfully transitioned nearly 80 customer accounts to Crossmark, our national broker. In addition, we have assumed full responsibility for more than 50 percent of the workstreams that were identified in the acquisition transition-services agreement. We also are on track with the implementation of our new SAP Enterprise Resource Planning system, which is scheduled to be launched in February 2003.”
Q4 results in the company’s US foodservice products and Canadian foods businesses reflected higher costs associated with planned investments during the year in a condiment facility consolidation project in Canada and new foodservice product platforms. In addition, higher ingredient costs, lower-than-anticipated volumes in some foodservice product lines and in Canadian consumer grain-based products, the 13-week vs. 14-week comparison and an unfavorable exchange rate adversely affected results.
Multifoods Distribution Group. Fourth-quarter operating earnings in the company’s distribution business were US$4.3m before unusual items, up from US$1.8m in the year-earlier period. Net sales in the quarter were US$548.1m, down 2% from US$559.1m in the prior year. Excluding the extra week last year, sales increased 6.4%.
The improvement in the distribution group’s fourth-quarter operating earnings was driven primarily by lower warehouse, delivery, and selling, general and administrative expenses, and improved operating efficiencies. Sales growth reflects volume gains in the sandwich and independent pizza segments, which more than offset softness in the vending channel due to ongoing weakness in the US economy.
“We are beginning to see clear signs of improvement in the distribution group’s results,” Costley said. “We are continuing to focus on initiatives to improve productivity and reduce costs. While we have more to do, we feel good about the distribution group’s progress.”
Costley added that the company continues to explore strategic alternatives for Multifoods Distribution Group.
“Our priorities in fiscal 2002 were to successfully complete the Pillsbury desserts and specialty products acquisition and to position our existing food manufacturing businesses for future growth,” Costley said. “We are now turning our attention to the strategic review process for the distribution business. While we have not yet reached a decision and can’t provide a specific timetable, we are proceeding in a way that recognizes the value of the business to customers and shareholders.”
FY fiscal 2002 results
Excluding unusual items, the write-off of costs associated with a high-yield debt offering that was planned and then replaced with debt guaranteed by Diageo plc as part of the company’s acquisition of the Pillsbury desserts and specialty products business, and an extraordinary loss on the early redemption of its medium-term notes, net earnings for fiscal 2002 were US$16.3m, or 85 cents/diluted share, compared with US$22.1m, or US$1.17/share, in the prior year.
Net sales for the 52-week year ended 2 March were US$2.85bn, up 12.8% from US$2.52bn last year, a 53-week period. Adjusting for the acquisition, the extra week and currency, sales increased 11%. Fiscal 2002 operating earnings before unusual items totalled US$47.1m, compared with US$51.8m a year ago.
Outlook
The company remains comfortable with its previous earnings guidance for fiscal 2003 of US$1.90 to US$2.00 per share, excluding the charge related to a change in accounting principle noted below. The company expects earnings per share before unusual items to be in the range of 19 cents to 22 cents in the Q1 of fiscal 2003 and 26 cents to 28 cents in the Q2. Approximately 50% of the company’s earnings are expected to be generated in the Q3 of the fiscal year, with the remainder coming in its fiscal 2003 Q4.
As required, the company will adopt the new Statement of Financial Accounting Standards No. 142 in the Q1 of fiscal 2003 ending 1 June. Under SFAS 142, goodwill and certain other intangible assets with indefinite lives will no longer be amortized. The new rule also requires companies to review goodwill at least annually for impairment. As a result, the company said that it expects to record a non-cash, pre-tax charge of up to US$65m related to its distribution business. The charge will be reflected in the company’s Q1 fiscal 2003 statement of operations as a change in accounting principle.
The company expects the elimination of goodwill amortization to benefit earnings in fiscal 2003 by approximately 9 cents per share, which is already reflected in the full-year guidance noted above.
