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.

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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
========== ==========