Spigadoro, Inc. (AMEX:SRO), a leading manufacturer of branded products in the Mediterranean food sector, today announced its consolidated results of operations for the three and six months ended June 30, 2000.
The Company noted that the 2000 three and six month results included corporate overhead and acquisition-related charges of Spigadoro, as well as two months of operations of Pastificio Gazzola S.p.A., the Company’s recently acquired private label pasta subsidiary, while the 1999 periods consisted only of Petrini’s historical operations on a stand-alone basis, and, as a result, quarter-to-quarter results were not necessarily comparable.
The Company reported that net sales for the second quarter 2000 increased 22% to approximately $40 million from $32.4 million during the 1999 second quarter. Net sales for the six months ended June 30, 2000 increased approximately 10% to $70.7 million from $64.6 million in the prior year period. These increases were primarily due to the Gazzola acquisition completed in early May which resulted in an 83% increase in food sales during the quarter, partially offset by a higher percentage of lower priced private label products sold by Gazzola and slightly lower animal feed volumes.
Gross profit for the first half of 2000 decreased 14.0% to $15.7 million from $18.2 million while gross profit for the second quarter 2000 decreased 18.1% to $7.6 million from $9.2 million in the prior year quarter. These decreases were primarily due to an increase in raw material costs impacted by the strengthening U.S. dollar versus the Lire and an increase in sales of lower priced products. The Company noted that it anticipated an improvement in gross profit and profit margins during the second half of 2000 as a result of certain selling price increases implemented near the end of the quarter and a decrease in raw material prices resulting from a strong wheat crop.
The Company noted that Petrini’s efficiency plan, which commenced in the second half of 1999, continued to show positive results, as operating expenses at Petrini decreased by approximately $800,000 (10.4%) during the 2000 quarter from the second quarter 1999 and approximately $1.2 million (8%) during the first half of 2000, versus the 1999 period, primarily as a result of lower selling and administrative expenses and savings on personnel cost due to a lower headcount. These operating savings were offset by expenses such as general corporate overhead and goodwill amortization at Spigadoro related to the Petrini acquisition, as well as operating expenses at Gazzola, which did not exist in the 1999 period.
In addition, consistent with the Company’s strategy to further penetrate the North American market, the Company continued to make additional investments in Petrini Foods International, its North American marketing subsidiary, which contributed to higher second quarter 2000 operating expenses relative to 1999. These additional amounts were invested in Petrini Foods in connection with Spigadoro’s recent initiative to distribute its pasta products in North America through the higher margin food service channel rather than solely to supermarket chains. The Company noted that this initiative was progressing ahead of schedule.
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EBITDA for Petrini and Gazzola (stand-alone) for the six and three month periods ended June 30, 2000 decreased to $2.3 million and $720,000, respectively, from $4.0 million and $2.2 million in the prior year periods. Consolidated Spigadoro EBITDA for the six and three month periods ended June 30, 2000 decreased to $1.2 million and $156,000, respectively, from $4.0 million and $2.2 million, respectively, during the 1999 six and three month periods.
The Company reported that net income for the first half of 2000 increased to $7.9 million from $499,000 during the first half of 1999, primarily as a result of a one-time gain resulting from the sale of certain of the Company’s non-core assets. For the quarter, the Company reported a net loss of $2.2 million versus net income of $279,000 in the second quarter of 1999.
Lucio de Luca, the Chief Operating Officer of Spigadoro noted, “Although our revenue increased, we are disappointed with the decrease in our margins, as higher raw material costs impacted the entire industry and negatively affected the results for both Petrini and Gazzola. However, these trends have begun to reverse themselves, as a strong wheat crop has significantly reduced our semolina costs for the remainder of the year and certain price increases implemented late in the second quarter should contribute to top line growth. As a result, we anticipate much better margins during the second half of the year. In addition, our efficiency plan continues to reduce Petrini’s operating expenses, and is expected to show even greater benefits during the second half of the year as we begin to implement the later stages of this plan. We also anticipate extending this efficiency plan to Gazzola as we continue to integrate Gazzola’s operations. We have also begun to see the benefits, albeit small, of our investment in Petrini Foods International as we shift our U.S. distribution focus from supermarkets to the higher margin food service business.”
Jacob Agam, Chairman and Chief Executive Officer of Spigadoro, also noted, “We believe we have turned the corner on a difficult operating environment during the past few months and we look forward to a stronger second half of the year. We expect that with our improved results in the second half, we will still be able to meet our profitability targets for the full year. In addition, we continue to actively pursue our consolidation program with the goal of building upon our current platform and creating a preeminent Mediterranean food company.”
Spigadoro is a leading manufacturer of branded and private label products in the Mediterranean food sector. Its pasta and other Mediterranean products are internationally recognized as high quality products and are marketed under the brand name “Spigadoro” (“Golden Ear of Wheat”) in Italy, Europe, the U.S. and the Far East. The Company’s animal feed products are manufactured at seven plants throughout Italy and are marketed under the “Petrini” name. The Company’s recent acquisition of Pastificio Gazzola also establishes it as the European leader in private label pasta. The Company has previously announced an aggressive growth strategy that includes a consolidation of small and mid-cap companies within the food and animal feed industries in Europe (and in particular Italy, Germany, France and Spain).
Statements in this press release that are not descriptions of historical facts are forward-looking statements that are subject to risks and uncertainties. Such statements, including those regarding among other things, our strategy, future prospects and results of operations, are dependent on any number of factors, including market conditions, competition and the availability of financing, many of which are outside of our control. Actual results could differ materially from those currently anticipated or expressed or implied by any forward-looking statement due to a number of factors, including those set forth in our Securities and Exchange Commission filings under “Risk Factors.” These factors include the following: we have changed our principal business and we may not be successful operating a new business; Vertical Financial Holdings and affiliated entities control Spigadoro; our substantial debt may adversely affect our ability to obtain additional funds and increase our vulnerability to economic or business downturns; our operating results will be adversely affected by charges from acquisitions; our strategy of acquiring other companies for growth may not succeed and may adversely affect our financial condition, results of operations and cash flows; intense competition in the pasta and animal feed industries may adversely affect operating results; our business may be adversely affected by risks associated with foreign operations; and other risks. In addition, our acquisition negotiations are in various stages and, except as previously announced, we have no agreement or arrangements relating to any acquisitions. We are unable to predict whether or when any of these negotiations will result in any definitive agreements.