The Earthgrains Company (NYSE: EGR), the second-largest producer of packaged bread and bakery products in the United States, today reported strike-impacted net earnings of $0.21 per diluted share for the second quarter, compared with $0.37 for the year-ago period.

Net income was $8.9 million for the quarter ended Sept. 12, 2000, compared with $15.7 million a year ago.

Excluding an estimated $0.13 impact of a labor strike in the quarter, net earnings would have been $0.34 per diluted share, down as expected from a year ago because of impacts from the Metz Baking Co. acquisition, including higher interest expense, increased goodwill amortization, and a higher effective tax rate. Unfavorable foreign exchange rates also adversely affected the year- over-year comparison.

“The strike and work stoppage at Earthgrains had a significant impact on the quarter’s results, but our return to normal sales performance is well under way,” Earthgrains Chairman and CEO Barry H. Beracha said. “We expect another significant profit impact from the strike in our third quarter, but our goal is to achieve our pre-strike planned operating performance in the fourth quarter and next fiscal year. We continue to have strong cash flow, our integration of Metz Baking Company is on schedule, and our underlying performance for domestic and international operations continues to be strong.”

The company’s fundamental operating performance and cash earnings improved in the quarter, excluding the strike. Margins improved for operating income and EBITDA cash flow (earnings before interest expense, income taxes, depreciation, amortization, and minority interest expense), excluding the strike impact.

Cash earnings increased by 6.8 percent to $0.47 per diluted share (excluding the estimated strike impact), up from $0.44 a year ago. The cash earnings measure represents net income before goodwill amortization charges (net of related income taxes).

Increased operating income in the quarter was driven by revenue growth and other benefits from acquisitions, by enhanced price-and-mix of products, by lower ingredient costs, and by improved operating efficiencies. These improvements were partially offset by higher fuel costs and the strike impact.

Second-quarter highlights, including the strike impact, include:

  • Net sales increased 28.5 percent to $603.2 million from $469.4 million. Revenue growth, which was impacted by the strike and negative foreign exchange, was driven primarily by the acquisition of Metz Baking Co. in March 2000. Excluding the foreign-exchange impact, net sales increased 30.6 percent to $613.2 million.
  • Operating income increased 15.2 percent to $34.9 million from $30.3 million.
  • EBITDA cash flow increased 22.8 percent to $69.9 million from $56.9 million.

“Sales, operating income and cash flow are benefiting from acquisition contributions in the United States and Europe. We are achieving substantial benefits from the completed integration of Spanish baked sweet goods producer Reposteria Martinez and our Patrick Raulet refrigerated-dough acquisition in France,” Beracha said. “Our improvement platform for the coming quarters and fiscal year remains in place. In addition to capturing the significant synergies we have identified with the Metz integration, we are proceeding with other improvement initiatives, including the use of information technology, cost control and containment through focal-point management, and continued development of higher-margin premium and superpremium products. These efforts will help us deliver superior service to customers and value to shareholders.”

Strike Impact

Incremental spending for additional expenses, reduced operating efficiencies, and lost sales, all due to the strike, resulted in an estimated second-quarter impact to earnings of $0.13 per diluted share. The estimated sales impact of the strike in the quarter was between $8 million and $10 million, which is less than 2 percent of total company sales.

Earthgrains employees at the Fort Payne, Ala., bakery began a strike Aug. 26 and ended the walkout on Sept. 22 with ratification of a new three-year contract that included an annual average wage-and- benefit increase of 3.9 percent. Over the course of the strike, the work stoppage included production employees at 27 bakeries in the United States, including one refrigerated- dough plant. Earthgrains continued to serve all markets.

The company expects that the strike will have a greater impact to earnings in the third quarter than in the second quarter. The company will likely offer additional earnings guidance later in the third quarter once a more complete picture is available for post-strike recovery trends for sales and operating efficiencies. By the end of the strike, domestic bakery sales were approximately 85 percent of plan, and eight days after the strike ended, sales had recovered to approximately 95 percent of plan.

Excluding the impact of the strike, Earthgrains’ goal is to deliver fiscal year 2001 earnings of between $1.34 to $1.39 per diluted share, which is consistent with the lower half of the range of analysts’ pre- strike estimates. For fiscal year 2002, Earthgrains’ goal continues to be earnings growth of 25 percent or more, which is consistent with the current consensus of $1.75 per diluted share.

Second-Quarter — Worldwide Bakery Products

Revenues and operating income for the company’s worldwide baking operations increased despite the strike on the strength of acquisition contributions in the United States and Europe. Operating income increased 16.3 percent to $30.0 million, up from $25.8 million. Net sales increased by 32.5 percent to $540.9 million from $408.2 million.

Excluding negative foreign-exchange impact, net sales increased | 34.4 percent to $548.8 million and operating income increased 19.0 percent to $30.7 million.

In addition to acquisition benefits, enhanced price and mix of products sold, lower ingredient costs, and improved operating efficiencies contributed to results of Worldwide Bakery Products in the quarter. The benefits were partially offset by the strike and higher fuel costs.

The integration of Metz Baking operations in the Upper Midwest is proceeding according to plan. Earthgrains has begun rolling out its line of superpremium breads and bagels in the new acquisition territory and is proceeding with conversion of business systems. The integration, when complete in the fall of 2002, is expected to yield more than $30 million in annual cost and synergy benefits.

The integration of Reposteria Martinez in Spain (acquired March 1999) has been substantially completed and continues to contribute to significantly improved results and margins in Europe. The consolidation of sales and distribution for sweet goods and bread products, including elimination of redundant routes and depots, was completed in the second quarter.

Second-Quarter — Worldwide Refrigerated Dough Products

Net sales and operating income increased by more than 5 percent in the quarter for the company’s refrigerated-dough segment, excluding negative foreign exchange. Contributions from the acquisition of Patrick Raulet, S.A., in France (June 1999) drove the improvement.

Net sales increased to $62.3 million from $61.2 million a year ago. Sales increased by 5.2 percent to $64.4 million, excluding the foreign exchange impact.

Operating income increased to $7.5 million from $7.1 million, and the operating margin improved to 12.0 percent from 11.6 percent, despite the strike-related impact in the United States. Excluding unfavorable foreign exchange, operating income increased by 8.5 percent to $7.7 million.

Revenue and operating contributions from the Raulet acquisition contributed to improved margins overcoming lower volume and revenue in the United States. Earthgrains instituted a domestic price increase in August that will be reflected in third-quarter results, and the division is introducing new products in higher-growth and higher-margin product segments, including flaky biscuits and break-and-bake cookies and brownies.

24-Week Results

For the 24-week period ended Sept. 12, 2000, strike-impacted net earnings were $0.48 per diluted share compared with $0.67 in the year-ago period. Net income was $19.8 million compared with $28.2 million.

Excluding an estimated $0.13 second-quarter impact of a labor strike, net earnings would have been $0.61 per diluted share for the 24-week period. The unfavorable year-over-year comparison was expected because of impacts from the Metz Baking Co. acquisition, including higher interest expense, increased goodwill amortization, and a higher effective tax rate. Unfavorable foreign exchange rates also adversely affected the current 24-week period.

Cash earnings increased by 10.1 percent to $0.87 per diluted share, excluding the strike impact, up from $0.79 a year ago. The cash earnings measure represents net income before goodwill amortization charges (net of related income taxes).

Net sales, operating income and EBITDA cash flow all increased on benefits of acquisitions and fundamental business strength. The results were driven by revenue growth, improved price and mix of products sold, improved manufacturing and selling efficiencies, and lower ingredient costs. Those factors were partially offset by increased fuel costs and strike impact.

Highlights for the 24-week period, including the impact of the strike, include:

  • Net sales increased by 30.9 percent to $1,202.8 million from $919.0 million, despite an unfavorable foreign-exchange impact. Acquisitions in the United States and Europe were the primary contributors. Excluding foreign exchange, net sales increased by 33.2 percent to $1,224.4 million.
  • Operating income increased by 26.9 percent to $69.9 million from $55.1 million. Excluding the unfavorable foreign-exchange impact, operating income increased by 30.1 percent to $71.7 million.
  • EBITDA cash flow increased by 29.6 percent to $139.1 million from $107.3 million.

24-Week Results — Worldwide Bakery Products

Net sales for worldwide bakery operations increased by 34.6 percent to $1,082.1 million from $804.1 million, and operating income significantly increased by more than 30 percent to $62.8 million. Both measures reflect the negative impact of unfavorable foreign exchange rates and a labor strike in the United States.

Excluding the exchange-rate impact, net sales increased by 36.7 percent to $1,099.0 million, and operating income increased by 32.8 percent to $64.0 million.

The contributors to improved results were revenue and operating benefits from acquisitions in the United States and Europe, gains in price-and-mix of products sold, core volume growth, improved operating efficiencies, and lower ingredient costs.

24-Week Results — Worldwide Refrigerated Dough Products

Net sales for worldwide refrigerated-dough operations increased by 5.0 percent to $120.7 million from $114.9 million. Operating income increased 1.6 percent to $12.4 million from $12.2 million.

Excluding unfavorable foreign exchange rates, net sales increased by 9.1 percent to $125.4 million, and operating income increased by 6.6 percent to $13.0 million.

Strong results and margin improvement in Europe from the Patrick Raulet acquisition were partially offset by volume and revenue impacts in the overall refrigerated-dough category in the United States and unfavorable foreign exchange. Recent price increases in the U.S. market should benefit future results.

About Earthgrains

Earthgrains, which had sales of $2.039 billion in fiscal 2000, operates fresh-bakery and refrigerated-dough businesses in the United States and Europe.

Earthgrains is the second-largest producer of fresh packaged bread and baked goods in the United States with 64 bakeries. Major company- owned brands include Colonial, Rainbo, IronKids, Earth Grains, Grant’s Farm, San Luis Sourdough, Heiner’s, Master, Mother’s, Old Home, and Break Cake. Major franchise brands include Sunbeam, Country Hearth, Roman Meal, D’Italiano, Taystee, Holsum, Healthy Choice, Pillsbury, Mickey, and Sun*Maid.

In Europe, Earthgrains is the market-share leader for fresh packaged sliced bread, buns and snack cakes in Spain and is one of the largest producers of bread and buns in Portugal. Earthgrains has 11 bakeries in Spain (including the Canary Islands) and Portugal. Major brands include Bimbo, Silueta, Semilla de Oro and Martinez.

In the refrigerated-dough segment, Earthgrains is the only manufacturer of store-brand canned refrigerated-dough products in the United States and is one of the largest producers of store-brand toaster pastries. The company has two domestic refrigerated-dough plants and also markets products under its Merico brand. In Europe, Earthgrains is the largest refrigerated-dough producer in France and the only producer of canned dough in Europe. The company operates four plants in France and markets canned and rolled refrigerated-dough products under the CroustiPate and Raulet brands in France and via customer brands throughout Western Europe.

More information about Earthgrains may be found on the company’s corporate Internet web site at www.earthgrains.com.

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 raw material prices; 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.

EBITDA and cash earnings per diluted share are used in this press release and attached statements because they are financial indicators of cash- generation capability. EBITDA is not the same as income from operations or cash flow from operating activities, and cash earnings per diluted share is not the same as earnings per diluted share as determined in accordance with generally accepted accounting principles. EBITDA margin is expressed as a percentage of net sales and is one component of the vesting and payout provisions in the Company’s medium- term incentive program.

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.

                           THE EARTHGRAINS COMPANY
Statements of Earnings
(In millions except per share data)
(Unaudited)

12-week period ended 24-week period ended
Sept.12, Sept.14, Percent Sept.12, Sept.14, Percent
2000 1999 Change 2000 1999 Change

Net Sales $603.2 $469.4 28.5% $1,202.8 $919.0 30.9%

Cost of
Products Sold 325.6 260.6 645.4 508.3

Gross Profit 277.6 208.8 33.0% 557.4 410.7 35.7%

Marketing,
Distribution
and Administrative
Expenses 242.7 178.5 487.5 355.6

Operating Income 34.9 30.3 15.2% 69.9 55.1 26.9%

Other Income
and Expenses:
Interest expense (18.2) (5.5) (34.0) (11.0)
Other income
(expense), net 0.7 0.8 0.7 1.7

Income before
Income Taxes 17.4 25.6 (32.0)% 36.6 45.8 (20.1)%

Provision for Income
Taxes 8.3 9.7 16.4 17.3
Minority Interest
Expense, net
of tax (0.2) (0.2) (0.4) (0.3)


Net Income $8.9 $15.7 (43.3)% $19.8 $28.2 (29.8)%

Earnings Per Share:
Basic
Net Earnings $0.22 $0.39 (43.6)% $0.49 $0.70 (30.0)%
Weighted Average
Shares
Outstanding 40.4 40.6 40.4 40.5

Diluted
Net Earnings $0.21 $0.37 (43.2)% $0.48 $0.67 (28.4)%
Weighted
Average
Shares
Outstanding 41.7 42.1 41.4 42.1

Selected Financial Information:

12-week period ended 24-week period ended
Sept.12, Sept.14, Percent Sept.12, Sept.14, Percent
2000 1999 Change 2000 1999 Change

EBITDA $69.9 $56.9 22.8% $139.1 $107.3 29.6%
Goodwill
Amortization,
net of tax $5.4 $2.7 100.0% $10.8 $5.2 107.7%
Goodwill
Amortization,
net of tax,
per diluted share $0.13 $0.06 116.7% $0.26 $0.12 116.7%
Cash Earnings Per
Diluted Share $0.34 $0.44 (22.7)% $0.74 $0.79 (6.3)%


THE EARTHGRAINS COMPANY
Business Segment Information
(In millions)
(Unaudited)

12-week period ended 24-week period ended
Sept.12, Sept.14, Percent Sept.12, Sept.14, Percent
2000 1999 Change 2000 1999 Change

Income Statement
Information
Net Sales
Bakery Products $540.9 $408.2 32.5% $1,082.1 $804.1 34.6%
Refrigerated Dough
Products 62.3 61.2 1.8% 120.7 114.9 5.0%
Total $603.2 $469.4 28.5% $1,202.8 $919.0 30.9%

Operating Income
Bakery Products $30.0 $25.8 16.3% $62.8 $48.2 30.3%
Refrigerated Dough
Products 7.5 7.1 5.6% 12.4 12.2 1.6%
Corporate(a) (2.6) (2.6) 0.0% (5.3) (5.3) 0.0%
Total $34.9 $30.3 15.2% $69.9 $55.1 26.9%

Operating Margin
Bakery Products 5.5% 6.3% -- 5.8% 6.0% --
Refrigerated Dough
Products 12.0% 11.6% -- 10.3% 10.6% --
Total 5.8% 6.5% -- 5.8% 6.0% --

Depreciation & Amortization
Bakery Products $27.8 $19.8 40.4% $55.5 $38.8 43.0%
Refrigerated Dough
Products 3.9 3.5 11.4% 7.7 6.5 18.5%
Corporate(a) 2.6 2.6 0.0% 5.3 5.3 0.0%
Total $34.3 $25.9 32.4% $68.5 $50.6 35.4%

Balance Sheet Information
Capital Expenditures
Bakery Products $21.2 $15.1 40.4% $39.0 $26.0 50.0%
Refrigerated Dough
Products 3.6 5.0 (28.0)% 6.5 8.3 (21.7)%
Total $24.8 $20.1 23.4% $45.5 $34.3 32.7%

(a) Amounts represent purchase accounting valuation in conjunction
with the acquisition of the Company by Anheuser-Busch
Companies, Inc., in 1982 and the related depreciation and
amortization thereon.