The Earthgrains Company (NYSE: EGR), the second-largest U.S. packaged bread producer and maker of Earth Grains and IronKids breads, today reported first-quarter earnings per diluted share of $0.34, an increase of 25.9 percent from the year-ago period’s $0.27 per diluted share.

Net income increased by 32.1 percent to a first-quarter record of $14.4 million, compared with $10.9 million a year ago.

In addition to net income, performance in the 12-week quarter, which ended June 19, 2001, set first-quarter records for net sales, operating margin, and EBITDA margin (earnings before interest expense, income taxes, depreciation, amortization, and minority interest expense as a percent of sales). Results were driven by strong gains in price and mix of products sold across all operations and very strong results for Worldwide Refrigerated Dough Products, including significant volume increases and greater manufacturing efficiencies.

Net sales increased to $611.1 million, from $599.6 million a year ago. Excluding the impact of unfavorable foreign exchange rates, net sales were $615.5 million.

“We are very proud of the strong results we posted in the first quarter,” Earthgrains Chairman and CEO Barry H. Beracha said. “We built on the momentum we generated in the fourth quarter and are off to an outstanding start to a year in which we expect significant double-digit earnings growth. The results are a reflection of our business strategy of serving customers, offering consumers the right products, continually improving operations, and executing a sound acquisition program.

“Our refrigerated dough operations, both in the United States and Europe, had an outstanding quarter, showing significant gains in volume, price and mix of products sold, and manufacturing efficiencies. We are increasing market share in the United States, and we are expanding our product offerings and markets served in Europe.

“Our Worldwide Bakery Products business also delivered improvement over a year ago, illustrating the benefits of making acquisitions that improve our base operations and expand our business. In the United States, we are realizing the cost synergies we forecast for the integration of the Metz Baking Co. operation, and in Spain, we are benefiting from the sales system reconfiguration and synergies made possible by the acquisition of leading sweet goods producer Reposteria Martinez. In both the United States and Europe, improved mix of products and new products are contributing to results, including strong superpremium sales in the United States and increased bread sales in a growing category in Spain.”

About 10 cents of the quarter’s earnings-per-share improvement resulted from growth in operating income, which more than offset higher fuel and energy costs and higher employee-related costs. The combination of higher interest expense and negative foreign exchange impacted earnings unfavorably by three cents a share. The benefit of a lower income tax rate was offset by an increase in shares outstanding.

“Again, we have been able to manage through cost-related issues in our business,” Beracha said. “We are focused on increasing profitable top-line growth through price, mix and volume gains, particularly in our domestic baking operation, which is our largest business. We feel confident in our ability to do so, particularly since we compete across all branded product segments — popular, premium and superpremium.”

The year-ago quarter was impacted by dilution from the Metz Baking acquisition and lower revenue in the U.S. refrigerated dough category for all producers.

    First-quarter highlights include:
— Record operating income of $41.6 million, up by 18.9 percent from
$35.0 million a year ago. The operating margin was a record
6.8 percent, compared with 5.8 percent a year ago. Excluding the
unfavorable foreign-exchange impact, operating income was
$42.0 million.

— EBITDA cash flow increased by 8.8 percent to a first-quarter record
of $75.3 million. The EBITDA margin was 12.3 percent, up from
11.5 percent a year ago.

Cash Earnings and Planned Adoption of Goodwill Accounting Statement

Under a new accounting statement that Earthgrains plans to adopt when it is issued by the Financial Accounting Standards Board (FASB), earnings per diluted share would have increased by 17.5 percent to $0.47, from $0.40 a year ago. The new standard would eliminate the amortization of goodwill. Earthgrains had $5.6 million of goodwill amortization, net of tax, in the first quarter, which reduced reported earnings by $0.13 per diluted share.

Earthgrains plans to adopt the new FASB goodwill accounting practice, known as “Business Combinations and Intangible Assets — Accounting for Goodwill,” beginning with the first quarter’s results. The adoption is contingent on the FASB statement being issued prior to Earthgrains’ Aug. 3, 2001, deadline to file its Form 10-Q quarterly report with the Securities and Exchange Commission. If the statement is issued after the quarterly deadline, Earthgrains will be precluded from adopting the accounting practice until fiscal year 2003.

Worldwide Bakery Products

Worldwide Bakery Products reported increased operating income on comparable sales. Operating income for the segment increased by 7.9 percent to $35.4 million, compared with $32.8 million a year ago. The operating margin increased to 6.5 percent, from 6.1 percent.

Enhanced price and mix of products sold drove results. Earthgrains’ sales of higher-margin superpremium products in the United States increased by more than 11 percent. The improvements were partially offset by higher fuel and energy costs and higher employee-related costs. The company is on target in realizing cost synergies from the soon-to-be-completed Metz Baking acquisition integration in the United States and has completed the integration of the Reposteria Martinez acquisition in Spain.

Net sales for the segment were $546.3 million, up from $541.2 million a year ago, primarily on contributions from Europe. Excluding the unfavorable foreign-exchange impact, net sales were $549.7 million. In Europe, increased bread sales and contributions from the acquisition of the Ortiz brand of toasted bread increased revenue.

Worldwide Refrigerated Dough Products

Worldwide Refrigerated Dough Products delivered strong operating income growth, significant margin expansion, and double-digit net sales growth. Operating income increased by 81.6 percent on a net sales increase of 11.0 percent. Operating income was $8.9 million, up from $4.9 million. The segment’s operating margin increased to 13.7 percent, from 8.4 percent a year ago.

The strong operating results in both the United States and Europe came from increased volume, better price and mix of products sold, and enhanced manufacturing efficiencies. These benefits were partially offset by increased packaging prices and employee-related costs.

Net sales increased to $64.8 million, from $58.4 million. Excluding the unfavorable foreign-exchange impact, net sales increased by 12.7 percent to $65.8 million.

Domestic dough operations had double-digit sales increases in the higher-margin product segments of specialty biscuits, dinner rolls, sweet goods, and cookie dough. The business is increasing market share and is getting contributions from new products, including Break ‘n Bake Style Cookies, Jumbo Crescent Rolls, and Hearty Layers specialty biscuits. In Europe, the very successful introduction of pizza convenience kits in Germany and increased branded sales in France drove volume. Increased volume and automation on the pizza kit line contributed to efficiencies.

Business Outlook

Earthgrains expects earnings for the full fiscal year 2002 to be in the range of $1.55 to $1.65 per diluted share, excluding changes under the FASB rule revision for goodwill amortization. Including the rule change, earnings for the year are expected to be in the range of $2.12 to $2.22 per diluted share.

For the 12-week second quarter, which ends Sept. 11, 2001, Earthgrains expects earnings to be in the range of $0.35 to $0.39 per diluted share. Under the new FASB statement regarding accounting for goodwill amortization, the range would be adjusted to $0.48 to $0.52 per diluted share.

Other News

On July 2, 2001, Earthgrains announced it has entered into a merger agreement under which Sara Lee Corporation would buy Earthgrains for $40.25 per share of common stock, or $1.8 billion in cash, and would assume the company’s debt. At the end of the first quarter, total debt was $960.7 million. Net debt was $943.3 million, when total debt is offset by cash and cash equivalents.

The transaction was expected to be completed in 30 to 60 days from the announcement date.

About Earthgrains

Earthgrains, which had sales of nearly $2.6 billion in fiscal 2001, 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, operating 61 bakeries. Major company-owned brands include Earth Grains, IronKids, Grant’s Farm, Colonial, Rainbo, 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 packaged sweet goods in Spain and is one of the largest producers of bread and buns in Portugal. Earthgrains has 12 bakeries in Spain (including the Canary Islands) and Portugal. Major brands include Bimbo, Silueta, Semilla de Oro, Martinez, and Ortiz.

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 brand 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

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; 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.

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)

12-week period ended
June 19, June 20, Percent
2001 2000 Change

Net Sales $611.1 $599.6 1.9%

Cost of Products Sold 323.7 319.8

Gross Profit 287.4 279.8 2.7%

Marketing, Distribution and
Administrative Expenses 245.8 244.8

Operating Income 41.6 35.0 18.9%

Other Income and Expenses:
Interest expense (17.5) (15.8)

Other income, net 0.7 —

Income before Income Taxes 24.8 19.2 29.2%

Provision for Income Taxes 10.3 8.1

Minority Interest Expense (0.1) (0.2)

Net Income $14.4 $10.9 32.1%

Earnings Per Share:
Net Earnings $0.35 $0.27 29.6%
Weighted Average
Shares Outstanding 41.3 40.4
Net Earnings $0.34 $0.27 25.9%
Weighted Average
Shares Outstanding 42.5 41.1

Selected Financial Information:
12-week period ended
June 19, June 20, Percent
2001 2000 Change

EBITDA $75.3 $69.2 8.8%
Goodwill Amortization,
net of tax $5.6 $5.4 3.7%
Goodwill Amortization,
net of tax, per diluted share $0.13 $0.13 0.0%
Cash Earnings per Diluted Share $0.47 $0.40 17.5%

Business Segment Information
(In millions)

12-week period ended
June 19, June 20, Percent
2001 2000 Change
Income Statement Information
Net Sales
Bakery Products $546.3 $541.2 0.9%
Refrigerated Dough Products 64.8 58.4 11.0%
Total $611.1 $599.6 1.9%

Operating Income
Bakery Products $35.4 $32.8 7.9%
Refrigerated Dough Products 8.9 4.9 81.6%
Corporate(a) (2.7) (2.7) 0.0%
Total $41.6 $35.0 18.9%

Operating Margin
Bakery Products 6.5% 6.1% —
Refrigerated Dough Products 13.7% 8.4% —
Total 6.8% 5.8% —

Depreciation & Amortization
Bakery Products $26.8 $27.7 (3.2)%
Refrigerated Dough Products 3.5 3.8 (7.9)%
Corporate(a) 2.7 2.7 0.0%
Total $33.0 $34.2 (3.5)%

Balance Sheet Information
Capital Expenditures
Bakery Products $17.8 $17.8 0.0%
Refrigerated Dough Products 2.3 2.9 (20.7)%
Total $20.1 $20.7 (2.9)%

(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.