The Earthgrains Company (NYSE: EGR), the second-largest producer of packaged bread and bakery products in the United States, today reported a strike-impacted loss of $0.01 per diluted share for the third quarter, excluding unusual charges for restructuring and accounts receivable. The results compare with year-ago third-quarter earnings of $0.48 per diluted share, excluding a one-time restructuring charge.
Net income for the 16-week quarter, which ended Jan. 2, 2001, was a loss of $0.4 million, compared with net income of $20.1 million a year ago, excluding the charges in both periods.
Go deeper with GlobalData
The impact of a labor strike on revenue and costs in the quarter reduced earnings by an estimated $0.37 per share. Excluding the strike impact and the unusual charges, earnings would have been an estimated $0.36 per diluted share versus the year-ago $0.48 per diluted share. The year-over-year decline in earnings per share resulted from higher fuel and employee-related costs, unfavorable foreign-exchange rates, and the expected dilution from the acquisition of Metz Baking Co., including higher interest expense and increased goodwill amortization. These impacts overcame the benefits of improved price and mix of products sold, including strong growth in sales of superpremium products in domestic baking operations, and increased margins for refrigerated-dough operations. Sales volume measured in pounds for domestic baking operations, excluding the strike, were comparable to a year ago but fell below company expectations.
Earthgrains has begun implementing revenue-growth and cost-cutting plans to return to pre-strike margins as soon as possible.
“We are disappointed in our results for the third quarter that came under challenging circumstances, but we are moving quickly with action plans to drive growth and improvement,” Earthgrains Chairman and CEO Barry H. Beracha said. “We have been successful in taking product price increases this year, and we will selectively seek additional increases to help overcome costs.
“We have solid plans to increase sales and to reduce costs across our operations in order to enhance our efficiencies. That will mean successful execution of our consumer-targeted marketing initiatives, introduction of several new products that are nearly ready for test market, and potential additional plant and route consolidations.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData“Longer term, our continuing efforts to redesign our manufacturing, selling and distribution systems will pay off through even better customer service as well as reduced costs and enhanced efficiencies.”
Earthgrains’ improvement plans, some of which are under way, include:
— Post-strike resumption of consumer-targeted marketing initiatives
and advertising.
— Rolling out new products to meet consumer demand for variety,
convenience, and healthy and natural products. These efforts will
also include continued introduction of existing value-added
products, such as IronKids special-recipe bread and Earth Grains
superpremium products, into new geography acquired with Metz
Baking Co.
— Capturing opportunities for new business.
— Driving continued improvement in product price and mix.
— Reducing selling expenses through route consolidation and other
cost-cutting measures in transportation, garage, depot, sales
management, and thrift-store operations.
— Reducing manufacturing costs through capacity consolidation and
other cost-cutting efforts in production operations.
Business Outlook
Based on third-quarter performance, Earthgrains has revised its expectations for fiscal 2001 earnings per diluted share. The company’s goal is to achieve earnings per diluted share for the year in the range of $0.57 to $0.62, excluding unusual charges but including strike-related impacts.
“We are experiencing a slower recovery from the strike than originally anticipated, but our opportunities to drive continuous improvement toward superior future margins remain intact. We are confident that our strategies and improvement initiatives will result in increased shareholder value,” Beracha said.
Earthgrains anticipates net sales for fiscal 2001 of about $2.58 billion. The company has reduced its estimate for capital investment to approximately $100 million, which is $10 million to $15 million lower than previously forecast. Investment will continue to be predominately in high-return projects versus maintenance projects.
For fiscal year 2002, the company’s expectations include:
- Net sales of nearly $2.7 billion.
- Earnings per diluted share in the range of $1.50 to $1.65.
- EBIT (earnings before interest expense and income taxes) of
approximately $185 million to $195 million.
- EBITDA cash flow (earnings before interest expense, income taxes, depreciation, amortization, and minority interest expense) of approximately $340 million to $350 million.
- Capital investment of $105 million to $115 million.
The drivers of fiscal 2002 performance are expected to be acquisition benefits from the integrations of Metz Baking Co. in the United States and Reposteria Martinez in Spain; fundamental business improvement through action plans to enhance margins; and lower interest expense.
The Metz integration, which will generate cost-reduction and improvement synergies of $30 million to $35 million annually, is proceeding according to plan, and the company is confident that the full synergies will be achieved. Earthgrains expects to achieve 10 percent to 15 percent of the savings in fiscal 2001, 50 percent to 55 percent in fiscal 2002, and the remaining savings in fiscal 2003.
Through its improvement initiatives, Earthgrains aims to increase EBITDA margins over time to a range of 13 percent to 15 percent while achieving return on capital employed above the cost of capital.
“We believe these targets are achievable,” Beracha said. “We have the plans in place to achieve this performance, but we will have to further evaluate our rate of improvement to forecast when these levels can be reached.”
Third-Quarter Performance
Third-quarter performance, including the strike impact but excluding the unusual charges unless otherwise noted, included:
— Net sales increased by 21.7 percent to $782.1 million from
$642.8 million, despite strike and foreign-exchange impacts. The
increase was primarily due to the acquisition of Metz Baking Co.
in March 2000. Excluding the impact of foreign-exchange rates,
net sales increased by 25.4 percent to $805.9 million.
— Operating income was $23.6 million, compared with $39.0 million.
Excluding the impacts of the strike and foreign-exchange rates,
operating income increased by 28.5 percent to $50.1 million.
— EBITDA cash flow was $72.6 million, compared with $76.3 million.
Excluding the impact of the strike and foreign-exchange rates,
EBITDA increased 29.9 percent to $99.1 million.
— Unfavorable foreign-exchange rates reduced net earnings by $0.04
per share.
— The cost of fuel and energy, including natural gas to operate bakery
ovens and fuel for vehicles, increased by $5.6 million over a year
ago, reducing earnings by $0.09 per share.
— Interest expense was $25.1 million, up from $7.9 million as a result of
financing the Metz acquisition and higher interest rates.
Cash earnings excluding the estimated strike impact and unusual charges were down by 3.6 percent to $0.54 per diluted share versus $0.56 per share a year ago. The cash earnings measure represents net income before goodwill amortization charges (net of related income taxes).
Third-Quarter Results Including Unusual Charges
Earthgrains reported pretax charges in the third quarter of $11.5 million for plant closings and $8.5 million for accounts receivable. Including the charges, Earthgrains reported a loss of $0.32 per diluted share, compared with earnings of $0.45 per diluted share a year ago that included a restructuring charge associated with a bakery closing.
The net loss was $13.0 million in the quarter versus net income of $18.7 million a year ago.
The $11.5 million pretax restructuring charge ($7.2 million after tax, or $0.18 per share) was for fixed-asset write-offs, employee severance and benefits, and other related closing expenses associated with the shutdown of company bakeries in Des Moines, Iowa, and Louisville, Ky.
The $8.5 million pretax accounting charge ($5.4 million after tax, or $0.13 per share) was taken to appropriately reflect the collectibility of accounts receivable based on a full review after the centralization of accounts receivable within Earthgrains’ Financial Shared Services Center.
In the year-ago period, a $2.3 million pretax charge ($1.4 million after tax, or $0.03 per diluted share) was taken for fixed-asset write-offs, employee severance and benefits, and other related closing expenses associated with the shut down of the company’s Pueblo, Colo., bakery.
Third-Quarter Strike Impact
The impact of a labor strike on costs and revenues reduced third-quarter earnings by an estimated $0.37 per diluted share. The strike caused lost sales, incremental spending, and reduced operating efficiencies.
Earthgrains continued to operate and serve all markets during the strike and did not lose major customers or significant retail shelf space. Some very small retailers and food service customers that could not be served during the strike have sought alternate suppliers.
The estimated sales impact of the strike, both during the strike itself and during the recovery period in the quarter, was approximately $29 million, or 3.7 percent of total company sales in the third quarter.
The 28-day strike began Aug. 26, 2000, in Fort Payne, Ala., and eventually involved 27 plants, of which all but two remained operating. Ten days of the strike and the strike’s recovery period fell in the third quarter. Second-quarter earnings were reduced by an estimated $0.13 per share because of the strike.
Third-Quarter – Worldwide Bakery Products
Revenues increased for the company’s worldwide bakery operations on the strength of the Metz Baking acquisition, while operating income was impacted by the domestic labor strike, higher fuel and energy costs, and employee-related costs. Foreign-exchange rates negatively impacted sales and operating income.
Net sales for the segment increased by 26.2 percent to $676.3 million. Excluding the foreign-exchange impact, revenue increased by 29.6 percent.
Operating income, excluding unusual charges, was $7.2 million, compared with $25.2 million a year ago. Excluding foreign-exchange rate impacts, operating income was $8.9 million. The strike and cost impacts were partially offset by improved price and mix of products sold in the United States and enhanced margins in Europe. Domestic sales of superpremium products increased by nearly 10 percent, despite strike impacts. In Europe, the consolidation of sales and distribution for sweet goods and bread products as part of the Martinez integration contributed to significantly improved results.
In the United States, the integration of Metz Baking is proceeding according to plan. As part of the integration process, the company closed its Des Moines, Iowa, bakery and the former Metz bakery in Rockford, Ill. The costs related to the Rockford bakery closing will be charged against Metz reserves established at the time of the acquisition.
Third-Quarter – Worldwide Refrigerated Dough Products
Refrigerated-dough operations posted strong margin improvement as operating income increased significantly on slightly lower net sales that were impacted by foreign-exchange rates.
Net sales were $105.8 million versus $107.0 million, but sales increased by 4.1 percent to $111.4 million excluding foreign exchange. Sales were up in the United States on the strength of improvement in the price and mix of products sold and cold weather patterns that spurred consumption of refrigerated-dough products.
Operating income increased by 14.9 percent to $20.0 million on domestic contributions from improved price and mix and lower manufacturing costs. Excluding the impact of foreign-exchange rates, operating income increased by 19.5 percent to $20.8 million.
Other Third-Quarter News
On Jan. 1, 2001, Earthgrains’ Bimbo European bakery unit acquired the Ortiz toasted bread operations from Nutrexpa, S.A. The cash purchase will be funded out of European cash flows.
Ortiz operates one plant with 140 employees and had annual sales of about $12 million last year. With the acquisition, Bimbo became the market leader in toasted bread products with 25 percent market share and will consolidate production of toasted bread products in the Ortiz plant in Vergel, Spain.
Also on Jan. 1, Miguel Llado assumed the position of president of Bimbo, succeeding Xavier Argente who left the company to become managing director of Spanish retailer Caprabo. Llado joined Bimbo five years ago and was most recently vice president of marketing and sales.
40-Week Results
For the 40-week period ended Jan. 2, 2001, strike-impacted net earnings, excluding unusual charges for plant closings and accounts receivable, were $0.47 per diluted share, compared with $1.15 per share a year ago, excluding a restructuring charge.
Net income was $19.4 million, compared with $48.3 million a year ago, excluding charges in both periods. The unfavorable year-over-year comparison stems from the impact of a domestic labor strike, higher fuel and employee-related costs, unfavorable foreign-exchange rates, a higher effective tax rate, and the expected dilution from the Metz Baking acquisition, including higher interest expense and increased goodwill amortization.
These impacts were partially offset by product price and mix improvements, lower ingredient costs, improved operating efficiencies, domestic baking volume growth, and strong performance in European operations.
The labor strike’s estimated impact to revenue and costs in the second and third quarters reduced earnings in the 40-week period by $0.50 per diluted share. Excluding this estimated impact, earnings would have been $0.97 per share.
Cash earnings increased by 3.7 percent to $1.40 per diluted share, excluding the estimated strike impact and other charges, compared with $1.35 a year ago. The cash earnings measure represents net income before goodwill amortization charges (net of related income taxes).
Performance in the 40-week period, including strike impact but excluding unusual charges unless otherwise noted, included:
— Net sales increased 27.1 percent to $1,984.9 million, up from
$1,561.8 million, despite unfavorable foreign-exchange rates.
Excluding the foreign-exchange impact, net sales increased
30.0 percent to $2,030.3 million. Acquisitions in the
United States and Europe were the primary contributors to
increased sales.
— Operating income was $93.5 million, compared with $93.8 million a
year ago. Excluding the impacts of the strike and
foreign-exchange rates, operating income increased 37.6 percent to
$129.1 million.
— EBITDA cash flow increased 15.2 percent to $211.7 million, up
from $183.7 million a year ago. Excluding the impacts of the strike
and foreign-exchange rates, EBITDA increased 34.6 percent to
$247.3 million.
40-Week Results – Worldwide Bakery Products
Net sales for worldwide bakery operations increased on acquisition contributions, while operating income was impacted by the domestic labor strike in the second and third quarters, higher fuel and energy costs, and higher employee-related costs. Foreign-exchange rates negatively impacted sales and operating income.
Net sales increased 31.2 percent to $1,758.4 million, up from $1,339.9 million. Excluding the effect of foreign-exchange rates, net sales increased 33.9 percent to $1,793.5 million. Net sales, which were impacted by the strike, increased on contributions from the acquisitions of Metz Baking in the United States and Reposteria Martinez in Spain and from improved price and mix of products sold.
Operating income, excluding unusual charges, was $70.0 million in the period, compared with $73.1 million a year ago. Excluding the effect of foreign-exchange rates, operating income was $72.9 million. Product price and mix improvements and lower ingredient costs partially offset the impacts of the strike, fuel and energy costs, and employee-related costs.
40-Week Results – Worldwide Refrigerated Dough Products
Refrigerated-dough operations delivered significant margin improvement with operating income up by 9.5 percent on a net sales increase of 2.1 percent.
Net sales were $226.5 million, compared with $221.9 million. Excluding a negative foreign-exchange rate impact, net sales increased by 6.7 percent to $236.8 million.
Operating income was $32.4 million for a margin on sales of 14.3 percent. Excluding negative foreign-exchange impact, operating income increased by 14.2 percent to $33.8 million. The margin improvement was primarily driven by acquisition benefits in Europe and strong domestic third-quarter performance, including improvement of price and mix of products sold and lower ingredient and manufacturing costs.
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 61 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 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 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 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; 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)
16-week period ended 40-week period ended
January 2, January 4, Percent January 2, January 4, Percent
2001 2000 Change (b) 2001 2000 Change
Net Sales $782.1 $642.8 21.7% $1,984.9 $1,561.8 27.1%
Cost of Products
Sold 437.2 356.0 1,082.6 864.0
Gross Profit 344.9 286.8 20.3% 902.3 697.8 29.3%
Marketing, Distribution
and Administrative
Expenses 329.8 247.8 817.3 604.0
Provision for
Restructuring and
Consolidation 11.5 2.3 11.5 2.3
Operating
Income 3.6 36.7 (90.2)% 73.5 91.5 (19.7)%
Other Income
and Expenses:
Interest
expense (25.1) (7.9) (59.1) (18.9)
Other income
(expense),
net 1.3 1.2 2.0 3.2
(Loss) Income before
Income Taxes (20.2) 30.0 NM% 16.4 75.8 (78.4)%
(Benefit) Provision for
Income Taxes (7.4) 11.1 9.0 28.4
Minority Interest
Expense (0.2) (0.2) (0.6) (0.5)
Net (Loss)
Income $(13.0) $18.7 NM% $6.8 $46.9 (85.5)%
(Loss) Earnings
Per Share:
Basic
Net (Loss)
Earnings $(0.32) $0.46 NM% $0.17 $1.16 (85.3)%
Weighted
Average Shares
Outstanding 40.8 40.6 40.6 40.5
Diluted
Net (Loss)
Earnings $(0.32) $0.45 NM% $0.16 $1.12 (85.7)%
Weighted
Average Shares
Outstanding 40.8 41.9 41.6 42.0
Excluding Unusual
Items: 16-week period ended 40-week period ended
January 2, January 4, Percent January 2, January 4, Percent
2001 2000 Change 2001 2000 Change
Operating
Income (a) $23.6 $39.0 (39.5)% $ 93.5 $ 93.8 (0.3)%
Net (Loss)
Income (a) $(0.4) $20.1 NM% $ 19.4 $ 48.3 (59.8)%
(Loss) Earnings
per Diluted
Share (a) $(0.01) $0.48 NM% $ 0.47 $ 1.15 (59.1)%
EBITDA (a) $72.6 $76.3 (4.8)% $211.7 $ 183.7 15.2%
Goodwill Amortization,
net of tax $ 7.2 $ 3.4 111.8% $ 18.0 $ 8.6 109.3%
Goodwill Amortization,
net of tax,
per diluted
share $0.18 $0.08 125.0% $ 0.43 $ 0.20 115.0%
Cash Earnings
Per Diluted
Share (a) $0.17 $0.56 (69.6)% $ 0.90 $ 1.35 (33.3)%
(a) Excludes the $8.5 million pretax accounts receivable write-off and the
$11.5 million pretax provision for restructuring and
consolidation recorded in the third quarter of fiscal 2001 and
the $2.3 million pretax provision for restructuring and
consolidation recorded in the third quarter of fiscal 2000.
(b) NM refers to percentage changes that are not meaningful due to
negative values for current period results.
THE EARTHGRAINS COMPANY
Business Segment Information
(In millions)
(Unaudited)
16-week period ended 40-week period ended
January 2, January 4, Percent January 2, January 4, Percent
2001 2000 Change (c) 2001 2000 Change
Income Statement
Information
Net Sales
Bakery
Products $676.3 $535.8 26.2% $1,758.4 $1,339.9 31.2%
Refrigerated
Dough
Products 105.8 107.0 (1.1)% 226.5 221.9 2.1%
Total $782.1 $642.8 21.7% $1,984.9 $1,561.8 27.1%
Operating Income
Bakery
Products $(12.8) $22.9 NM% $50.0 $70.8 (29.4)%
Refrigerated
Dough
Products 20.0 17.4 14.9% 32.4 29.6 9.5%
Corporate(a) (3.6) (3.6) 0.0% (8.9) (8.9) 0.0%
Total $3.6 $36.7 (90.2)% $73.5 $91.5 (19.7)%
Operating Income
(Excluding
unusual items)
Bakery
Products(b) $7.2 $25.2 (71.4)% $70.0 $73.1 (4.2)%
Refrigerated
Dough
Products 20.0 17.4 14.9% 32.4 29.6 9.5%
Corporate(a) (3.6) (3.6) 0.0% (8.9) (8.9) 0.0%
Total $23.6 $39.0 (39.5)% $93.5 $93.8 (0.3)%
Operating Margin
(Excluding
unusual items)
Bakery
Products(b) 1.1% 4.7% — 4.0% 5.5% —
Refrigerated
Dough
Products 18.9% 16.3% — 14.3% 13.3% —
Total(b) 3.0% 6.1% — 4.7% 6.0% —
Depreciation & Amortization
Bakery
Products $39.1 $27.2 43.8% $94.6 $66.0 43.3%
Refrigerated
Dough
Products 5.0 5.3 (5.7)% 12.7 11.8 7.6%
Corporate(a) 3.6 3.6 0.0% 8.9 8.9 0.0%
Total $47.7 $36.1 32.1% $116.2 $86.7 34.0%
Balance Sheet Information
Capital Expenditures
Bakery
Products $24.7 $23.0 7.4% $63.7 $49.0 30.0%
Refrigerated
Dough
Products 2.3 5.4 (57.4)% 8.8 13.7 (35.8)%
Total $27.0 $28.4 (4.9)% $72.5 $62.7 15.6%
(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.
(b) Excludes the $8.5 million pretax accounts receivable write-off
and the $11.5 million pretax provision for restructuring and
consolidation recorded in the third quarter of fiscal 2001 and
the $2.3 million pretax provision for restructuring and
consolidation recorded in the third quarter of fiscal 2000.
(c) NM refers to percentage change that is not meaningful due to
negative value of current period results.
