Penford's Q3 net income up 49.2% year-over-year to US$3.1M due to one-time US$1M non-operating gain in industrial ingredients division; sales down 1.9% to US$119.4M due to lower corn prices that were passed through to paper industry customers

CENTENNIAL, Colorado , July 8, 2014 (press release) –

Penford Corporation (Nasdaq:PENX), a leader in ingredient systems for food and industrial markets, today reported third quarter and year-to-date fiscal year 2014 results.

The Company reported net income of $3.1 million, or $0.24 per diluted share, for the third quarter ended May 31, 2014. Consolidated sales for the quarter were $119.4 million compared with $121.7 million last year, primarily because lower corn prices that were passed through to paper industry customers reduced industrial starch and by-products revenue. The Company’s gross margin improved, benefiting from higher Industrial Ingredients profitability. Consolidated operating income increased 15% to $4.9 million.

Third quarter results included a one-time $1.0 million non-operating gain in the Industrial Ingredients division. The Company satisfied conditions of a forgivable government loan and had the remaining repayment obligations waived. The loan was extended following the 2008 flood event that impacted the Company’s operations in Cedar Rapids. Results in the division were also slightly improved by a change in the estimated service lives used to calculate depreciation expense, as explained below. In addition, the Company incurred one-time costs associated with the acquisition of Gum Technology, which are included in the quarterly results of the Food Ingredients division.

     

Penford Corporation - Financial Highlights:

                         
      (In thousands)     Q3 FY 14   Q2 FY 14   Q1 FY 14   Q3 FY 13
      Food Ingredients:                  
      Sales     $ 35,317   $ 30,279   $ 28,651   $ 28,535
      Gross Margin       9,572     8,813     9,274     9,056
      EBITDA*       6,642     6,316     7,055     6,726
                         
      Industrial Ingredients:                  
      Sales     $ 84,112   $ 75,828   $ 80,600   $ 93,184
      Gross Margin       5,296     3,358     1,435     4,135
      EBITDA*       5,344     2,726     647     3,291
                         
      Consolidated:                  
      Sales     $ 119,429   $ 106,107   $ 109,251   $ 121,719
      Gross Margin       14,868     12,171     10,709     13,191
      EBITDA*       9,012     6,225     4,940     7,745
      Net income       3,071     1,240     488     2,058
                         
      Consolidated:     LTM May 14   LTM May 13        
      Sales     $ 452,212   $ 460,047        
      EBITDA*       21,961     21,299        
      Net income       3,850     591        
      Total Debt       77,341     78,529        
                             
     

* See the Reconciliation Table below.

     

 

                     

Highlights for the quarter are as follows:

Food Ingredients Division

  • Revenue increased to a record $35.3 million on double-digit increases in starch volumes across several application segments.
  • The Company completed the acquisition of Gum Technology during the quarter, and integration is proceeding as planned.
  • RS&A expenses rose 25% on investments in R&D, sales and business development, and from the acquisition of Gum Technology.
  • Operating income was $6.0 million, including $0.4 million of margin reduction due to costs incurred from the Gum Technology acquisition that closed on March 25, 2014. Operating income was $6.2 million for the same period last year.

Industrial Ingredients Division

  • Sales declined 10% from last year as a 36% decline in corn prices reduced by-products and paper starch revenues.
  • The bio-products platform continued to grow with 15 new product applications commercialized over the last nine months.
  • Higher bio-products sales, better ethanol crush margins, and stronger starch shipments overcame $2.5 million in additional production costs due to higher natural gas prices (by 69%) and electricity rates (by 23%) brought on by harsh winter weather. The result was a 28% improvement in gross margin.
  • Operating income increased from $0.6 million to $2.0 million. Depreciation expenses were reduced by $0.2 million in the quarter after the Company determined that the useful lives of certain long term manufacturing assets should be extended. The Company expects, based on its current level of operations and investments in property, plant and equipment, that this change in the estimated useful lives of these assets will increase operating income in the fourth quarter by approximately $1.0 million and, on an annualized basis, in the range of approximately $4.4 million to $4.6 million.

Consolidated Results

  • Earnings per share of $0.24 are the highest quarterly result since the 2008 flood damaged operations in Cedar Rapids.
  • The Company reported the highest gross margins in the last eight quarters at 12.4%.
  • Cash flows from operations provided $2.9 million in cash. Total debt declined $1.2 million from last year.
  • Sequential performance was also strong with sales increasing 13%, gross margins up 22%, and operating income rising by 69% compared with the second quarter of fiscal 2014.

Conference Call

The Company will host a conference call to discuss fiscal 2014 third quarter results today, July 7, 2014, at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time). Access information for the call and web-cast can be found at www.penx.com. To participate in the call on July 7, 2014, please phone 1-877-407-9205 at 7:50 a.m. Mountain Time. A replay will be available at www.penx.com.

About Penford Corporation

Penford Corporation develops, manufactures and markets specialty, natural-based ingredient systems for a variety of food and industrial products. Penford operates six manufacturing facilities and three research and development centers in the U.S.

The statements contained in this release that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements can be identified by the use of words such as “believes,” “may,” “will,” “looks,” “should,” “could,” “anticipates,” “expects,” or comparable terminology or by discussions of strategies or trends. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such forward-looking statements, and the Company does not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this release and those described from time to time in other filings with the Securities and Exchange Commission which include, but are not limited to: competition; the possibility of interruption of business activities due to equipment problems, accidents, strikes, weather or other factors; product development risk; changes in corn and other raw material prices and availability; the Company’s inability to comply with the terms of instruments governing the Company’s debt; changes in general economic conditions or developments with respect to specific industries or customers affecting demand for the Company’s products, including changes in government rules or incentives affecting ethanol consumption, unfavorable shifts in product mix; unanticipated costs, expenses or third party claims; impairment of the Company’s long-lived assets that could result in a noncash charge to reported earnings; interest rate, chemical and energy cost volatility; changes in returns on pension plan assets and/or assumptions used for determining employee benefit expense and obligations; unforeseen developments in the industries in which Penford operates; and other factors described in the “Risk Factors” section in reports filed with the Securities and Exchange Commission.

Penford Corporation     Three Months Ended     Nine Months Ended
Financial Highlights     May 31     May 31
                         
(In thousands, except per share data)    

2014

   

2013

   

2014

   

2013

             
Consolidated Results            
(unaudited)            
                         
Sales     $ 119,429       $ 121,719       $ 334,786       $ 349,823  
                         
Income from operations     $ 4,925       $ 4,275       $ 9,476       $ 10,825  
                         
Net income     $ 3,071       $ 2,058       $ 4,798       $ 4,956  
                         
Earnings per share, diluted     $ 0.24       $ 0.16       $ 0.37       $ 0.39  
                         
Cash Flows            
(unaudited)            
                         
Cash flow provided by (used in):                        
Operating activities     $ 2,946       $ 11,228       $ 11,337       $ 14,580  
Investing activities       (11,939 )       (1,211 )       (17,416 )       (6,201 )
Financing activities       9,376         (9,910 )       6,241         (8,276 )
Increase in cash     $ 383       $ 107       $ 162       $ 103  
                                         
Balance Sheets              
(unaudited)              
      May 31,       August 31,
      2014       2013
               
Current assets     $ 99,945       $ 90,114
Property, plant and equipment, net     111,761       112,141
Other assets     24,922       22,363
Total assets     236,628       224,618
               
Current liabilities     39,885       35,640
Long-term debt     77,163       72,739
Other liabilities     28,081       33,346
Shareholders’ equity     91,499       82,893
Total liabilities and equity     $ 236,628       $ 224,618
               

Penford Corporation

           
Consolidated Statements of Operations     Three Months Ended     Nine Months Ended
(unaudited)     May 31,     May 31,
             
(In thousands, except per share data)     2014     2013     2014     2013
                         
                         
Sales     $ 119,429     $ 121,719     $ 334,786     $ 349,823
Cost of sales       104,561       108,528       297,041       312,373
Gross margin       14,868       13,191       37,745       37,450
                         
Operating expenses       8,668       7,326       24,319       22,269
Research and development expenses       1,275       1,590       3,950       4,356
                         
Income from operations       4,925       4,275       9,476       10,825
                         
Interest expense       935       998       2,564       3,062
Other non-operating income, net       1,014       146       1,028       68
Income before income taxes       5,004       3,423       7,940       7,831
                         
Income tax expense       1,933       1,365       3,142       2,875
Net income     $ 3,071     $ 2,058     $ 4,798     $ 4,956
                         
Weighted average common shares and equivalents outstanding, diluted       12,875       12,670       12,847       12,548
                         
Earnings per common share, diluted     $ 0.24     $ 0.16     $ 0.37     $ 0.39
                                 

Penford Corporation
Reconciliation of Non-GAAP Measure

To supplement the segment and consolidated financial results prepared in accordance with generally accepted accounting principles (“GAAP”), the Company utilizes a non-GAAP financial measure, net income (loss), before interest, taxes, depreciation and amortization expense (“EBITDA”). The Company uses EBITDA to evaluate performance and establish goals. The Company believes that this measure is valuable to investors in assessing the Company’s operating results when viewed in conjunction with GAAP results. This non-GAAP measure is not a substitute for, or an alternative to, the corresponding measure calculated in accordance with GAAP.

Reconciliation of non-GAAP EBITDA to GAAP Operating Income (Loss)

                             
     

Three months ended May 31, 2014

   

Three months ended May 31, 2013

     

Food

 

Industrial

       

Food

 

Industrial

   
     

Ingredients

 

Ingredients

 

Consolidated

   

Ingredients

 

Ingredients

 

Consolidated

                             
Operating income     $ 6,025     $ 1,957     $ 4,925     $ 6,206   $ 565     $ 4,275
                             
Depreciation and amortization       618       2,374       3,074       519     2,722       3,323
Other non-operating income (loss)       (1 )     1,013       1,013       1     4       147
                             
EBITDA     $ 6,642     $ 5,344     $ 9,012     $ 6,726   $ 3,291     $ 7,745
                             
                             
     

Three months ended February 28, 2014

   

Three months ended November 30, 2013

     

Food

 

Industrial

       

Food

 

Industrial

   
     

Ingredients

 

Ingredients

 

Consolidated

   

Ingredients

 

Ingredients

 

Consolidated

                             
Operating income (loss)     $ 5,794     $ 14     $ 2,911     $ 6,530   $ (2,043 )   $ 1,641
                             
Depreciation and amortization       522       2,704       3,308       525     2,684       3,291
Other non-operating income       -       8       6       -     6       8
                             
EBITDA     $ 6,316     $ 2,726     $ 6,225     $ 7,055   $ 647     $ 4,940
                             
                             
     

Twelve Months ended

May 31

                 
     

2014

 

2013

                 
                             
Operating income     $ 8,056     $ 11,301                    
                             
Loss on redemption of Preferred Stock       -       (3,822 )                  
Iowa loan forgiveness       1,000       -                    
Depreciation and amortization       12,871       13,538                    
Other non-operating income       34       282                    
                             
EBITDA     $ 21,961     $ 21,299                    

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