Michael Foods Reports Third Quarter Results

MINNETONKA, Minn., Nov. 9, 2012 /PRNewswire/ -- Michael Foods Group, Inc. today reported financial results for the third quarter of 2012.

Net sales for the quarter ended September 29, 2012 were $470.9 million, compared to $459.5 million in 2011, an increase of 2.5%.  Net earnings for the quarter ended September 29, 2012 were $8.7 million, compared to $0.6 million in 2011.  The earnings increase resulted from higher volumes, improved margins in 2012 due to better alignment of pricing with our input costs, and reduced interest expense of approximately $2.9 million in 2012 compared to 2011 resulting from derivative accounting on interest rate swap contracts.

Net sales for the nine months ended September 29, 2012 were $1,352.4 million, compared to $1,296.6 million in 2011, an increase of 4.3%.  Net earnings for the nine months ended September 29, 2012 were $16.4 million, compared to a net loss of $5 million in 2011.  The earnings increase resulted from higher volumes, improved margins in 2012 due to better alignment of pricing with our input costs, costs of approximately $8 million in 2011 related to refinancing of our credit agreement, a reduction in cash interest expense in 2012 due to lower debt levels, and reduced interest expense of approximately $4.8 million in 2012 compared to 2011 resulting from derivative accounting on interest rate swap contracts. 

Earnings before interest, taxes, depreciation, amortization ("EBITDA") and other adjustments ("Adjusted EBITDA,") as defined in the Company's credit facility) for the quarter ended September 29, 2012 were $61 million, compared to $55.3 million in 2011, an increase of 10.3%.  Adjusted EBITDA for the nine months ended September 29, 2012 were $175.5 million, compared to $159.1 million for the same period in 2011, an increase of 10.3%.

"Our third quarter and year to date results reflect the success of our key growth initiatives and the strength of our underlying business processes," said Jim Dwyer, President and CEO.  "Our volume and revenue growth is being driven by new distribution and increased velocity with existing customers.  We are also seeing the continued effectiveness of our pass-through pricing mechanisms and continuous improvement programs."

Michael Foods Group, Inc. uses Adjusted EBITDA as a measurement of financial results, as an indication of the relative strength of its operating performance, and to determine incentive compensation levels.  Management believes that EBITDA and Adjusted EBITDA provide potential investors with useful information with which to analyze and compare with other companies in our industry our operating performance and our ability to service debt.

Certain items contained in this release may be "forward-looking statements." Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future sales or performance, capital expenditures, financing needs, ability to fund operations, intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industries and economies in which we operate and other information that is not historical information. When used herein, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance.

All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them, but there can be no assurance that our expectations, beliefs and projections will be realized.  There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this release, including the factors described under "Risk Factors" in our 2011 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2012. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this release include changes in domestic and international economic conditions.

 

Unaudited segment data follows (in thousands):




Cheese &





Refrigerated

Other




Egg

Potato

Dairy-Case

Corporate &



Products

Products

Products

Eliminations

Total







Three months ended September 29, 2012






External net sales

$   339,242

$     38,033

$     93,672

$           -

$   470,947

Net earnings (loss)

13,115

3,231

1,013

(8,619)

8,740

Adjusted EBITDA

49,637

8,425

4,864

(1,885)

61,041







Three months ended October 1, 2011






External net sales

$   321,858

$     34,296

$   103,333

$           -

$   459,487

Net earnings (loss)

10,926

1,301

(32)

(11,625)

570

Adjusted EBITDA

47,822

5,349

3,732

(1,575)

55,328







Nine months ended September 29, 2012






External net sales

$   960,148

$   109,862

$   282,424

$           -

$ 1,352,434

Net earnings (loss)

31,383

7,178

5,700

(27,875)

16,386

Adjusted EBITDA

144,250

21,962

18,913

(9,581)

175,544







Nine months ended October 1, 2011






External net sales

$   915,271

$     99,816

$   281,520

$           -

$ 1,296,607

Net earnings (loss)

38,442

4,557

4,989

(53,019)

(5,031)

Adjusted EBITDA

132,452

15,834

16,479

(5,649)

159,116

Beginning January 1, 2012, we changed our internal reporting of segment information.  We now report all sales of shell egg and egg products and refrigerated potato products in their respective segments and the balance of our retail distributed products, cheese and other dairy-case products, as our third segment.  This change increased the amount of external net sales, net earnings and Adjusted EBITDA reported for prior periods for both the egg products and refrigerated potato products segments as we reclassified the egg and refrigerated potato products previously reported under the Crystal Farms segment.  The October 1, 2011 three and nine-month periods have been restated to reflect the new internal reporting.  This change has no impact on the assets of the segments as none of the underlying business unit operations were affected by this reporting change.

Adjusted EBITDA is a financial indicator used to analyze and compare companies on the basis of operating performance. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles and is not indicative of operating profit or cash flow from operations as determined under generally accepted accounting principles.

 

 The following table reconciles net earnings (loss) to Adjusted EBITDA for the quarter ended September 29, 2012 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total

Net earnings (loss)


$13,115

$       3,231

$      1,013

$  (8,619)

$  8,740

Unrealized gain on currency transactions (a)


(780)

-

-

-

(780)

  Consolidated net earnings (loss)


12,335

3,231

1,013

(8,619)

7,960

Interest expense


166

103

-

22,212

22,481

Intercompany interest expense (income)


7,082

494

1,079

(8,655)

-

Income tax expense (benefit)


7,617

1,522

694

(5,501)

4,332

Depreciation and amortization


20,274

2,817

1,810

1

24,902

Non-cash and stock option compensation


-

-

-

533

533

Equity sponsor management fee


-

-

-

617

617

Expenses related to industrial revenue bonds







    guaranteed by certain of our subsidiaries


139

-

-

-

139

Unrealized loss on swap contracts


77

-

-

-

77

Intercompany allocation







    of corporate admin costs


1,947

258

268

(2,473)

-

Adjusted EBITDA, as defined







    in the credit agreement


$49,637

$       8,425

$      4,864

$  (1,885)

$61,041









 

(a)

The unrealized gain on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.

 

The following table reconciles net earnings (loss) to Adjusted EBITDA for the quarter ended October 1, 2011 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total

Net earnings (loss)


$10,926

$       1,301

$       (32)

$(11,625)

$    570

Unrealized loss on currency transactions (a)


1,433

-

-

-

1,433

  Consolidated net earnings (loss)


12,359

1,301

(32)

(11,625)

2,003

Interest expense


225

153

-

25,480

25,858

Intercompany interest expense (income)


7,365

514

1,123

(9,002)

-

Income tax expense (benefit)


5,676

372

500

(5,572)

976

Depreciation and amortization


19,699

2,851

1,981

1

24,532

Non-cash and stock option compensation


-

-

-

529

529

Equity sponsor management fee


-

-

-

557

557

Fees and expenses in connection with the







   exchange of the 9.75% senior notes


-

-

-

104

104

Expenses related to industrial revenue bonds







    guaranteed by certain of our subsidiaries


139

-

-

-

139

Unrealized loss on swap contracts


630

-

-

-

630

Intercompany allocation







    of corporate admin costs


1,729

158

160

(2,047)

-

Adjusted EBITDA, as defined







    in the credit agreement


$47,822

$       5,349

$     3,732

$ (1,575)

$55,328









(a)

The unrealized loss on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.

 

The following table reconciles net earnings (loss) to Adjusted EBITDA for the nine months ended September 29, 2012 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total

Net earnings (loss)


$ 31,383

$ 7,178

$ 5,700

$ (27,875)

$ 16,386

Unrealized gain on currency transactions (a)


(696)

-

-

-

(696)

Consolidated net earnings (loss)


30,687

7,178

5,700

(27,875)

15,690

Interest expense


546

349

-

67,407

68,302

Intercompany interest expense (income)


21,258

1,483

3,240

(25,981)

-

Income tax expense (benefit)


18,155

3,327

3,322

(16,043)

8,761

Depreciation and amortization


60,296

8,451

5,431

4

74,182

Non-cash and stock option compensation


-

-

-

1,586

1,586

Unusual charges (b)


-

-

-

5,842

5,842

Equity sponsor management fee


-

-

-

1,838

1,838

Expenses related to industrial revenue bonds







guaranteed by certain of our subsidiaries


425

-

-

-

425

Unrealized gain on swap contracts


(1,082)

-

-

-

(1,082)

Intercompany allocation







of corporate admin costs


13,965

1,174

1,220

(16,359)

-

Adjusted EBITDA, as defined







in the credit agreement


$ 144,250

$ 21,962

$ 18,913

$ (9,581)

$ 175,544









 

(a)

The unrealized gain on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.

(b)

The unusual charges relate to the jury award in the National Pasteurized Eggs, Inc. trial.

 

The following table reconciles net earnings (loss) to Adjusted EBITDA for the nine months ended October 1, 2011 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total

Net earnings (loss)


$ 38,442

$ 4,557

$ 4,989

$ (53,019)

$ (5,031)

Unrealized loss on currency transactions (a)


756

-

-

-

756

Consolidated net earnings (loss)


39,198

4,557

4,989

(53,019)

(4,275)

Interest expense


709

497

-

75,427

76,633

Intercompany interest expense (income)


7,365

514

1,123

(9,002)

-

Income tax expense (benefit)


19,942

1,517

3,870

(27,381)

(2,052)

Depreciation and amortization


59,123

8,553

5,944

5

73,625

Non-cash and stock option compensation


-

-

-

1,418

1,418

Cash expenses incurred in connection







with the transaction


-

-

-

4,760

4,760

Business optimization project expense


-

-

-

2,830

2,830

Realized gain upon the disposition of property







not in the ordinary course of business


-

(354)

-

-

(354)

Equity sponsor management fee


-

-

-

1,726

1,726

Fees and expenses in connection with the







exchange of the 9.75% senior notes


-

-

-

351

351

Expenses related to industrial revenue bonds







guaranteed by certain of our subsidiaries


532

-

-

-

532

Unrealized loss on swap contracts


395

-

-

-

395

Loss attributable to the early







extinguishment of indebtedness


-

-

-

3,527

3,527

Intercompany allocation







of corporate admin costs


5,188

550

553

(6,291)

-

Adjusted EBITDA, as defined







in the credit agreement


$ 132,452

$ 15,834

$ 16,479

$ (5,649)

$ 159,116


 

(a)

The unrealized loss on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.

    

Michael Foods Group, Inc., based in Minnetonka, Minnesota, is a producer and distributor of food products to the foodservice, retail and food-ingredient markets.  Its principal products are egg products, refrigerated potato products, cheese and other dairy-case products.

Consolidated statements of operations are as follows:

 

Michael Foods Group, Inc.

Consolidated Statements of Operations

For Periods Ended

(In thousands)




Three Months Ended


Nine Months Ended



September 29,


October 1,


September 29,


October 1,



2012


2011


2012


2011

Net sales


$   470,947


$   459,487


$   1,352,434


$1,296,607

Cost of sales


395,589


393,467


1,124,110


1,099,892

  Gross profit


75,358


66,020


228,324


196,715










Selling, general and administrative expenses


40,438


37,095


135,154


122,620

  Operating profit


34,920


28,925


93,170


74,095










Interest expense, net


22,426


25,850


68,151


76,606

Unrealized (gain) loss on currency transactions


(780)


1,433


(696)


756

Loss on early extinguishment of debt


-


-


-


3,527

  Earnings (loss) before income taxes and equity









    in losses of unconsolidated subsidiary


13,274


1,642


25,715


(6,794)










Income tax expense (benefit)


4,332


976


8,761


(2,052)

Equity in losses of unconsolidated subsidiary


202


96


568


289

    Net earnings (loss)


$       8,740


$          570


$        16,386


$     (5,031)

























September 29,


December 31,







2012


2011

Selected Balance Sheet Information:


















Cash and equivalents






$      103,178


$     68,118










Accrued interest






$          9,831


$     20,420










Long-term debt, including current maturities






$   1,249,955


$1,251,089

 

SOURCE Michael Foods Group, Inc.




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