Penford Corporation, a leader in ingredient systems for food and industrial markets, 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.
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.
