Land O'Lakes Strengthens Sales, Financial Position in First Quarter; Challenging Economy Impacts Earnings
ARDEN HILLS, Minn., June 7 /PRNewswire/ -- Land O'Lakes, Inc. increased sales by approximately $120 million in the first quarter of 2010 (versus the first quarter of 2009), with more than half of the company's business portfolio delivering stronger sales. The company also continued to reduce debt and strengthen its financial position, while managing through a difficult economy that affected first-quarter earnings.
- Sales Increase in Most Divisions: Net sales for the quarter increased to $3.07 billion, compared with $2.95 billion in the same period last year. This $120 million increase was led by the Dairy Foods business, with particularly strong results from the company's flagship branded butter. Sales were higher in the Crop Inputs business, which provides farmers with a wide range of innovative products that enhance crop production. The shell eggs business also improved sales, with a significant volume increase in higher-value branded and specialty eggs. Increased sales in these businesses helped to offset a challenging environment in Feed and Industrial (processing) Foods.
- Challenging Economy, Legal Settlement Impact Earnings: Despite higher overall sales in the quarter, earnings continued to be affected by a challenging economy and generally soft commodity markets. Net earnings were $30.9 million in the first quarter of 2010, compared with $82.7 million for the same period in 2009 – a record-setting year for Land O'Lakes. A significant portion of the difference in earnings between the two quarters was due to a $25 million charge related to the settlement of a class action lawsuit brought against the company's MoArk subsidiary. MoArk entered into the settlement to avoid the expense and distraction of protracted litigation.
- Land O'Lakes Strengthens Financial Position: Even in the difficult economy, Land O'Lakes maintained a strong balance sheet, with the Long-Term Debt to Capital ratio improving to 33.7 percent; a $13 million increase in total equity; and improved liquidity. Total debt declined to $941 million (as of March 31, 2010) from $1.15 billion on the same date in 2009. The company achieved this debt reduction by maintaining a keen focus on working capital management and cost control.
Land O'Lakes President and Chief Executive Officer Chris Policinski said: "The company's first- quarter performance reflects the impact of a still challenging economy and volatile commodity markets. This was particularly evident in our Feed and Industrial (processing) Foods businesses, which are being affected by continued financial stress in many segments of agriculture. But even with these challenges, the fact that more than half of our business portfolio achieved higher sales is a strong confirmation of the value of our brands and the loyalty of our customers and consumers. Our progress in reducing debt and strengthening the company's financial standing also reflects our commitment to position Land O'Lakes for profitable growth in the future. As the year progresses, I'm confident about our overall performance in 2010, as well as our longer-term outlook."
Policinski noted that in 2010, the company embarked on an aggressive initiative called Total Margin Management, which will take revenue enhancement, cost control and risk management to higher levels throughout the company. "Total Margin Management will make an important difference in how we manage our resources. We're focusing on activities that generate the greatest value. This will ensure that we have the funds to fuel continued, profitable growth, which is the lifeblood of any successful company. This effort will enable us to support our members and serve our customers even more effectively."
Business Segment Results
Dairy Foods
The company reported a pretax loss of $3.6 million in Dairy Foods for the first quarter, compared with a pretax loss of $17.9 million in the first quarter of 2009. Net sales for the quarter were $857 million, up from $753 million for the first quarter of 2009.
The improved performance reflects strong and improved margins on the Retail Foods side of the business, despite a decline in overall volume from one year ago. The quarter saw particularly strong performance in the company's flagship branded butter, as well as in new and innovative products like butter products in tubs, butter half-sticks and 2% Milk American Deli Cheese.
Losses in the Industrial (processing) Foods side of the business were reduced versus the prior year. However, this business continues to be challenged by soft commodity markets and economic stress among dairy producers, particularly in the Eastern and Western milk procurement regions, where a reduced volume of milk was available for processing.
Feed
Land O'Lakes reported a $4.4 million pretax loss in Feed for the quarter, versus $5.3 million in pretax earnings for the first quarter of 2009. Sales for the quarter were $817 million, down from $894 million for the same quarter one year ago.
Company officials indicated the Livestock feed segment continues to be affected by financial stress in the cattle, swine and dairy industries – resulting in lower volumes due to reduced animal numbers and feeding rates. The feed industry has also experienced a shift toward lower-cost products, leading to reduced dollar sales and margins.
Lifestyle feed and Animal Milk Replacer volumes were relatively flat with one year ago, with improvement in premium and new products business.
Crop Inputs
The company's Crop Inputs business, conducted primarily through Winfield Solutions LLC, reported $49.4 million in pretax earnings for the first quarter, compared to $78.8 million for the same quarter one year ago. Sales for the quarter were $1.3 billion, versus $1.2 billion for the first quarter of 2009.
Company officials said the earnings decline had been anticipated and reflects a number of factors including lower prices and margins in key crop protection product segments (specifically glyphosate), the timing of crop input purchases, and customer/dealer inventory management strategies. Volumes through March were mixed in Seed and up from one year ago in Crop Protection products.
Layers/Shell Eggs
The company's Layers/Eggs business (MoArk, LLC) reported an $18.8 million pretax loss for the quarter, compared to $11.2 million in earnings for the first quarter of 2009. Last year's first-quarter earnings, however, included a $6.4 million asset-sale gain (Golden Oval Eggs), while 2010 first-quarter results include the $25 million legal settlement noted earlier. Excluding these items, 2010 pretax earnings in this business were improved by approximately $1 million versus the first quarter of 2009. Sales were $147 million, up from $138 million for the first quarter of 2009. Overall volume was flat with one year ago. However, first-quarter volume in higher-value branded and specialty eggs was up significantly.
As indicated in the previous quarter's earnings news release, the company redeemed its publicly traded debt last December, which means Land O'Lakes is no longer required to file financial reports with the Securities and Exchange Commission. Quarterly financial statements are not being publicly released. The company's 2009 annual report is available at: www.landolakesinc.com.
Land O'Lakes, Inc. (www.landolakesinc.com) is a national, farmer-owned food and agricultural cooperative with annual sales of $10 billion. Land O'Lakes, the nation's second-largest cooperative, does business in all 50 states and more than 50 countries. It is a leading marketer of a full line of dairy-based consumer, foodservice and food ingredient products across the United States; serves its international customers with a variety of food and animal feed ingredients; and provides farmers and ranchers with an extensive line of agricultural supplies (feed, seed, and crop protection products) and services. Land O'Lakes also provides agricultural assistance and technical training in more than 25 developing nations.
SOURCE Land O'Lakes, Inc.
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