Penford Corporation Reports Second Quarter Fiscal 2006 Results; Sales Advance 11%, Investments to Reduce Costs Continue

Penford Corporation (Nasdaq: PENX), a global leader in
ingredient systems for food and industrial applications, today
reported financial results for the second quarter and first half of
fiscal year 2006. Penford reported a net loss for the quarter ended
February 28, 2006, of $0.5 million, or $0.06 per diluted share,
compared to a net loss of $1.0 million, or $0.11 per diluted share for
the same period last year. Year-to-date fiscal 2006 reported net loss
was $0.3 million, or $0.04 per diluted share, compared to a net loss
of $4.8 million, or $0.55 per diluted share in 2005.
   Second quarter sales grew to $77.1 million from $69.2 million in
fiscal 2005. Consolidated gross margin as a percent of sales increased
to 11.1% from 10.3% last year despite continued high energy and
chemical costs. Operating expenses as a percent of sales were
comparable to the previous year at 8.7%. The company recorded $0.7
million in one-time expense in the industrial ingredients business as
part of a continuing program to attack costs and improve margins.
Second quarter consolidated expenses also include $0.3 million in
stock-based compensation costs. Interest expense rose slightly to $1.5
million from $1.4 million a year ago. The Company initiated a new
grain procurement program in Australia that is designed to improve
financing costs and inventory management. This change temporarily
increased working capital during the quarter. Net cash from operations
was comparable to last year at $4.1 million.
   Revenues increased 10% in the first half of fiscal 2006 to $155.0
million on higher volumes in the North American Food Ingredients and
Industrial segments. Consolidated gross margin as a percent of sales
rose to 12.2% from 7.4% last year. The company recorded $0.6 million
of non-recurring restructuring charges, primarily for severance
expenses, during the first fiscal quarter of 2006. The first half
results for fiscal 2005 included $4.1 million in strike-related
operating costs in the industrial ingredients business. Expanding
volumes and productivity gains worldwide as well as higher pricing in
the industrial ingredients segment partly offset $6.5 million of
additional energy and chemical costs incurred during the first six
months of fiscal 2006.
   "We have addressed soaring energy and chemical costs during the
last several months by implementing process changes that have reduced
usage of these inputs from historical levels. During the first half of
fiscal 2006 we also retained external expertise to improve operating
processes, yields and throughputs in two of our businesses. In
addition, capital projects were activated that will diminish our
energy exposure and broaden the choice for fuel sources in Cedar
Rapids," said Thomas Malkoski, Penford's President and CEO.

   Second Quarter Segment Results

   Revenues for the second quarter 2006 at the Food Ingredients -
North America business rose 14.5% to $13.6 million from $11.9 million
a year ago. Total volumes grew 16%. Potato coatings sales remain
strong, expanding by 12% over last year's second quarter. Sales of new
processed meat, dairy and cheese applications increased by 64% from
fiscal 2005. Gross margin as a percent of sales was comparable to last
year at 23.9%, as sales growth and better plant utilization were
offset by escalating chemical and energy costs. Operating income rose
34% to $1.5 million from $1.1 million a year ago.
   Second quarter 2006 sales at the Industrial Ingredients - North
America business increased 15.5% to $41.2 million from $35.6 million
in fiscal 2005, a period when this business was recovering from a
strike at its Cedar Rapids manufacturing site that ended in October
2004. Export sales grew 30%. Improved product mix and pricing in all
core product categories also contributed to the sales increase.
Segment gross margin declined slightly to 9.3% from 9.6% the previous
year. Average market prices for natural gas increased by 67% compared
with the second quarter of fiscal 2005. Average unit chemical costs
rose by more than 25% from the same period a year ago. The business
also encountered a temporary interruption in the utility supply of
steam for its Cedar Rapids facility that increased second quarter
production costs by approximately $0.4 million. Quarterly
manufacturing expenses include $0.7 million in non-recurring charges
for external advice on optimizing energy usage and improving plant
reliability/throughput. Operating income increased 29% to $0.8 million
from $0.6 million a year ago.
   Australia/New Zealand sales rose 2.4% from a year ago. Local
currency revenue increased by 6% compared with the same period last
year. Volumes grew 7%, with sweetener formulations and applications
for highly modified food starches increasing at double-digit rates.
Gross margin as a percent of sales expanded to 6.6% from 4.2%
reflecting improvements in production yields and plant performance.
Operating income was $0.1 million compared with a loss of $0.3 million
last year.
   "The North American Food Ingredients and Industrial Ingredients
businesses have made an excellent start on the year with volumes and
sales increasing at double-digit rates," Malkoski added. "We
anticipate volume and revenue growth in the second half year, but at a
more normalized rate. We will continue our focus on productivity and
cost programs to improve margins during the second half year and
beyond."
   Penford will host a conference call to discuss second quarter
results today, March 21, 2006, at 9:00 a.m. Mountain time (11:00 a.m.
Eastern time). Access information for the call and web-cast can be
found at www.penx.com. A replay will be available at www.penx.com.

   Penford Corporation develops, manufactures and markets specialty
natural-based ingredient systems for various applications, including
papermaking, textiles and food products. Penford has nine locations in
the United States, Australia and New Zealand.

   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
disclaims any intention or obligation 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 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; changes in general economic
conditions or developments with respect to specific industries or
customers affecting demand for the Company's products including
unfavorable shifts in product mix; unanticipated costs, expenses or
third party claims; the risk that results may be affected by
construction delays, cost overruns, technical difficulties,
nonperformance by contractors or changes in capital improvement
project requirements or specifications; interest rate and energy cost
volatility; foreign currency exchange rate fluctuations; changes in
assumptions used for determining employee benefit expense and
obligations; or other unforeseen developments in the industries in
which Penford operates.

   CHARTS TO FOLLOW
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Penford Corporation            
Financial Highlights
                               Three months ended   Six months ended
                                  February 28,        February 28,
                              ----------------------------------------
(In thousands except 
per share data)                   2006      2005      2006      2005
----------------------------------------------------------------------

                         Consolidated Results

Sales                           $77,078   $69,219  $154,981  $141,284

Net loss                          $(511)    $(992)    $(316)  $(4,818)

Loss per share, diluted          $(0.06)   $(0.11)   $(0.04)   $(0.55)


                          Results by Segment

Industrial Ingredients:

Sales                           $41,165   $35,634   $79,646   $70,769
Gross margin                        9.3%      9.6%      9.3%      2.3%
Operating income (loss)             781       604     1,355    (3,786)

Food Ingredients - North
 America:

Sales                           $13,567   $11,852   $28,657   $24,124
Gross margin                       23.9%     23.8%     26.1%     24.1%
Operating income                  1,485     1,103     3,886     2,495

Australia/New Zealand:

Sales                           $22,442   $21,905   $47,077   $47,109
Gross margin                        6.6%      4.2%      8.7%      6.3%
Operating income (loss)              98      (327)      795       248
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                                           February 28,    August 31,
                                               2006           2005
                                        ------------------------------

Current assets                               $94,484        $88,937
Property, plant and equipment, net           126,771        125,267
Other assets                                  35,283         35,713
                                        ------------------------------
  Total assets                               256,538        249,917
                                        ==============================

Current liabilities                           46,860         53,366
Long-term debt                                74,820         62,107
Other liabilities                             35,448         34,418
Shareholders' equity                          99,410        100,026
                                        ------------------------------
  Total liabilities and equity              $256,538       $249,917
                                        ==============================
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Penford Corporation         
Consolidated Statements of
Income (unaudited)                           
                            Three months ended     Six months ended
                                February 28,          February 28,
                          --------------------------------------------
(In thousands except share
 and per share data)           2006       2005       2006       2005
----------------------------------------------------------------------


Sales                        $77,078    $69,219   $154,981   $141,284

Cost of sales                 68,534     62,059    136,037    130,895
                          --------------------------------------------
  Gross margin                 8,544      7,160     18,944     10,389

Operating expenses             6,671      5,986     14,408     11,794
Research and development
 expenses                      1,571      1,431      3,008      2,843
                          --------------------------------------------

  Income (loss) from
   operations                    302       (257)     1,528     (4,248)

Non-operating income, net        486        370        847        452
Interest expense              (1,534)    (1,358)    (2,867)    (2,620)
                          --------------------------------------------

  Loss before income taxes      (746)    (1,245)      (492)    (6,416)

Income tax benefit              (235)      (253)      (176)    (1,598)
                          --------------------------------------------

Net loss                       $(511)     $(992)     $(316)   $(4,818)
                          ============================================

Weighted average common
 shares and equivalents
  outstanding, diluted     8,880,721  8,824,983  8,878,885  8,820,802

Loss per share, diluted       $(0.06)    $(0.11)    $(0.04)    $(0.55)

Dividends declared per
 common share                  $0.06      $0.06      $0.12      $0.12
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