Penford Corporation Reports Third Quarter Fiscal 2005 Results

Penford Corporation (Nasdaq:PENX), a global leader in
ingredient systems for food and industrial applications, today
reported financial results for the third quarter and first nine months
of fiscal 2005. Penford's net income for the quarter ended May 31,
2005, was $2.6 million, or $0.29 per diluted share, compared with net
income of $2.3 million, or $0.26 per diluted share for the same period
last year.
   In the third quarter of fiscal 2005, the Company monetized its
investment in a small Australian start-up company and recognized a
pre-tax gain of $0.7 million on the transaction. In addition, the
Company recognized an income tax benefit in the third quarter of $1.0
million on $1.6 million of pre-tax income. Based on a revised estimate
of its applicable effective income tax rate for fiscal 2005, the
Company recorded a third quarter adjustment increasing the tax benefit
related to its first half pre-tax loss by $1.9 million. Third quarter
2004 net income included a $0.4 million pre-tax charge related to
restructuring costs in the Australian business segment.
   Year-to-date fiscal 2005 reported net loss was $2.2 million, or
$0.25 per diluted share, compared to net income of $4.2 million or
$0.48 per diluted share, in 2004. Consolidated year-to-date results
for fiscal 2005 include approximately $4.1 million in operating costs
directly attributable to the labor strike which was settled in the
middle of the first quarter, and incremental costs of $0.2 million
related to the initial assessment of internal controls pursuant to the
Sarbanes-Oxley Act. Year-to-date fiscal 2004 results include $1.1
million in pre-tax restructuring costs in the Australian and
Industrial Ingredients businesses and a $0.7 million pre-tax,
non-operating expense related to unamortized transaction fees
associated with the Company's prior credit agreement.
   Third quarter consolidated sales rose to $76.1 million, up 5% over
the same period last year. Higher volumes in the Food Ingredients and
Australian operations, improved pricing in the Industrial Ingredients
business and stronger Australian Dollar currency exchange rates
contributed to the gain. Consolidated gross margin as a percent of
sales declined to 13.2% from 16.6% in the prior year due to increased
energy and chemical costs that are tracking the rising price of oil as
well as higher manufacturing expense in Australia. Operating expenses
for the third quarter of fiscal 2005 increased to 8.9% of sales from
8.5% last year primarily due to employee costs. Interest expense for
the third quarter rose to $1.5 million from $1.1 million last year on
higher short-term interest rates in the United States.
   Programs to optimize working capital and improve asset returns
increased third quarter operating cash flow to $12.0 million from $7.1
million a year ago. The balance sheet remains strong with total debt
outstanding declining by $12.3 million from the beginning of the
fiscal year to $68.0 million.

   Segment Results

   Third quarter fiscal 2005 sales grew 22% to a record level of
$13.9 million at the Food Ingredients - North America business.
Quarterly volumes improved in the core potato coatings product
category and in applications used in the meat, dairy and
"low-carbohydrate" markets. Volumes into the "low-carb" market meet
outstanding orders that are expected to be fulfilled by the end of
fiscal 2005. Revenues from formulations developed for markets that
represent entirely new business have more than doubled from the third
quarter last year. Gross margin as a percent of sales increased to
27.4% from 24.8% for the same period a year ago as sales of higher
margin products accelerated.
   Australia/New Zealand sales for the third quarter rose 5% over the
same period a year ago on increased volumes and appreciating foreign
exchange rates. Gross margin as a percent of sales for the third
quarter was 5.1% compared to 15% for the third quarter in the prior
year. Higher chemical and fuel costs accounted for approximately half
of the decline. Reduced production yields and throughput associated
primarily with transitioning manufacturing processes to more
value-added product lines contributed to the balance of the decrease.
   Fiscal 2005 third quarter revenues at the Industrial Ingredients -
North America business were comparable to the same period last year.
Pricing has improved in core, international and specialty products
categories. Higher average selling prices have offset rising utility
and chemical expenses as well as a 17% increase in natural gas costs.
Sales of higher margin specialty starches rose 10% in the third
quarter and 35% year-to-date. Total volume decreased 6% with lower
margin starches declining from peaks achieved in the third quarter of
fiscal 2004. Third quarter gross margin as a percent of sales declined
to 13% from 15% last year. Key productivity and manufacturing unit
cost benchmarks recovered to prior year levels during the quarter,
reversing the impact of the strike that ended last October.
   President and CEO Thomas Malkoski said: "Performance in our North
American Industrial and Food businesses is stepping up, with
Industrial Ingredients production metrics back on track and Food
Ingredients commercializing several new product opportunities. We
continue to focus on programs in Australia that will improve our
product mix, operating efficiencies and returns."
   Penford will host a conference call to discuss third quarter
financial and operational results today, June 21, 2005, at 9:00 a.m.
Mountain time (11:00 a.m. Eastern time). Access information for the
call and webcast 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.
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Penford Corporation 
Financial Highlights

                              Three months ended    Nine months ended
                                    May 31,              May 31,   
(In thousands except per      ------------------    -----------------
share data)                     2005      2004       2005       2004 
                              --------  --------    -------   -------

                  Consolidated Results

Sales                         $76,101   $72,484   $217,385   $207,136

Net income (loss)              $2,585    $2,319    $(2,233)    $4,199

Earnings (loss) per share,
 diluted                        $0.29     $0.26     $(0.25)     $0.48


                  Results by Segment

Industrial Ingredients:

Sales                         $38,625   $38,679   $109,394   $107,006
Gross margin                     13.0%     15.0%       6.1%      14.1%
Operating income (loss)         1,842     2,964     (1,944)     6,079

Food Ingredients - North
 America:

Sales                         $13,911   $11,417    $38,035    $34,283
Gross margin                     27.4%     24.8%      25.4%      25.4%
Operating income                1,825     1,096      4,320      3,714

Australia/New Zealand:

Sales                         $23,728   $22,580    $70,837    $66,306
Gross margin                      5.1%     15.0%       5.9%      12.0%
Operating income (loss)          (105)    1,692        143      3,500



                                                 May 31,    August 31,
                                                   2005        2004
                                                ---------   ---------

Current assets                                   $83,579     $83,580
Property, plant and equipment, net               127,896     130,392
Other assets                                      50,776      51,824
                                                ---------   ---------
  Total assets                                   262,251     265,796
                                                =========   =========

Current liabilities                               53,328      43,295
Long-term debt                                    62,421      75,551
Other liabilities                                 49,721      51,231
Shareholders' equity                              96,781      95,719
                                                ---------   ---------
  Total liabilities and equity                  $262,251    $265,796
                                                =========   =========
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Penford Corporation       
Consolidated Statements of
Income (unaudited)       

                              Three months ended    Nine months ended
                                    May 31,              May 31,
(In thousands except share    ------------------    -----------------
and per share data)             2005      2004       2005       2004
                              --------  --------    -------   -------

Sales                         $76,101   $72,484   $217,385   $207,136

Cost of sales                  66,061    60,461    196,956    175,393
                              -------   -------    -------    -------
  Gross margin                 10,040    12,023     20,429     31,743

Operating expenses              6,783     6,156     18,576     17,330
Research and development
 expenses                       1,447     1,595      4,290      4,551
Restructuring costs, net            -       384          -      1,125
                              -------   -------    -------    -------

  Income (loss) from
   operations                   1,810     3,888     (2,437)     8,737

Non-operating income, net       1,209       505      1,661      1,010
Interest expense               (1,457)   (1,060)    (4,077)    (3,352)
                              -------   -------    -------    -------

  Income (loss) before
   income taxes                 1,562     3,333     (4,853)     6,395

Income tax expense
 (benefit)                     (1,023)    1,014     (2,620)     2,196
                              -------   -------    -------    -------

Net income (loss)              $2,585    $2,319    $(2,233)    $4,199
                              =======   =======    =======    =======

Weighted average common
 shares and equivalents
 outstanding, diluted       8,936,822  8,933,302  8,822,262  8,835,097

Earnings (loss) per share,
 diluted                        $0.29     $0.26     $(0.25)     $0.48

Dividends declared per
 common share                   $0.06     $0.06      $0.18      $0.18
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