Penford Operating Income Rises 27% in FY 08 First Quarter

  
    
  
  
    
      Penford Corporation (Nasdaq: PENX), a global leader in renewable, 
      natural-based ingredient systems for industrial and food applications, 
      today reported that consolidated sales for its first quarter of fiscal 
      2008, which ended on November 30, 2007, rose 11% to $94.9 million from 
      $85.5 million a year ago. Higher unit selling prices in all of the 
      Company’s businesses, new product 
      introductions, favorable mix changes in North America and stronger 
      Australian Dollar exchange rates contributed to the sales gain. In 
      addition, first quarter operating income increased 27% to $5.8 million 
      from $4.5 million in the same period during fiscal 2007.
    
    
      Net income for the quarter rose 23% to $3.2 million from $2.6 million 
      for the same quarter last year. Earnings per diluted share increased 18% 
      to $0.33 from $0.28 a year ago despite severance costs of $1.2 million 
      or $0.09 per share related to repositioning the Company’s 
      Australian business.
    
    
      Consolidated gross margin expanded to $16.3 million from $13.2 million a 
      year ago. Gross margin as a percent of sales expanded to 17.1% from 
      15.4% on revenue increases and product mix improvements. Consolidated 
      operating expenses were $7.2 million versus $7.1 million last year and 
      declined as a percent of sales to 7.6% from 8.3% a year ago. Research 
      and development expenses rose 29% to $2.0 million as the Company 
      continues to invest in projects and technologies that deliver 
      differentiated, high performance solutions to customers and enhance the 
      Company’s product offerings.
    
    
      First quarter non-operating income of $0.5 million and interest expense 
      of $1.3 million were comparable to last year. Income tax expense 
      increased $0.6 million to $1.8 million as earnings rose in higher tax 
      rate jurisdictions. The effective tax rate was 36.2% compared with 31.2% 
      a year ago.
    
    
      Interest expense of $0.3 million associated with the expansion of the 
      Company’s wet milling operations to produce up 
      to 45 million gallons of ethanol annually was capitalized during the 
      first quarter of fiscal 2008. Construction costs are estimated at $1.00 
      to $1.05 per gallon. Capital expenditures attributable to this Cedar 
      Rapids, Iowa construction project were $32.7 million as of November 30, 
      2007. The new facility should be operational during the second half of 
      fiscal 2008.
    
    
      In December 2007, the Company sold 2,000,000 shares of its common stock 
      with net proceeds to Penford of $47.2 million, which was used to repay 
      amounts outstanding under the Company’s credit 
      facility.
    
    
      Segment Results
    
    
      First quarter fiscal 2008 sales at the Industrial Ingredients business 
      rose 12% to $49.2 million. Higher unit pricing in all major product 
      categories, mix improvements and the impact from passing through higher 
      corn prices to customers contributed to the gain. Quarterly sales of 
      specialty products expanded 38%. Specialty products include the Company’s 
      proprietary line of Liquid Natural Additives products, which can be an 
      excellent substitute for petroleum-based products. Gross margin as a 
      percent of sales increased to 17.4% from 13.6% a year ago on improved 
      pricing and expansion of the high margin Specialty category. Operating 
      expenses decreased $0.2 million to $1.9 million and as a percent of 
      sales declined to 3.9% from 4.7% last year. Operating income grew 79% to 
      $5.7 million from $3.2 million last year.
    
    
      North American Food Ingredients first quarter fiscal 2008 revenues grew 
      6% over last year to $16.1 million on higher selling prices, continuing 
      ramp-up of products in the pet category and improved product mix. 
      Revenue from coating applications were comparable to a year ago while 
      non-coating applications expanded by 12%. Gross margin decreased $0.2 
      million to $4.6 million in the first quarter 2008, reflecting increased 
      costs for raw materials, maintenance and expenditures for new product 
      trials. Improved pricing realized with the annual renewal of customer 
      contracts beginning in January should mitigate the impact of higher 
      costs. First quarter operating expenses decreased to $1.4 million or 
      8.4% of sales from 9.9% a year ago. Income from operations was $2.7 
      million compared with $2.9 million a year ago.
    
    
      First quarter sales in the Australia/New Zealand business expanded 13% 
      to $29.9 million from $26.5 million a year ago. Higher average selling 
      prices increased revenue by $2.1 million while stronger foreign currency 
      exchange rates added $4.0 million. Gross margin as a percent of sales 
      rose to 10.5% from 9.1% a year ago as stronger pricing more than offset 
      $1.8 million in higher quarterly grain costs caused by a continuing 
      drought in the region. In addition to price increases, the Australia/New 
      Zealand business is shifting production among its three plants, sourcing 
      from alternate suppliers and reducing its workforce to address 
      escalating grain costs. The first quarter operating loss of $0.1 million 
      included $1.2 million in severance costs for employees in the two 
      Australian operating facilities. The business reported operating income 
      of $0.8 million last year.
    
    
      “Improved pricing, particularly for our higher 
      value products, led to record first quarter sales and profits. We are on 
      track with the execution of our business plans at this stage of the 
      fiscal year. The Industrial business mix will be shifting towards a 
      higher proportion of specialized industrial starches concurrent with the 
      build-out of the Cedar Rapids facility designed to expand our finished 
      product output choices,” said Tom Malkoski, 
      Penford Corporation President and Chief Executive Officer. “The 
      North American Food Ingredients business continues to accelerate the 
      growth of attractive opportunities like pet, dairy and protein 
      applications. The execution of our restructuring program to strengthen 
      the Australian business is well underway. Price increases were 
      implemented, manufacturing has been rationalized, and headcount reduced. 
      New product initiatives are advancing through trial stages as expected. 
      Overall, the Company continues to be well positioned for strong business 
      performance during fiscal 2008.”
    
    
      Conference Call
    
    
      Penford will host a conference call to discuss first quarter financial 
      and operational results today, January 9, 2008 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. 
      To participate in the call on January 9, 2007, please phone 
      1-877-407-9205 at 8:50 a.m. Mountain Time. A replay will be available at www.penx.com.
    
    
      About Penford Corporation
    
    
      Penford Corporation develops, manufactures and markets specialty, 
      natural-based ingredient systems for a variety of industrial and food 
      applications. Penford has nine manufacturing and/or research 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 does not intend 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 other 
      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; expectations regarding the 
      construction cost of the ethanol facility and the timing of 
      ethanol production; 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, chemical and energy cost 
      volatility; foreign currency exchange rate fluctuations; changes in 
      assumptions used for determining employee benefit expense and 
      obligations; other unforeseen developments in the industries in which 
      Penford operates; and other factors described in the “Risk 
      Factors” section in reports filed by 
      the Company with the Securities and Exchange Commission.
    
    
      
        
          Penford Corporation

          
            Financial Highlights
          
        
        
           
        
        
          
            Three months ended
          
          
            November 30,
          
          
             
          
        
      
      
        
          
            (In thousands except per share data)
          
        
        
        
        
          2007
        
        
           
        
        
          2006
        
      
      
        
        
        
        
        
          (unaudited)
        
        
           
        
        
        
      
      
        
          
            Consolidated Results
          
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Sales
        
        
        
        
          $ 94,861
        
        
        
        
          $ 85,500
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income
        
        
        
        
          $ 3,162
        
        
        
        
          $ 2,573
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Earnings per share, diluted
        
        
        
        
          $ 0.33
        
        
        
        
          $ 0.28
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Results by Segment
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Industrial Ingredients:
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Sales
        
        
        
        
          $ 49,209
        
        
        
        
          $ 43,972
        
      
      
        
          Gross margin
        
        
        
        
          17.4%
        
        
        
        
          13.6%
        
      
      
        
          Operating income
        
        
        
        
          5,696
        
        
        
        
          3,182
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Food Ingredients – North America:
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Sales
        
        
        
        
          $ 16,076
        
        
        
        
          $ 15,240
        
      
      
        
          Gross margin
        
        
        
        
          28.3%
        
        
        
        
          31.4%
        
      
      
        
          Operating income
        
        
        
        
          2,652
        
        
        
        
          2,853
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Australia/New Zealand:
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Sales
        
        
        
        
          $ 29,944
        
        
        
        
          $ 26,524
        
      
      
        
          Gross margin
        
        
        
        
          10.5%
        
        
        
        
          9.1%
        
      
      
        
          Operating income (loss)
        
        
        
        
          (75)
        
        
        
        
          808
        
      
    
    
      
        
        
        
           
        
        
          November 30,
        
        
           
        
        
          August 31,
        
      
      
        
        
        
        
        
          2007
        
        
        
        
          2007
        
      
      
        
        
        
        
        
          (unaudited)
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Current assets
        
        
        
        
          $ 103,533
        
        
        
        
          $ 105,279
        
      
      
        
          Property, plant and equipment, net
        
        
        
        
          163,596
        
        
        
        
          146,663
        
      
      
        
          Other assets
        
        
        
        
          38,375
        
        
        
        
          36,446
        
      
      
        
          Total assets
        
        
        
        
          305,504
        
        
        
        
          288,388
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Current liabilities
        
        
        
        
          62,585
        
        
        
        
          66,246
        
      
      
        
          Long-term debt
        
        
        
        
          75,287
        
        
        
        
          63,403
        
      
      
        
          Other liabilities
        
        
        
        
          33,512
        
        
        
        
          33,063
        
      
      
        
          Shareholders’ equity
        
        
        
        
          134,120
        
        
        
        
          125,676
        
      
      
        
          Total liabilities and equity
        
        
        
        
          $ 305,504
        
        
        
        
          $ 288,388
        
      
    
    
      
        
          Penford Corporation

          
            Consolidated Statements of Income (unaudited)
          
        
        
           
        
        
          
            Three months ended
          
          
            November 30,
          
          
             
          
        
      
      
        
          (In thousands except share and per share data)
        
        
        
        
          2007
        
        
           
        
        
          2006
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Sales
        
        
        
        
          $ 94,861
        
        
        
        
          $ 85,500
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cost of sales
        
        
        
        
          78,608
        
        
        
        
          72,306
        
      
      
        
          Gross margin
        
        
        
        
          16,253
        
        
        
        
          13,194
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating expenses
        
        
        
        
          7,240
        
        
        
        
          7,100
        
      
      
        
          Research and development expenses
        
        
        
        
          2,022
        
        
        
        
          1,571
        
      
      
        
          Restructure costs
        
        
        
        
          1,235
        
        
        
        
          -
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income from operations
        
        
        
        
          5,756
        
        
        
        
          4,523
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Non-operating income, net
        
        
        
        
          464
        
        
        
        
          521
        
      
      
        
          Interest expense
        
        
        
        
          1,266
        
        
        
        
          1,304
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income before income taxes
        
        
        
        
          4,954
        
        
        
        
          3,740
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income tax expense
        
        
        
        
          1,792
        
        
        
        
          1,167
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income
        
        
        
        
          $ 3,162
        
        
        
        
          $ 2,573
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average common shares and equivalents
        
        
        
        
        
        
        
        
        
      
      
        
          outstanding, diluted
        
        
        
        
          9,548,803
        
        
        
        
          9,071,719
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Earnings per share, diluted
        
        
        
        
          $ 0.33
        
        
        
        
          $ 0.28
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Dividends declared per common share
        
        
        
        
          $ 0.06
        
        
        
        
          $ 0.06