Penford Corp. (Nasdaq: PENX), a leader in renewable ingredient systems for industrial and food applications, reported that consolidated sales for the quarter ended May 31, 2012, increased 9 percent to $92.9 million from $85.2 million a year ago. Gross margin expanded 10 percent to $11.5 million. The Company reported a third quarter net loss of $5.5 million or $0.44 per diluted share compared with a net loss of $0.7 million or $0.06 per diluted share last year. Included in the fiscal 2012 third quarter loss were a non-cash pre-tax charge of $2.8 million related to the redemption of the Company’s 15 percent Series A Preferred Stock and a non-cash tax valuation allowance of $1.8 million.
- Food Ingredients reported record quarterly sales and gross margin.
- Revenue grew 11 percent to $26.2 million. Sales to the coating, protein, dairy and gluten-free segments rose at double-digit rates.
- Quarterly gross margin increased to $8.2 million on favorable product mix changes, new business wins and better pricing.
- Lower operating income of $0.2 million reflects increased spending on new product development and marketing.
- Fiscal year-to-date sales rose 29 percent and gross margins increased 23 percent. Higher prices, new product commercialization and mix improvements supported the results.
- Revenue for the quarter increased over 8 percent to $66.8 million on stronger volumes as well as contributions from the Carolina Starches business acquired last January. Sales of modified ethylated starches increased more than 15 percent, and bio-product revenues grew over 20 percent from last year.
- Income from operations expanded $0.8 million from a year ago, on better starch operating results and lower unit costs.
- Revenue for the first nine months of fiscal 2012 gained 12 percent and gross margin rose 23 percent on increased selling prices in every category, a higher proportion of bio-products sales and lower manufacturing costs.
- Ethanol sales for the quarter were $23.1 million. Robust industry supplies led to record inventory levels that have pressured industry margins. Third quarter market pricing of ethanol was about 15 percent lower than a year ago. Comparable industry crush margins fell by about $0.15 per gallon or 30 percent from a year ago. The combination of weak crush margins along with stronger starch and bio-product shipments led to a 3 percent reduction in ethanol volume for the quarter.
- The premium required to procure physical corn increased significantly compared with the same period a year ago, thus reducing margins in all product categories. Low carry-out stock levels have recently pushed the premium to more than $0.70 per bushel above the five year average.
Redemption of Preferred Stock
- On July 9, 2012, the Company completed the redemption of the outstanding 58,750 shares Series A 15 percent Preferred Stock at the original issue price of $23.5 million plus $5.4 million of accrued dividends. In April 2012, the Company redeemed 41,250 shares for $20.0 million which included $3.5 million of accrued dividends.
- In connection with the redemption in the third quarter, the Company accelerated the discount accretion and amortization of issuance costs related to the shares redeemed. The non-cash charge of $2.8 million was recorded as non-operating expense. The Company expects to record additional accelerated discount accretion and amortization of issuance costs in the fourth quarter of $3.8 million.
- In April 2012, the holder of the Company’s Series B Voting Convertible Preferred Stock converted all of these shares into 1,000,000 shares of the Company’s common stock, as permitted by the terms of the preferred shares.
Expanded Credit Facility
- On July 9, 2012, the Company entered into an Amended and Restated its Credit Agreement which increased the Company’s revolving credit facility to $130 million from $60 million. The new agreement has a five year term with an optional “accordion” expansion feature which will allow the Company, under the conditions specified in the new agreement, to increase borrowing capacity by an additional $30 million.
- The eight lenders in the new credit facility were led by Bank of Montreal and Rabobank. Other participating banks include JPMorgan Chase, KeyBank, First Midwest, Bank of America, Greenstone Farm Credit and Private Bank and Trust.
- Bank loans rose to $48.2 million reflecting debt applied to redeem the Series A Preferred Stock in April 2012.
- At May 31, 2012, the Company recorded a $1.8 million valuation allowance against a deferred tax asset related to the carryforward of the small ethanol producer tax credit due to the uncertainty of utilizing the credit prior to its expiration in fiscal 2014. The valuation allowance will be reversed in future years if the tax credit is utilized.