Dakota City, NE - IBP, Inc. reported earnings for 1997's fourth quarter and full year ended December 27, 1997.
Net earnings for 1997 totaled $117 million compared to $199 million in 1996 on revenues of $13.3 billion versus $12.5 billion the previous year. Earnings per share declined 40% to $1.26 from $2.10 per share in 1996. Net earnings for the fourth quarter of 1997 totaled $22 million, or $.23 per share, up 19% from the $18 million or $.19 per share recorded in 1996.
"Challenging levels of competing meats, plant start ups, and international demand dynamics in certain foreign markets, affected our performance in 1997," Robert L. Peterson, IBP chairman and chief executive officer, said. "Strategically, this past year was earmarked by major initiatives to build a larger, more diversified and predictable earnings base, positioning the company for long-term growth."
Beef margins were compressed largely because of increased supplies of competing meats -- such as poultry and pork. Continuing reductions in cattle marketings in the upper Midwest prompted the company to announce plans to permanently close its Luverne, Minnesota, carcass beef plant in March. The company has more than sufficient production capacity at its other plants to make up for the closing of the Luverne operation. While improvements in cattle availability are projected for much of early 1998, supplies for the remainder of the year are expected to be down over comparable periods.
Boxed beef operations started in early 1997 at the company's Alberta, Canada, beef production plant. The additional boxed beef capacity in Canada should help open new markets for IBP's export business in the coming years.
In fresh pork operations, shifts in the Midwestern hog supply prompted the company to increase production at some plants and reduce or eliminate production at others. IBP discontinued or scaled back pork carcass operations at two of its Iowa plants in early 1997, while adding a second shift of production at its new Logansport, Indiana, pork complex. Meanwhile, ham and loin boning capacities were increased at the company's pork plants in an effort to realize higher margins from value-added products.
A projected increase of 5-6% more hogs in 1998 will further balance supply with industry production capacity. To ensure a reliable supply of high quality hogs, the company is also developing more long-term supply agreements with independent pork producers and may become more closely involved in hog production.
With the acquisitions of Foodbrands America and The Bruss Company, IBP has taken a big step towards the goal of expanding the company's presence in the higher margin foodservice business. Foodbrands makes prepared appetizers, deli meats, pizza crusts and toppings that are sold to restaurants and cafeterias, while Bruss processes and sells individual cuts of premium quality beef and pork to the restaurant industry. Because 80% of Foodbrands sales are from red meats, their products and distribution channels are a perfect complement to IBP's. Purchased in April 1997, Foodbrands generated full year sales of $934 million in 1997, an increase of 16% over 1996. Foodbrands has been included in IBP's results since May 1997.
In 1997 IBP Fresh Meats introduced a new line of "Consumer Friendly" beef and pork cuts that are ready for the retail meat case. This product line includes such items as London broil, beef fajita meat, beef tenderloin roast, half pork loin and stew meat, which are packaged for the consumer to pick up and take home. Because of positive customer response, additional products are being added to the new line. The introduction of case ready ground meat is expected to be a highlight in 1998.
The 1997 acquisition of a major beef patty manufacturing plant in Columbus, Nebraska, enhances IBP's presence in a growing segment of retail and foodservice markets. The plant, which began operations in October, continues to expand its customer and production base.
New technology designed to enhance food safety is being installed at all of IBP's beef plants. The company is installing steam cabinets that are designed to provide added protection against bacteria. The cabinets apply saturated steam to the complete surface of the beef carcass during the manufacturing process. This steaming process significantly reduces the risk of bacterial contamination.
Net export sales for the year were slightly higher compared to 1996, representing 13% of the company's total net sales. Continued food safety concerns in Asia throughout the year influenced the volume of export shipments.
More recently, the devaluation of currencies versus the U.S. dollar and slower economic growth in Asia have started to slow demand in some of the fastest growing Asian markets. Devaluation in such countries reduces the ability of consumers to buy U.S. products.
With the allowance of direct shipments to China without passing through Hong Kong, export business to China has the potential for major growth in 1998. In order to foster this growth, IBP added a sales office in Shanghai, China, in 1997.
IBP also opened a sales office in Monterrey, Mexico, in 1997, to capitalize on the continuing improvement in the Mexican economy. In fact, sales to Mexico, as well as Central and South America increased by 35% in 1997 and are expected to continue to grow in the year ahead.
IBP is the world's largest producer of fresh beef, pork and related allied products and is also a high quality supplier of fully prepared meats for the retail and food service industries. The company employs 38,000 people."
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