Dakota City, NE - Pricing pressures in the Asian market compounded the impact of increased meat and poultry supplies in the U.S. during the first quarter, offsetting gains by IBP's fresh pork operations and value- added businesses, the company said today in reporting lower earnings for the period.
First quarter earnings before extraordinary items totaled $14 million or $.15 per share compared to $32 million or $.34 per share during the same period in 1997, on revenues of $3.2 billion versus $3.1 billion last year. These results include a one-time loss of $.03 per share due to costs associated with the previously announced closing of the company's Luverne, Minnesota, carcass beef plant.
The company experienced a net first quarter loss of $1 million or $.01 per share after inclusion of extraordinary items. IBP during the first quarter completed its previously announced tender offer related to the retirement of Foodbrands America's 10.75% Senior Subordinated Notes, which resulted in an extraordinary charge of $15 million or $.16 per share. This early extinguishment of debt was initiated so the company could reduce ongoing interest expenses.
"While the quarter was disappointing, we continue to view our company as an attractive long-term investment value," Robert L. Peterson, IBP chairman and chief executive officer, said. "World demand for high value proteins is growing and so is consumer demand for more convenient products. We believe IBP is in a unique position to capitalize on these opportunities."
IBP's domestic fed beef operations were profitable during the quarter, however, operating earnings were down significantly compared to the same period in 1997. Larger than expected beef supplies in an already over-supplied protein market, put pressure on IBP's margins during the first quarter. Even though federally inspected cattle slaughter is down slightly compared to 1997, live animal weights are up almost 40 pounds per head, creating more beef than a year ago.
U.S. production of both pork and poultry was up in the first quarter. The latest government reports indicate pork production will remain above year ago levels until 1999 and there will be more poultry in the domestic marketplace because of lower than expected exports.
IBP's pork operating earnings were up more than $20 million during the first quarter. Company officials attribute the significant improvement to increases in hog supplies and last year's restructuring of pork production capacity. IBP scaled back production at two Iowa pork plants in 1997, while second shift production at the company's Indiana pork plant approached capacity.
IBP export dollar sales during the first quarter were up slightly from the same period last year, and accounted for 12.5% of IBP's first quarter net sales. Sales to Korea were down significantly due to the country's economic problems. However, the drop was offset by business to other parts of the Far East, as well as improved sales in Mexico and Europe. While export volumes were up nearly 30% in the first quarter, overall export sales revenues increased only 2%.
"We are in the business of helping reshape the taste profile of the world," Peterson said. "Current global market conditions, while not ideal, are still allowing us to grow the number of global consumers becoming accustomed to high value proteins in their diet. We see this as a major plus as we go forward."
The financial crisis in the Far East also affected IBP's allied product business, especially since Korea is home to some of the company's largest hide and leather customers. Shipments to the country declined during the quarter, forcing the company to sell at discounted rates to alternate markets. As a result, cattle hide and other beef by-product prices in the first quarter were 20% lower than a year ago.
IBP's strategy to become a major player in the foodservice market is paying off. The company's new Foodbrands America subsidiary, which was not part of IBP a year ago, experienced double digit growth during the first quarter, on a comparable basis from 1997. Foodbrands has enjoyed a strong growth rate since 1994 when it repositioned itself as a leading provider of value-added processed food products to the foodservice industry. The first quarter profitability of The Bruss Company, which was not part of IBP a year ago, also contributed positively to IBP's results. The Chicago based operation produces high quality, portion-controlled meats for the foodservice industry.
IBP is the world's largest producer of fresh beef, pork and related allied products and a high quality supplier of fully prepared meats for the retail and foodservice industries. The company employs 38,000 people.
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