Southfield, MI - Thorn Apple Valley reported a net loss of $12.4 million, or $2.02 per share, on sales of $119.9 million for the second fiscal quarter ended December 11, 1998. The net loss included a charge of $8.0 million for international restructuring and a loss of $2.8 million on the disposal of the fresh pork division. Results compare with a net loss of approximately $230,000, or $0.04 per share, on sales from continuing operations of $136.5 million in the second fiscal quarter ended December 12, 1997.
Second-quarter Financial Results
Net sales for the second fiscal quarter declined 12% to $119.9 million primarily due to lower exports. Thorn Apple Valley recorded a second- quarter operating loss before income taxes and discontinued operations of $9.6 million versus an operating loss before income taxes and discontinued operations of $747,000 in the prior-year period. Excluding the charge for international restructuring, the company's loss from continuing operations was $1.6 million compared with $747,000 in the prior year.
Year-to-date Financial Results
Net sales from continuing operations for the first half of fiscal 1999 were down 14% to $259.2 million. The company recorded an operating loss before income taxes and discontinued operations of $12.4 million versus an operating loss before discontinued operations of $1.5 million in the comparable period last year. The net loss, after all charges, of $15.2 million, or $2.48 per share, compares with a first-half fiscal 1997 net loss of $3.3 million, or $0.54 per share. Excluding the charge for international restructuring, the company's loss from continuing operations was $4.4 million compared with $1.5 million for the prior year.
Performance Review
During the second quarter, Thorn Apple Valley focused on implementing the action plan it developed after completing its exit from the fresh pork business and directing all its resources toward revitalizing its processed meats operations. According to the company, income from operations before the international restructuring charge and additional interest costs was comparable to the prior year even though significant income was lost by ceasing production of hot dogs for export.
"Our management team, which has undergone many changes, is determined to make Thorn Apple Valley the industry's low-cost producer," stated Joel Dorfman, president and chief executive officer. "Cost reductions made during the quarter offset most of the approximately $50,000 weekly export-income reduction from the previous year. Additional costs savings in excess of $100,000 weekly have been implemented since the end of the quarter. Our newly appointed vice president of sales, Michael Rozzano, is on track to eliminate up to 40% of Thorn Apple Valley's stock keeping units (SKU's), which will improve our production costs, reduce our close-dated inventory problems and allow the sales team to promote our proven volume performers."
Dorfman continued, "Sales of our high-quality spiral-sliced hams increased more than 10% for the Christmas holiday season. All of our focus groups indicate high consumer satisfaction with this upscale product, and we expect this sales trend to continue. Our recently hired vice president of marketing, Raymond Friedman, has used focus groups and other market intelligence to identify new areas of product development and promotional programs that should enhance our sales.
"The economic crisis in Russia is continuing. This has necessitated a combined $8.0 million reserve against our foreign accounts receivable and inventory. It is unclear if and when there will be opportunities there in the future," Dorfman said.
On January 22, 1999, the company voluntarily recalled all production for the period of July 6, 1998, to December 30, 1998, from its Forrest City, Ark., facility. There have been no verified claims that any illnesses have occurred from consumption of the product. The United States Department of Agriculture (USDA) had requested this action in light of the industry-wide incidents concerning lysteria in hot dogs and the potential contamination from Thorn Apple Valley's facility. The company is unable to definitively quantify the recall's financial impact, but based on the information currently available, it expects the recall to cost between $1.0 million and $7.0 million.
Dorfman concluded, "The road to recovery has been difficult. The Russian export losses and USDA recall expenses were unexpected situations that were very disappointing to us. We are in the process of reviewing our situation with our bank group in order to assure continued liquidity. We are heartened by the extraordinary dedication of our employees and the continued support of our customers, even in light of the product recall."
Thorn Apple Valley is a leading meat processor with an extensive product portfolio that includes several top-performing national brands. Thorn Apple Valley's common shares are traded on the Nasdaq National Market under the symbol "TAVI."
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