990301 Fletcher's Fine Foods Announces Record 4th Quarter

Vancouver, British Columbia - Fletcher's Fine Foods Ltd. announced its unaudited fourth quarter results. Earnings for the quarter increased to $4.2 million or $0.56 per share from $1.8 million or $0.31 per share in 1997.

Fletcher's increased earnings were the result of improved profitability in both its Prepared Foods and Fresh Pork Divisions. The Prepared Foods Division continues to consistently grow its consumer products business and, correspondingly, its margins. The Division's fourth quarter gross profit increased from $7.9 million in 1997 to $12.5 million in 1998.

“The Prepared Foods Division has, on a year to year comparative basis, achieved increases in profitability for the last ten consecutive quarters. Its gross profit has increased from $4.3 million in the fourth quarter of 1996 to $12.5 million in the fourth quarter of 1998,” said Fred Knoedler, President and CEO. “For the year, the Prepared Foods Division's gross profit has increased by 59% to $50.3 million as compared to $31.7 million in 1997,” added Mr. Knoedler.

The Fresh Pork Division achieved a 141% increase in its gross profit for the quarter through a combination of lower hog prices and improved efficiencies resulting from its recent labor and capital asset initiatives. The Division's fourth quarter gross profit improved from $3.8 million in 1997 to $9.1 million in 1998.

“The investments we have made in the Fresh Pork Division's Red Deer, Alberta hog processing operation over the last two years are starting to generate significant returns. With its new labor agreement and state of the art hog processing facility, Red Deer is now one of North America's low cost producers of fresh pork,” said Mr. Knoedler.

Despite the continued increase in the Prepared Foods Division's sales -- $52 million in the quarter as compared to $45 million in the fourth quarter of 1997 -- Fletcher's sales for the quarter decreased by 7% to $89 million from $95 million in 1997. The decrease was due primarily to lower average selling prices in the Fresh Pork Division which were in turn the result of a significant decline in the cost of hogs. The Fresh Pork Division's sales were further impacted by a large increase in the fresh pork being used by the Prepared Foods Division. The actual number of hogs processed by the Fresh Pork Division increased by 7%.

For the year, Fletcher's had net earnings of $3.7 million or $0.53 per share versus $6.1 million or $1.10 per share in 1997. Fletcher's 1998 earnings include an unusual charge of $9.5 million relating to a labor dispute that was resolved in the third quarter. The majority of the $9.5 million charge, about $7.1 million, represents payments made to unionized employees at the Red Deer plant under a new six year labor agreement. These payments were in exchange for a significant restructuring of the plant's wage structure. Net earnings for 1998 and 1997 also include gains of $862,000 and $3.5 million, respectively, on the sale of shares in Britco Export Packers Ltd, a small hog processor located in Langley, B.C. Fletcher's sold 80% of its interest in Britco in 1997 and the remaining 20% in 1998.

Fletcher's earnings before interest, taxes, depreciation, amortization and unusual items increased in 1998 to $24.3 million as compared to $11.7 million in 1997 and $3.2 million in 1996.

Sales for 1998 increased to $394 million as compared to $391 million in 1997. The Prepared Foods Division's sales were $233 million in 1998 versus $171 million in 1997. Acquisitions made in 1998 accounted for most of the growth in the Division's sales. Internal sales growth was minimal as increased sales of high margin branded products replaced sales of high volume commodity processed products. The Fresh Pork Division's sales for the year decreased to $161 million in 1998 from $220 in 1997 due to a combination of a labor disruption in the second and third quarters of 1998 and lower average selling prices.

“Our strong fourth quarter earnings are the direct result of the steps Fletcher's has taken to improve the quality of its earnings stream. The continued steady growth of our Prepared Foods Division's consumer products business and the efficiencies being realized on the Fresh Pork Division's investments in its Red Deer operation are starting to generate the superior returns that we have promised our shareholders,” said George Paleologou, Vice President and CFO. “On a normalized basis, our return on equity for 1998 will be about 18%,” added Mr. Paleologou.

“We are rapidly approaching our goal of becoming the leading marketer and manufacturer of branded processed products in Western Canada and the Western U.S.,” said Mr. Don Loewen, Chairman. “Looking forward, we intend to continue with our core strategy of developing an integrated consumer products business through acquisition and internal growth,” added Mr. Loewen.

Fletcher's has been engaged in the food processing business since 1917 and has manufacturing facilities in Alberta, British Columbia, Oregon, Saskatchewan and Washington.

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