010367 IBP Reports Earnings Amid Record SalesMarch 24, 2001Dakota Dunes, SD - IBP released fourth quarter and full year 2000 earnings, bringing to completion a financial review by the Securities and Exchange Commission, and closing the books on accounting issues related to its DFG Foods (DFG) subsidiary. “We are pleased to report that all outstanding issues involving the SEC's financial review, as well as the accounting issues related to DFG, have now been resolved,” Robert L. Peterson, IBP chairman and chief executive officer, said. “Today's earnings release brings this matter to a close and we now look forward to proceeding with the Tyson transaction.” IBP entered into a $4.7 billion merger agreement with Tyson Foods on January 1, 2001. IBP recorded a fourth quarter nonrecurring, pre-tax impairment charge of $60.4 million to DFG's goodwill carrying value. The company had previously reported that this charge could be as much as $108 million. “While disappointing, this nonrecurring impairment to intangibles, $41.3 million on an after tax basis, does not affect operating cash flows and represents only 2.2% of IBP's stockholders' equity of $1.8 billion,” according to Larry Shipley, IBP chief financial officer. “Looking forward, our current estimate is for DFG to be cash flow neutral in 2001. To put things in perspective, our LBO proxy projection last fall envisioned DFG Foods contributing $8.8 million or 2.0% to 2001's $446 million in total operating earnings.” An IBP investigation of the DFG subsidiary, to date, has uncovered potential manipulation of financial records and product theft. It has also revealed mismanagement by former DFG managers. The previously reported restatement of the subsidiary's financial results included the amount of an earn-out payment to those who sold the DFG business, but ultimately determined by IBP not to have been earned. IBP will use the results of its forensic audit as the basis for any legal action it deems appropriate to recover its losses. 2000 Results Improved consumer demand for beef and pork, coupled with increased exports, led to record sales and strong earnings for IBP in 2000. The year was also highlighted by the continued expansion of IBP's production into higher-margin, value-added food products. 2000 net sales grew 12% reaching a record $16.9 billion, compared to $15.1 billion in 1999. Net earnings, before unusual and nonrecurring items, totaled $220 million or $2.03 per diluted share compared to $326 million or $3.03 per diluted share in 1999. 2000 net earnings after unusual and nonrecurring items totaled $135 million or $1.24 per diluted share compared to $318 million or $2.96 per diluted share the previous year. Unusual items in 2000 included first quarter adjustments for a significant bad debt loss, nonrecurring merger-related expenses, cumulative effect for change in accounting principle for revenue recognition, and an extraordinary loss on extinguishment of debt, which aggregated $44 million on an after tax- basis. For the full year 2000 the unusual items also included the nonrecurring impairment charge associated with DFG. 1999 nonrecurring items included, on an after-tax basis, $21.7 million in asset write-downs, offset by a $13.8 million reduction of income tax expense. Fourth quarter 2000 sales totaled $4.4 billion versus $4.1 billion for the same period last year. Fourth quarter net earnings before unusual and nonrecurring items totaled $35 million or $.33 per diluted share compared to $88 million or $.82 per diluted share in 1999. These totals exclude $41 million in net charges due to the DFG impairment. Fourth quarter net losses after unusual and nonrecurring items were $6 million or $.06 per diluted share versus net earnings of $77 million or $.71 per diluted share during the same period in 1999. “It was a successful year for our company in many ways,” Peterson said. “Our fresh meat business experienced solid earnings, exports reached new highs, and we made important strides in our effort to create the most well-known meat brand in the nation. We believe the growth of the new Thomas E. Wilson consumer brand, along with our other value-added efforts, will help us do a better job of meeting customer needs, while enhancing earnings.” 2000 Operating Performance Operating earnings across IBP's fresh meat operations, which include the Beef Carcass, Beef Processing, Pork and All Other segments, in 2000 were $433 million, down 5% from the $454 million recorded in 1999. Net sales for these segments in 2000 were $13.7 billion, up 8% from $12.6 billion in 1999. Live cattle prices were 7% higher in 2000 than in 1999, while hog prices increased 30%. “While we did not reach the record earnings of 1999, our fresh meat businesses still experienced success,” Peterson said. “Strong consumer demand for both beef and pork continues to be the story. Reasons for this strength include new product development, exports and the popularity of the high-protein diet.” Exports reached new heights in 2000. The company exported more product than ever before, generating record sales and volumes. Export sales dollars were up 15% for the year, while export volumes increased 8%. The company experienced important export gains in the Far East. Sales to Japan, a major export destination, grew by 14% in 2000, while sales to Korea increased 24%. Japan remains IBP's largest overseas market, and should retain that status since further liberalization of meat import regulations is expected in 2001. Meanwhile, revenues generated by exports to Mexico grew by 29% in 2000. The Foodbrands America segment, involved in the production of prepared foods, experienced operating losses of $60 million for the year and $50 million for the fourth quarter of 2000. This compares to operating earnings of $102 million for all of 1999 and $15 million for the fourth quarter of 1999. Foodbrands' 2000 results included merger-related costs, additional bad debt expenses, and impairment charges collectively totaling $102 million. Segment operating earnings from operations for 2000, before these adjustments, were $42 million. Foodbrands' results, in part, reflect the pressure of higher raw material costs as well as the operating loss at DFG Foods. Foodbrands continues to expand its prepared foods business in an effort to capitalize on changes in consumer trends, with people seeking more convenient food products. For example, in 2000 the Specialty Brands unit of Foodbrands launched its Jose Ole brand, a full line of Mexican foods for sale in retail frozen food cases. It was introduced to about 30% of the U.S. market in April and will expand to nationwide status by the end of 2001. IBP launched a line of convenient, cooked meats in the fall of 2000 under the Thomas E. Wilson brand name. The products, which include seven fully cooked beef and pork roasts that can be heated and served in minutes, are being sold in test markets in Indiana and Michigan. Enthusiastic response from consumers and retailers alike underlie plans to begin a national rollout by fall 2001. 2001 Outlook While cattle supplies were tight and live cattle prices high during the first quarter of 2001, livestock industry publications report “large marketings” are expected in late spring and summer. Greater hog supplies are also anticipated. This should result in lower raw material costs and higher earnings for IBP's fresh meat operations and the company's Foodbrands America unit. These conditions have reinforced the belief of IBP management that the company's 2001 earnings could be in the $1.80 to $2.20 per share range. This range is consistent with the company's previous estimate of $1.93 per share, which was included in IBP's preliminary LBO proxy last fall. About IBP IBP is the world's leading producer of high quality fresh beef and pork, and supplies premium, fully prepared meats and other consumer-ready foods for the retail and foodservice industries. The company employs approximately 50,000 people.
E-mail: sflanagan@sprintmail.com |
