Ralcorp earnings fall on loss on forward sale contracts

by Eric Schroeder
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ST. LOUIS — A significant loss on forward sale contracts related to the company’s investment in Vail Resorts Inc. contributed to a 96% plunge in second-quarter earnings at Ralcorp Holdings Inc.

Net income of Ralcorp Holdings in the second quarter ended March 31 was $500,000, equal to 2c per share on the common stock, down from $13.9 million, or 49c per share, in the second quarter of fiscal 2006.

Ralcorp said earnings were adversely affected by a $34.6 million non-cash loss on the company’s forward sale contracts related to its shares of Vail Resorts, a ski resort company. In the same year-ago quarter, Ralcorp recorded a $6.2 million non-cash loss on the contracts.

Net sales for the quarter were $519 million, up 18% from $438.7 million last year. Second-quarter fiscal 2007 results included $7.3 million from the Bloomfield Bakers business, acquired March 16, 2007, $29.9 million from the Cottage Bakery, acquired Nov. 10, 2006, $10.9 million from the Parco business, acquired Feb. 7, 2006, and $22.1 million from the Western Waffles business, acquired Nov. 15, 2005. The remaining growth was due primarily to volume gains, price increases in response to rapidly rising costs, and favorable mix in most of the company’s base businesses, Ralcorp said.

During the quarter, ingredient and packaging costs totaled approximately $7.8 million.

Profit contribution for Ralcorp’s Cereals, Crackers and Cookies segment was $16.5 million, up 1% from $16.3 million in the same year-ago quarter.

Net sales for Ralcorp’s Cereals, Crackers and Cookies segment were $202.6 million, up 12% from $180.4 million in the same year-ago quarter.

Sales in the Bremner cracker and cookie division improved slightly, rising to $82.4 million from $75.5 million.

"Bremner’s second quarter volume gains, combined with a favorable product mix and slightly higher pricing, increased net sales by $6.9 million (9%) from a year ago," the company said in a May 9 filing with the Securities and Exchange Commission. "A little over half of the incremental sales volume is attributable to new product lines. In both the cracker and cookie categories, sales volumes have shifted toward higher-priced ‘specialty’ products.

"The six-month volume declines include the first-quarter shortfalls in all categories. Those shortfalls were attributed to increased promotional activity by branded competitors. Despite those declines, six-month net sales improved over last year as a result of price increases executed in the second quarter of last year and the favorable product mix.

"In the base businesses of the Cereals, Crackers and Cookies segment, raw material cost increases offset the favorable effects of increased sales, except in the six-month period where the relative timing of price increases and cost increases led to slightly improved profits this year. Compared to last year, higher raw material unit costs reduced profit by approximately $7 million and $11.3 million in the three and six months ended March 31, 2007, respectively. The most notable cost increases were in wheat and corn products, oats, rice, sugar, and soybean oil. Compared to the corresponding periods last year, co-manufacturing contributed approximately $1.2 million and $1.5 million of additional profit in this year’s second quarter and first half, respectively."

Profit contribution for the Frozen Bakery Products segment was $18 million in the second quarter, up 54% from $11.7 million in the same period a year ago.

The total net sales of the Frozen Bakery Products segment were $159.3 million, up 37% from $116.4 million, driven by sales from the acquired Cottage Bakery, Western Waffles and Parco businesses. The unit’s base business grew $5.5 million for the quarter, driven primarily by a 12% increase in its in-store bakery channel 8% and 2% growth in the food service channel.

Profit contribution in the Dressing, Syrups, Jellies & Sauces category totaled $3.2 million in the quarter, up from $800,000 in the same period a year ago. Sales in the unit rose 12% to $104.7 million.

Second-quarter profit contribution was $4 million in the Snack Nuts and Candy segment, up sharply from $1.3 million in the second quarter of fiscal 2006. Net sales totaled $52.4 million, up 8% from $48.6 million.

In the six months ended March 31, Ralcorp earnings totaled $8.1 million, or 30c per share, down from $23.6 million, or 82c per share. Net sales in the six months were $1,041.7 million, up 15% from $902.7 million.

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