Ralcorp earnings fall 62%

by Eric Schroeder
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ST. LOUIS — Despite the positive impact of recent business acquisitions, organic growth in several categories and improved pricing, net income fell 62% at Ralcorp Holdings, Inc. in the third quarter, as a $29.8 million non-cash loss on forward sales contracts related to its shares of Vail Resorts, Inc. hurt earnings.

Net income of Ralcorp Holdings in the third quarter ended June 30 was $11.6 million, equal to 44c per share on the common stock, down from $30.2 million, or $1.14 per share, in the third quarter of 2006.

Net sales for the quarter were $583.5 million, up 26% from $462.4 million last year. Ralcorp said approximately 75% of the $121.1 million in sales growth was attributable to the timing of recent acquisitions. The remaining growth was attributed to volume gains in the Frozen Bakery Products and Snack Nuts and Candy segments, price increases in response to rapidly rising costs, and favorable mix in most of the company’s base businesses.

Ralcorp said its overall ingredient and packaging costs were unfavorable to the tune of about $13 million during the quarter.

"The costs of several key ingredients are expected to continue to rise, with greater impact on profitability in the fourth quarter of fiscal 2007, as lower-priced forward commodity contracts and hedge positions expire," the company said.

Net sales for Ralcorp’s Cereals, Crackers and Cookies segment were $263 million, up 35% from $195.1 million in the same year-ago quarter. The improvement primarily reflected the addition of the Bloomfield Bakers business, which was acquired on March 16. Excluding Bloomfield, sales in the segment rose 3%. Profit contribution for the segment during the quarter totaled $26.9 million, up from $20.9 million in the third quarter of fiscal 2006. Ralcorp said Bloomfield contributed about $6.7 million to the segment’s profit contribution during the third quarter.

Net sales in Ralston Foods (including the Bloomfield acquisition) grew 59% to $182 million, up from $114.7 million in the same period a year ago. Excluding Bloomfield, sales rose 5% behind improved pricing. Ralcorp said new product introductions in ready-to-eat cereal added approximately $1.9 million to third-quarter sales growth.

Sales in the Bremner cracker and cookie division totaled $81 million, up narrowly from $80.4 million.

"Despite Bremner’s overall volume declines, net sales for the quarter and nine months were … higher than for the respective periods a year ago as a result of slightly higher pricing and a favorable product mix," the company said. "In both the crackers and cookies categories, sales volumes have shifted toward higher-priced ‘specialty’ products. The volume declines are primarily attributable to increased promotional activity by branded competitors, partially offset by incremental sales due to new product lines."

Profit contribution in the Frozen Bakery Products segment was $14.3 million, up 22% from the same period a year ago. Total net sales of the Frozen Bakery Products segment were $149.6 million, up 34%, with incremental sales from the recently-acquired Western Waffles, Parco, and Cottage Bakery businesses accounting for most of the increase in year-over-year net sales in the segment. Ralcorp said its base business grew $6.4 million due to higher volumes and some improved pricing.

Ralcorp added that growth in its base business was driven primarily by a 14% increase in the food service channel.

Net sales of Dressing, Syrups, Jellies & Sauces, also known as Carriage House, rose 6% to $109.2 million, while profit contribution fell to $4.1 million from $7.4 million in the third quarter of fiscal 2006. Ralcorp experienced 30% volume growth in its peanut butter line, helped by a February recall of a competitor’s product.

Profit contribution in the Snack Nuts & Candy segment, also known as Nutcracker Brands, rose 38% to $4.4 million behind an 18% improvement in sales during the quarter. The higher third-quarter sales were driven by volume increases, including sales to a new customer and increased distribution with existing customers.

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