A Taste of Wellness for Savoury and Snacks
Givaudan
For the three months ending December 30 2007, the company, which manufactures natural grain-based products, reported earnings of $5.3m, compared to $6.8m at the same point in 2006.
This is despite an increase in sales of 7.2 percent, from $87.6m in fiscal year 2007 to $93.9m now.
"We have been feeling the impact of lower ethanol pricing on distillery profits since the fourth quarter of last fiscal year," said Ladd Seaberg, chairman and chief executive officer.
"This situation in the current year's second quarter was further aggravated by near record corn prices, a major component of our cost of goods sold.
Ethanol prices down
Distillery product sales declined by 5.8 percent compared with the previous year. The company said this was due to a significant decline in selling prices for fuel grade alcohol (ethanol) and reduced sales unit compared with the year before.
Tim Newkirk said that as well as lower selling prices, the company fell short of its alcohol production targets by between 10 and 15 per cent.
He said: "We fully expect to ramp up production beginning in the current quarter, and from a contracting perspective we are in an ideal position to capture higher fuel pricing. If ethanol prices continue to strengthen, we would expect improvements in the second half of our fiscal year."
Seaberg added: "We continue to experience earnings volatility on the fuel alcohol side of our business, but are encouraged by the recent firming of prices. At the same time, our food grade alcohol products remain a solid contributor to our bottom line."
Corn costs up
US Department of Agriculture (USDA) said last December that US corn farm prices are continually rising and expected to reach record highs of $3.35 to $3.95 per bushel, up 15 cents at both ends of the range. These prices surpass the previous record highs of 1995/96 and represent nearly a 37.8 percent increase on the cost during the previous year's quarter.
Contributing factors to the price hikes include an increasingly high cost of oil, a greater demand for biofuels, and poor weather damaging crops.
Seaberg said: "Although corn prices have remained at or near this higher level and, based upon Chicago Board of Trade Futures, are expected to increase this summer, we are encouraged by the prospect of strengthened ethanol pricing for the balance of the fiscal year."
The company's distillery products segment was adversely affected by higher costs for corn, the principal raw material used in the alcohol production process.
Ingredients sales
Total ingredient solutions sales increased over 70 percent led principally by higher sales of vital wheat gluten. Sales of specialty ingredients improved by 35 percent compared with the previous year's quarter.
Sales of food grade alcohol improved by $2.3 million, an increase of 9.6 percent, over the prior year with gains in both beverage and industrial applications.
Sales of specialty proteins and starches increased by $3.8 million, or 35 percent, during the quarter compared to the same quarter in fiscal 2007 following continued development and commercialization of its value-added wheat proteins and starches.
The company also reported a $6.3 million increase in sales of vital wheat gluten compared to a year ago, which resulted from significantly higher volumes as well as per-unit pricing compared with levels in the previous year.
Revenues for commodity starch decreased $115,000, or 12.3 percent, as a result of reduced sales volume consistent with the implementation of our strategy of continued development and commercialization of our value-added wheat proteins and starches.
Seaberg said: "The progress we are making with our ingredient solutions segment is more apparent on the top line than the bottom line. Granted we did benefit from gluten sales but we are also achieving better sales and margin improvements in our core specialty ingredients. As we continue to migrate to a higher mix of value-added products, the impact of rising wheat costs should lessen over time."