SOURCE: Monterey Gourmet Foods

May 08, 2008 07:00 ET

Monterey Gourmet Foods Reports First Quarter 2008 Results

Total Revenue of $25.6 Million, Up 4% With Gourmet Foods Revenue Up 7% Over First Quarter 2007; on Track for Solid 2008

SALINAS, CA--(Marketwire - May 8, 2008) - Monterey Gourmet Foods (NASDAQ: PSTA), a manufacturer and marketer of fresh gourmet refrigerated food products, reported results for its first quarter ended March 31, 2008.

"Consumers are eating more products that are organically grown or procured from local or regional suppliers, and our goal is to capture that demand by developing reasonably-priced quality, healthy food products," stated Eric C. Eddings, president and CEO of Monterey Gourmet Foods. "I am excited about our progress in 2008 and our plans for the future. Already, we launched 16 new varieties across all major brands. In addition, we reorganized our sales team under a new leader, industry veteran Mike Schall, to deepen existing customer relations while exploring new organic distribution channels."

First Quarter 2008 Results Compared to First Quarter 2007

Beginning in 2008, Monterey Gourmet Foods will report results in two segments: Sonoma Cheese and Gourmet Foods.

--  Revenue of $25.6 million grew 4% when compared to $24.7 million.
    --  Revenue contributed by Gourmet Foods was $24.2 million, up 7%.
    --  Revenue contributed by Monterey Pasta Company branded products
        increased 40%.
--  As part of the Sonoma Foods transaction, the company recorded an
    impairment charge for intangible assets of $1.1 million, severance
    expense of $466,000 and an inventory write down of $358,000, for a
    total of $1.9 million, compared to the write down of $2.4 million
    estimated on April 24, 2008.
--  The Sonoma Cheese operating loss was $2.6 million, compared to an
    operating loss of $165,000.
--  Gourmet Foods operating income was $206,000, compared to operating
    income of $632,000.
--  The total operating loss was $2.4 million, compared to operating
    income of $467,000.
--  The total net loss was $1.5 million, compared to net income
    of $298,000.

Scott Wheeler, Monterey Gourmet Foods' CFO, said, "To improve profitability, during the quarter, we increased prices to pass through some of the higher commodities costs and we refined packaging to lower expenses. As previously announced, we gained full control of Sonoma Foods and we have already restructured to reduce costs by an estimated $700,000 annually. In addition, we are in the process of centralizing our Seattle operations in one location to improve inventory management and enable more production efficiencies."

Recent Business Highlights

--  Launched two new Monterey Pasta Company organic, fresh-cut pastas and
    introduced two of the proven category leaders in the made with organic
    category into new channels of distribution.
--  Introduced two new varieties of Casual Gourmet grilled sausages.
--  Offered two new tapenades and two new dips from CIBO Naturals.
--  Converted Sonoma Cheese packaging into bricks wrapped with parchment
    paper, thereby reducing waste by 25%.
--  Re-launched four core stock-keeping units (SKUs) of Sonoma Cheese with
    the California Milk Advisory Board's Seal of Approval on the packaging.
--  Executed a licensing agreement with Dairyfood USA to market and
    distribute the non-core processed cheese spreads and dips.
--  Completed Monterey Pasta Company hot filled sauce repackaging and
    eliminated the cardboard sleeve.
--  Repackaged the CIBO Naturals branded pasta to increase shelf appeal
    and also remove the cardboard sleeve.

Second Quarter 2008 Outlook

Eddings concluded, "We have the right people and right resources in place. Now that we have gained complete control of all of our brands, we are implementing the right strategic plan. We are encouraged by the growth in our core brands and are confident and optimistic about the future."

Conference Call Information

Management will host a conference call at 1:00 p.m. Eastern Time / 10:00 a.m. Pacific Time today to discuss first quarter 2008 financial results. To listen to the call live, please dial 800-857-6028 at least 10 minutes before the start of the conference and mention pass code "Monterey." The call is also being webcast and can be accessed from the "Investor Relations" section of the company's website at http://www.montereygourmetfoods.com. A telephone replay will be available until midnight on July 8th PT by dialing 888-568-0393. No pass code is required.

About Monterey Gourmet Foods (NASDAQ: PSTA)

Monterey Gourmet Foods manufactures USDA inspected, fresh gourmet refrigerated food products at its integrated 133,000 square foot corporate headquarters, distribution, and manufacturing facilities in Salinas (Monterey County), CA; Seattle, WA; and Eugene, OR. Monterey Gourmet Foods has national distribution of its products, which are sold under the brands Monterey Pasta, CIBO Naturals, Emerald Valley Kitchen, Sonoma Cheese and Casual Gourmet in more than 11,000 retail and club stores throughout the United States and selected regions of Canada, the Caribbean, Latin America, and Asia Pacific. For more information about Monterey Gourmet Foods, visit www.MontereyGourmetFoods.com.

Safe Harbor Statement

This press release contains forward-looking statements concerning unannounced results of operations for the most recent quarter and sales for future periods including without limitation such phrases and terms as "our goal is," "I am excited about," "our plans for the future," "to deepen our existing customer relations," "to improve profitability," "to reduce costs," "estimated," "in the process of," "we are implementing the right strategic plan" and "we.... Are confident and optimistic about the future." These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Consequently, the company wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Monterey Gourmet Foods' actual results to differ from such forward-looking statements are the following: (i) the process associated with the integrations of all the company's brands, plants and sales force, (ii) a significant reduction of sales to two major customers currently comprising a majority of total revenues, (iii) the retention of newly acquired customers including achieving volume projections for these new customers, (iv) the company's ability to achieve improved production efficiencies, (v) the timely and cost-effective introduction of new products in the coming months, (vi) the utilization of the recently-completed plant expansion and the increased fixed costs associated with increased plant capacity, (vii) retention of key personnel and retention of key management, (viii) the risks inherent in food production, (ix) intense competition in the market in which the company competes and (x) Monterey Gourmet Foods' ability to source competitively priced raw materials to achieve historical operating margins. In addition, the company's results may also be affected by general factors, such as economic conditions, political developments, interest and inflation rates, accounting standards, taxes, and laws and regulations in markets where the company competes.

The company has provided additional information regarding risks associated with the business in the company's Annual Report on Form 10-K for fiscal 2007 as well as other filings with the SEC. These statements are based on information as of May 8, 2008 and the company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Tables Follow

                        MONTEREY GOURMET FOODS, INC.
                        CONSOLIDATED BALANCE SHEETS
                   (in thousands, except share amounts)


                                                   March 31,  December 31,
                                                     2008         2007
                                                  -----------  -----------
                                                  (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                       $     4,192  $     5,541
  Accounts receivable less allowances of
   $781 and $981                                        7,880        8,587
  Inventories                                           6,860        7,865
  Deferred tax assets-current                           1,515          703
  Prepaid expenses and other                            1,150        1,084
                                                  -----------  -----------

    Total current assets                               21,597       23,780

  Property and equipment, net                          13,949       14,280
  Deferred tax assets-long term                         2,646        2,646
  Deposits and other                                      282          243
  Intangible assets, net                                6,083        6,346
  Goodwill                                             12,164       13,211
                                                  -----------  -----------

    Total assets                                  $    56,721  $    60,506
                                                  ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                $     4,054  $     6,160
  Accrued payroll and related benefits                  1,458        1,192
  Accrued and other current liabilities                 1,411          962
  Current portion of notes, loans, and capital
   leases payable                                           -           50
                                                  -----------  -----------

    Total current liabilities                           6,923        8,364

Notes, loans, and capital leases payable, less
 current portion                                            -           29

Minority interest                                         159          159

Stockholders' equity:
  Preferred stock, $.001 par value, 1,000,000
   shares authorized, none outstanding                      -            -
  Common stock, $.001 par value, 50,000,000
   shares authorized, 17,372,588 and 17,356,976
   issued and 16,855,217 and 17,141,976 outstanding        17           17
  Additional paid-in capital                           60,575       60,462
  Treasury stock 517,371 and 215,000 shares,
   respectively, at cost                               (1,554)        (657)
  Accumulated deficit                                  (9,399)      (7,868)
                                                  -----------  -----------
  Total stockholders' equity                           49,639       51,954
                                                  -----------  -----------

    Total liabilities and stockholders' equity    $    56,721  $    60,506
                                                  ===========  ===========



                       MONTEREY GOURMET FOODS, INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                (Unaudited)
    (in thousands except earnings per share numbers and share totals)

                                                 Three Months Ended
                                          March 31, 2008   March 31, 2007
                                          ---------------  ---------------

Net revenues                              $        25,623  $        24,715
Cost of sales                                      19,434           17,784
                                          ---------------  ---------------

Gross profit                                        6,189            6,931
Selling, general and administrative
 expenses                                           7,417            6,452
Impairment of intangible assets                     1,140                -
Loss on disposition of assets                          (9)             (12)
                                          ---------------  ---------------
Operating income (loss)                            (2,377)             467

Other income, net                                       8                1

Interest income, net                                   26               28
                                          ---------------  ---------------

Income (loss) before provision for income
 tax expense                                       (2,343)             496
Income tax benefit (provision)                        812             (198)
                                          ---------------  ---------------

Net income (loss)                         $        (1,531) $           298
                                          ===============  ===============

Basic income (loss) per share             $         (0.09) $          0.02
Diluted income (loss) per share           $         (0.09) $          0.02

Weighted average primary shares
 outstanding                                   17,030,993       17,317,668
Weighted average diluted shares
 outstanding                                   17,030,993       17,491,470



                      MONTEREY GOURMET FOODS, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (unaudited)
                       (in thousands of dollars)

                                                  Three Months Ended
                                            ------------------------------
                                            March 31, 2008  March 31, 2007
                                            --------------  --------------
Cash flows from operating activities:
Net income (loss)                           $       (1,531) $          298
Adjustments to reconcile net income
 (loss) to net cash provided by (used in)
 operating activities:
    Deferred income taxes                             (812)            198
    Depreciation and amortization                      760             680
    Impairment of intangibles                        1,140
    Provisions for allowances for bad debts,
     returns, adjustments and spoils                 1,256           1,351
    Provisions for inventory allowances                504             110
    Stock option expense                                87             153
    Loss on disposition of assets                        9              12
    Changes in assets and liabilities:
      Accounts receivable                             (549)          1,671
      Inventories                                      501             242
      Prepaid expenses                                 (66)              8
      Deposits and other                               (39)            (25)
      Accounts payable                              (2,106)         (3,568)
      Accrued liabilities                              715            (815)
                                            --------------  --------------
        Net cash provided by (used in)
         operating activities                         (131)            315
                                            --------------  --------------

Cash flows from investing activities:
    Purchase of property and equipment                (283)           (315)
    Proceeds from sale of fixed assets                  15               -
                                            --------------  --------------
  Net cash used in investing
   activities                                         (268)           (315)
                                            --------------  --------------

Cash flows from financing activities:
    Repayment of debt                                  (44)            (34)
    Repayment of capital lease
     obligations                                       (35)            (10)
    Purchase of treasury stock                        (897)              -
    Proceeds from issuance of common stock              26              36
                                            --------------  --------------
  Net cash used in financing activities               (950)             (8)
                                            --------------  --------------

Net decrease in cash and cash equivalents           (1,349)             (8)

Cash and cash equivalents, beginning of
 period                                              5,541           4,281
                                            --------------  --------------
Cash and cash equivalents, end of period    $        4,192  $        4,273
                                            ==============  ==============


Cash payments:                              March 31, 2008  March 31, 2007
                                            --------------  --------------
      Interest                              $            2  $           19
      Income Taxes                          $           60  $           10


Contact Information

  • Company Contacts:
    Monterey Gourmet Foods
    Eric Eddings
    Chief Executive Officer
    Email Contact
    Scott Wheeler
    Chief Financial Officer
    Email Contact
    (206) 622-1016


    Investor Relations Contacts:
    Lippert / Heilshorn & Associates
    Kirsten Chapman
    Email Contact
    Christiane Pelz
    Email Contact
    (415) 433-3777