SOURCE: Monterey Gourmet Foods

Monterey Gourmet Foods

February 24, 2009 07:00 ET

Monterey Gourmet Foods Reports Fourth Quarter and Year End 2008 Results

Monterey Pasta Company Brand Demonstrates Double-Digit Revenue Growth for the Quarter and Year; Maintains Strong Balance Sheet With $2.2 Million in Cash and No Debt at December 31, 2008; Records $3.3 Million in Cash Flow From Operating Activities for 2008

SALINAS, CA--(Marketwire - February 24, 2009) - Monterey Gourmet Foods (NASDAQ: PSTA), a manufacturer and marketer of fresh gourmet refrigerated food products, reported results for its fourth quarter and twelve months ended December 31, 2008.

"As previously announced, fourth quarter results were below our expectations; however, we have taken action to position the company to meet the challenges of the economy, exceed our customers' expectations, and provide value to our shareholders," stated Eric C. Eddings, president and CEO of Monterey Gourmet Foods. "Our pasta sales under our Monterey Pasta Company brand continue to demonstrate its strength as its sales increased 15 percent for the quarter over the prior year and 19 percent for the full year. In addition, we are tightening our focus on our core competencies in natural foods and fresh pastas and are exiting non-core businesses. As such, in February we shuttered our Casual Gourmet production, but created a revenue stream by licensing the popular brand to Aidell's Sausage while retaining the brand rights for spreads and dips. We also continue to review options for Sonoma Cheese. Furthermore, we have reduced headcount, frozen wages, and cut other SG&A, which we expect will lower expenses by approximately $2 million in 2009."

Fourth Quarter 2008 Results Compared to Fourth Quarter 2007

Beginning in the fourth quarter of 2008, Monterey Gourmet Foods is reporting in three segments: Gourmet Foods, Further Processed Protein Products (Casual Gourmet brand) and Sonoma Cheese. The Casual Gourmet brand segment includes protein products such as chicken sausages and meatballs and is being reported separately as a result of the company's decision to exit this business.

-- Revenue was $24.5 million, compared to $26.8 million.
   - The Gourmet Foods segment net revenues were $22.3 million, compared to
     $23.1 million.
   - The Casual Gourmet brand segment net revenues were $0.6 million,
     compared to $1.3 million.
   - The Sonoma Foods segment net revenues were $1.6 million, compared to
     $2.4 million.
-- Gross margin was 21.3%, compared to 26.9%.
-- SG&A for the quarter was $7.1 million, compared to $6.7 million.
-- Impairment charges and write downs totaled $19.1 million in the fourth
   quarter 2008, which included goodwill impairment of $12.2 million, other
   intangible assets impairment of $1.1 million and deferred tax assets
   valuation allowance of $3.3 million.  The company also recorded $2.5
   million in the write-off of fixed assets and increase in inventory
   reserves.
-- The total net loss was $20.3 million, which included $19.1 million in
   aforementioned charges, compared to net income of $641,000.

Full Year 2008 Results Compared to Full Year 2007

Scott Wheeler, Monterey Gourmet Foods' CFO, stated, "During 2008, we implemented modest price increases; however, higher commodity costs reduced margins. Nonetheless, we generated $3.3 million in cash from operations in 2008."

"As announced earlier in February, we took some necessary non-cash charges that will not have an impact on the company's liquidity or normal business operations. We now have a $10.8 million valuation allowance reserve against our deferred tax assets. We want to point out to the extent we generate future income, the deferred tax assets such as our Net Operating Loss Carry-forwards are still available to be used to offset income taxes on that income and will result in a lower income tax rate in future years. Furthermore, we are maintaining a solid balance sheet with $2.2 million in cash and no debt," added Wheeler.

-- Revenue was $97.2 million compared to $100.5 million.
   - The Gourmet Foods segment net revenues were $84.9 million, compared
     to $86.6 million.
   - The Casual Gourmet brand segment net revenues were $6.1 million,
     compared to $5.7 million.
   - The Sonoma Foods segment net revenues were $6.2 million, compared to
     $8.3 million.
-- Gross margin was 24.9%, compared to 27.4%.
-- SG&A was $26.8 million, compared to $25.3 million.
-- Impairment charges and write downs for the year ended 2008 totaled
   $20.5 million, which included goodwill impairment of $13.2 million,
   other intangible assets impairment of $1.1 million and deferred tax
   assets valuation allowance of $3.3 million.   The company also recorded
   $2.9 million in the write-off of fixed assets and increase in inventory
   reserves.
-- The total net loss was $22.5 million, which included $20.6 million in
   aforementioned charges, compared to net income of $1.7 million.
-- Cash flow from operating activities for 2008 was $3.3 million compared
   to $4.2 million for 2007.

For the twelve months, cash from operations generated $3.3 million. At December 31, 2008, cash and cash equivalents equaled $2.2 million, compared to $5.5 million at December 31, 2007, reflecting cash paid to fund the company's facility in Kent, Washington and other capital improvements totaling $5.7 million.

Outlook

"We are encouraged that we will continue to grow our core business and receive accolades for our products. In the February 2009 issue of Good Housekeeping magazine, our Monterey Pasta Company brand was featured in an article titled '100 Meals in Minutes: Healthy, Taste-Tested and Kid Friendly.' In 2009, we are focusing on improving brand performance and building a stronger company overall. Our key initiatives include leveraging our core competencies and expertise to create value for our customers and shareholders; improving procurement to take advantage of lower commodity costs; consolidating facilities and sales teams; and strengthening customer relationships," Eddings concluded.

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 fourth quarter 2008 financial results. To listen to the call live, please dial 877-917-3614 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 for 90 days by dialing 866-511-5161. 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; Kent, WA; and Eugene, OR. Monterey Gourmet Foods has national distribution of its products, which are sold under the brands Monterey Pasta Company, 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 projections for future periods including without limitation such phrases and terms as "we have taken action. . . to meet the challenges," "exceed," "provide value," "created a revenue stream," "will not have an impact," "expect to incur a lower tax rate," and "we continue to grow our core business." 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 November 6, 2008 and the company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.



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


                                                        December  December
                                                        31, 2008  31, 2007
                                                        --------  --------

ASSETS
Current assets:
  Cash and cash equivalents                             $  2,151  $  5,541
  Accounts receivable less allowances of $862 and $981     5,725     8,587
  Inventories                                              6,642     7,865
  Deferred tax assets-current                                  -       703
  Prepaid expenses and other                                 808     1,084
                                                        --------  --------

   Total current assets                                   15,326    23,780

  Property and equipment, net                             15,420    14,280
  Deferred tax assets-long term                                -     2,646
  Deposits and other                                         249       243
  Intangible assets, net                                   4,560     6,346
  Goodwill                                                     -    13,211
                                                        --------  --------

   Total assets                                         $ 35,555  $ 60,506
                                                        ========  ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                      $  4,316  $  6,160
  Accrued payroll and related benefits                     1,057     1,192
  Accrued and other current liabilities                    1,279       962
  Current portion of notes, loans, and capital leases
   payable                                                     -        50
                                                        --------  --------

   Total current liabilities                               6,652     8,364

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

Other long-term liabilities                                  217         -

Minority interest                                              -       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, 17,391,342 and
   17,356,976 issued and 16,766,471 and 17,141,976
   outstanding                                                17        17
  Additional paid-in capital                              60,875    60,462
  Treasury stock 624,871 and 215,000 shares,
   respectively, at cost                                  (1,789)     (657)
  Accumulated deficit                                    (30,417)   (7,868)
                                                        --------  --------
  Total stockholders' equity                              28,686    51,954
                                                        --------  --------

   Total liabilities and stockholders' equity           $ 35,555  $ 60,506
                                                        ========  ========






                       MONTEREY GOURMET FOODS, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(000's $)
                             Fourth Quarter Ended    Twelve Months Ended
                            ----------------------- ----------------------
                             December    December    December    December
                             31, 2008    31, 2007    31, 2008    31, 2007
                            ----------  ----------- ----------  ----------

Net revenues                $   24,466  $    26,825 $   97,188  $  100,527
Cost of sales                   19,251       19,599     73,011      73,008
                            ----------  ----------- ----------  ----------

Gross profit                     5,215        7,226     24,177      27,519

Selling, general and
 administrative expenses         7,055        6,663     26,797      25,304
Impairment and
 restructuring                  13,185           58     14,791          58
Loss on disposition of
 assets                          1,971           12      1,987          50
                            ----------  ----------- ----------  ----------
Operating income (loss)        (16,996)         493    (19,398)      2,107

Other income, net                   20            4        134          12

Interest income, net                 3           54         66         163
                            ----------  ----------- ----------  ----------

Income (loss) before
 provision for income
 tax benefit/(expense)         (16,973)         551    (19,198)      2,282
Provision for income tax
 benefit/(expense)              (3,348)          90     (3,351)       (600)
                            ----------  ----------- ----------  ----------

Net income (loss)           $  (20,321) $       641 $  (22,549) $    1,682
                            ==========  =========== ==========  ==========


Basic income (loss) per
 share                      $    (1.21) $      0.04 $    (1.34) $     0.10
Diluted income (loss) per
 share                      $    (1.21) $      0.04 $    (1.34) $     0.10

Primary shares outstanding  16,776,471   17,333,498 16,848,636  17,329,365
Diluted shares outstanding  16,776,471   17,376,575 16,848,636  17,435,201






                       MONTEREY GOURMET FOODS, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                   (in thousands, except share amounts)


                                                          Years Ended
                                                      --------------------
                                                        2008       2007
                                                      ---------  ---------
Cash flows from operating activities:
Net income (loss)                                     $ (22,549) $   1,682
Adjustments to reconcile net income (net loss)
 to net cash provided by (used in) operating
 activities net of acquisition:
    Deferred income taxes                                 3,349        759
    Depreciation and amortization                         3,026      2,948
    Impairment and restructuring                         14,433         58
    Provisions for allowances for bad debts, returns,
     adjustments and spoils                               6,807      4,870
    Provisions for inventory allowances                   1,470        213
    Stock-based compensation                                363        600
    Loss on disposition of assets                         1,987         50
    Gain on acquisition of minority
     interest                                              (109)         -
    Changes in assets and liabilities:
      Accounts receivable                                (3,945)    (3,499)
      Inventories                                          (247)      (504)
      Prepaid expenses and other                            270       (346)
      Accounts payable                                   (1,844)    (1,675)
      Accrued and other liabilities                         292       (910)
                                                      ---------  ---------
Net cash provided by operating activities                 3,303      4,246
                                                      ---------  ---------

Cash flows from investing activities:
      Purchase of property and equipment                 (5,651)    (1,345)
      Proceeds from sale of fixed assets                    169         18
      Acquisition of business net of cash
       and minority interest                                (50)         -
                                                      ---------  ---------
Net cash used in investing activities                    (5,532)    (1,327)
                                                      ---------  ---------

Cash flows from financing activities:
      Repayment of debt                                     (44)    (1,036)
      Repayment of capital lease obligations                (35)       (32)
      Purchase of treasury stock                         (1,132)      (657)
      Proceeds from issuance of common stock                 50         66
                                                      ---------  ---------
Net cash used in financing activities                    (1,161)    (1,659)
                                                      ---------  ---------

Net increase (decrease) in cash and cash equivalents     (3,390)     1,260

Cash and cash equivalents, beginning of period            5,541      4,281
                                                      ---------  ---------
Cash and cash equivalents, end of period              $   2,151  $   5,541
                                                      =========  =========

Cash payments:
       Interest                                       $       2  $      58
       Income taxes                                         103         39





                       MONTEREY GOURMET FOODS, INC.
                            SEGMENT REPORTING


                                                         2008       2007
                                                      ---------  ---------
Net Revenues
  Gourmet Foods Products                              $  84,947  $  86,564
  Sonoma Cheese Products                                  6,189      8,265
  Further Processed Protein                               6,052      5,698
                                                      ---------  ---------
Total Net Revenues                                    $  97,188  $ 100,527
                                                      =========  =========


Operating Income (Loss):
  Gourmet Foods Products                                (11,970)     3,906
  Sonoma Cheese Products                              $  (4,247) $  (1,019)
  Further Processed Protein                           $  (3,181) $    (780)
                                                      ---------  ---------
Total Operating Income (Loss)                         $ (19,398) $   2,107
                                                      =========  =========

Contact Information

  • Company Contacts:
    Monterey Gourmet Foods
    Eric Eddings
    Chief Executive Officer
    Email Contact
    Scott Wheeler
    Chief Financial Officer
    Email Contact
    (253) 867-0570

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