SOURCE: Monterey Gourmet Foods

August 07, 2008 07:00 ET

Monterey Gourmet Foods Reports Second Quarter 2008 Results

Delivers Total Revenue of $23.9 Million and Pre-Tax Income of $642,000; Improves Gross Margin to 28.9%; Provides $3.6 Million in Cash From Operations, Up from $2.1 Million in the Second Quarter of 2007

SALINAS, CA--(Marketwire - August 7, 2008) - Monterey Gourmet Foods (NASDAQ: PSTA), a manufacturer and marketer of fresh gourmet refrigerated food products, reported results for its second quarter ended June 30, 2008.

"Due to our commitment to innovation and quality, this quarter we delivered solid performance in a challenging food industry market," stated Eric C. Eddings, president and CEO of Monterey Gourmet Foods. "This quarter, gross margins improved to 28.9%, up from 24.2% in the first quarter of 2008. Our Sonoma Foods turnaround resulted in significant improvements sooner than anticipated, growing net revenues to $1.6 million for the two months it was in place, compared $1.4 million last quarter. To drive ongoing growth, we are leveraging our equipment and technology investments to introduce new products and brands and further penetrate the fresh healthy gourmet segments. Right now, we are launching the Sonoma Snack Cheese Cubes, At Home Gourmet frozen entrees, and Abuela Maria's frozen tamales. In addition, we continue to revitalize distribution channels with relationships such as our collaboration with Acosta Sales and Marketing announced in July."

Second Quarter 2008 Results Compared to Second Quarter 2007

--  Revenue was $23.9 million compared to $24.5 million.
    --  The Gourmet Foods segment net revenues were comparable with $22.3
        million this year and $22.6 million last year.
    --  The Sonoma Foods segment net revenues were $1.6 million, compared
        to $1.9 million a year ago.
--  Gross margins improved to 28.9% from 27.5%.
--  Income before provision for income tax expense was $642,000, compared
    to $775,000.
--  Income tax expense was a non-cash true-up of $815,000, or approximately
    127% of pretax income, and offset the first quarter 2008 tax benefit
    that was recorded in conjunction with the Sonoma Foods impairment
    charge.  This compares to $311,000, or approximately 40% of pretax
    income a year ago.
--  The total net loss was $173,000, compared to net income of $464,000.

Scott Wheeler, Monterey Gourmet Foods' CFO, said, "Our efforts to improve profitability by increasing prices to adjust for higher commodities costs and reducing expenses with new packaging are beginning to come to fruition. Combining tighter cost controls and working-capital management, we increased cash provided by operating activities to $3.6 million from $2.1 million in the same period last year, and we were able to offset an operating use of $131,000 last quarter."

Recent Business Highlights

--  Signed Acosta Sales and Marketing Company to represent the flagship
    Monterey Pasta Company brand of premium refrigerated raviolis and pastas in
    the retail grocery channel in select markets.
--  Launched Sonoma Snacks Cheese Cubes for club and retail distribution.
--  Increased frozen entrée efforts creating At Home Gourmet brand with 5
    selections including tortellini and protein and revitalizing One Step
    frozen brand with new selections.
--  Expanded the tamales product line adding a new varietal to Isabella's
    Kitchen fresh tamales, introducing frozen selections for Isabella's Kitchen
    and unveiling Abuela Maria's frozen brand.
--  Introduced new varieties of Casual Gourmet meatballs for the holiday
    season.
--  Started the re-launch of our fresh sauce category with new packaging
    and varieties.
    

2008 Outlook

Eddings concluded, "We are very encouraged by our performance and are optimistic about the year. Monterey Pasta Company brand continues to demonstrate double digit revenue growth. Our goal is to capture even more of the growing demand for fresh food by expanding in all channels. For example, we are leveraging raw material procurement, plant efficiencies, and new product marketing efforts as we introduce new sauces varietals for club, retail and food service distribution. We intend to emulate this model for other categories, and we are excited about the opportunities."

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 second 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 for 90 days by dialing 866-361-4941. 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 Foods 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 "is beginning to come to fruition," "We are very encouraged...and are optimistic about the year," "Our goal is to capture even more of the growing demand," and "we are excited about the opportunities." 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 August 7, 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)


                                                    June 30,   December 31,
                                                      2008        2007
                                                  -----------  -----------
                                                  (unaudited)
ASSETS
Current assets:
   Cash and cash equivalents                      $     6,184  $     5,541
   Accounts receivable less allowances of $662
    and $981                                            6,460        8,587
   Inventories                                          6,710        7,865
   Deferred tax assets-current                            703          703
   Prepaid expenses and other                             958        1,084
                                                  -----------  -----------
   Total current assets                                21,015       23,780

   Property and equipment, net                         14,821       14,280
   Deferred tax assets-long term                        2,646        2,646
   Deposits and other                                     293          243
   Intangible assets, net                               5,916        6,346
   Goodwill                                            12,164       13,211
                                                  -----------  -----------

   Total assets                                   $    56,855  $    60,506
                                                  ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                               $     5,243  $     6,160
   Accrued payroll and related benefits                 1,055        1,192
   Accrued and other current liabilities                1,221          962
   Current portion of notes, loans, and capital
    leases payable                                          -           50
                                                  -----------  -----------
   Total current liabilities                            7,519        8,364

Notes, loans, and capital leases payable, less
 current portion                                            -           29
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, 17,372,588 and 17,356,976
    issued and 16,747,717 and 17,141,976
    outstanding                                            17           17
   Additional paid-in capital                          60,680       60,462
   Treasury stock 624,871 and 215,000 shares,
    respectively, at cost                              (1,789)        (657)
   Accumulated deficit                                 (9,572)      (7,868)
                                                  -----------  -----------
   Total stockholders' equity                          49,336       51,954
                                                  -----------  -----------

   Total liabilities and stockholders' equity     $    56,855  $    60,506
                                                  ===========  ===========






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


                              Three Months Ended       Six Months Ended
                             June 30,    June 30,    June 30,    June 30,
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------

Net revenues                $   23,909  $   24,529  $   49,532  $   49,244
Cost of sales                   16,990      17,790      36,424      35,574
                            ----------  ----------  ----------  ----------

Gross profit                     6,919       6,739      13,108      13,670
Selling, general and
 administrative expenses         6,398       6,005      13,349      12,457
Impairment and restructuring         -           -       1,606           -
Loss on disposition of
 assets                             (7)          -         (16)        (12)
                            ----------  ----------  ----------  ----------
Operating income (loss)            514         734      (1,863)      1,201

Other income, net                  106           3         114           4

Interest income, net                22          38          48          66
                            ----------  ----------  ----------  ----------

Income (loss) before
 provision for income tax
 expense                           642         775      (1,701)      1,271
Income tax provision              (815)       (311)         (3)       (509)
                            ----------  ----------  ----------  ----------

Net income (loss)           $     (173) $      464  $   (1,704) $      762
                            ==========  ==========  ==========  ==========

Basic income (loss) per
 share                      $    (0.01) $     0.03  $    (0.10) $     0.04
Diluted income (loss) per
 share                      $    (0.01) $     0.03  $    (0.10) $     0.04

Weighted average primary
 shares outstanding         16,838,981  17,323,025  16,934,987  17,320,347
Weighted average diluted
 shares outstanding         16,838,981  17,478,266  16,934,987  17,485,003



Information on segments and a reconciliation to operating income are as
follows (in thousands):



                                    Three Months Ended   Six Months Ended
                                    ------------------  ------------------
                                    June 30,  June 30,  June 30,  June 30,
                                      2008      2007      2008      2007
                                    --------  --------  --------  --------
Net Revenues
   Gourmet Foods Products             22,318    22,585    46,528    45,287
   Sonoma Cheese Products           $  1,591  $  1,944  $  3,004  $  3,957
                                    --------  --------  --------  --------
Total Net Revenues                  $ 23,909  $ 24,529  $ 49,532  $ 49,244
                                    ========  ========  ========  ========


Operating Income (Loss):
   Gourmet Foods Products                618       999       824     1,631
   Sonoma Cheese Products           $   (104) $   (265) $ (2,687) $   (430)
                                    --------  --------  --------  --------
Total Operating Income (Loss)       $    514  $    734  $ (1,863) $  1,201
                                    --------  --------  --------  --------






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

                                                         Six Months Ended
                                                        ------------------
                                                        June 30,  June 30,
                                                          2008      2007
                                                        --------  --------
Cash flows from operating activities:
Net income (loss)                                       $ (1,704) $    762
Adjustments to reconcile net income (loss) to net cash
 provided by operating activities:
           Deferred income taxes                               -       509
           Depreciation and amortization                   1,498     1,427
           Impairment and restructuring                    1,465         -
           Provisions for allowances for bad debts,
            returns, adjustments and spoils                2,993     2,489
           Provisions for inventory                          543       127
           Stock-based compensation                          192       335
           Loss on disposition of assets                      16        12
           Gain on acquisition of minority interest         (109)        -
           Changes in assets and liabilities:
               Accounts receivable                          (866)     (369)
               Inventories                                   612        34
               Prepaid expenses                              126         9
               Deposits and other                            (50)        3
               Accounts payable                             (917)   (2,377)
               Accrued liabilities                          (202)     (880)
                                                        --------  --------
                  Net cash provided by operating
                   activities                              3,597     2,081
                                                        --------  --------

Cash flows from investing activities:
           Purchase of property and equipment             (1,734)     (651)
           Proceeds from sale of fixed assets                 15         -
           Acquisition of minority interest                  (50)        -
                                                        --------  --------
     Net cash used in investing activities                (1,769)     (651)
                                                        --------  --------

Cash flows from financing activities:
           Repayment of debt                                 (44)      (67)
           Repayment of capital lease obligations            (35)      (24)
           Purchase of treasury stock                     (1,132)        -
           Proceeds from issuance of common stock             26        36
                                                        --------  --------
   Net cash used in financing activities                  (1,185)      (55)
                                                        --------  --------

Net increase in cash and cash equivalents                    643     1,375

Cash and cash equivalents, beginning of period             5,541     4,281
                                                        --------  --------
Cash and cash equivalents, end of period                $  6,184  $  5,656
                                                        ========  ========


Cash payments:                                          June 30,  June 30,
                                                          2008      2007
                                                        --------  --------
             Interest                                   $      2  $     39
             Income Taxes                               $    103  $     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
    (415) 433-3777