Ridley Inc. Reports Financial Results for Fiscal 2013 Third Quarter
(firmenpresse) - MANKATO, MINNESOTA -- (Marketwired) -- 05/07/13 -- Ridley Inc. (TSX: RCL) today reported its financial results for the three and nine months ended March 31, 2013. All currency amounts are stated in U.S. dollars unless otherwise noted.
For the three months ended March 31, 2013, Ridley's earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations were $10.7 million compared to $9.6 million last year. Net income from continuing operations (net of income tax expense) for the period was $5.7 million ($0.45 per share) compared to $3.7 million ($0.29 per share) last year. Consolidated net income (after income taxes) for the quarter was $5.6 million ($0.44 per share) compared to $4.0 million ($0.30 per share) last year.
Ridley also reported today that it has declared a special cash dividend on its common stock of CAD $1.50 per share payable on May 31, 2013 to shareholders of record on May 21, 2013. The special dividend of approximately CAD $19.2 million is not indicative of any intention at the present time to initiate a regular dividend payment to shareholders.
For the nine months year-to-date, Ridley reported EBITDA from continuing operations of $31.5 million compared to $22.0 million for the same period last year. Net income from continuing operations (net of income tax expense) for the year-to-date was $16.9 million ($1.32 per share) compared to $9.1 million ($0.71 per share) last year. Consolidated net income for the year-to-date was $17.4 million ($1.36 per share) compared to $8.6 million ($0.67 per share) last year.
The increase of $1.1 million in Ridley's EBITDA for the third quarter of fiscal 2013 was the result of higher gross profits over last year that followed from improved average sales margins and growth in sales tonnage of higher value added products, particularly feed supplements and blocks, and the earnings contribution from a business acquisition, Stockade Brands, made earlier this year. Ridley's revenues from continuing operations grew by 5.9% to $144.6 million in the third quarter this year, primarily a result of higher raw material prices relative to the same period last year and a continuing shift in product mix towards higher value added products.
Overall tonnage volumes were lower by 1% from the same period last year. Sales volumes were stronger in the prior year as economic conditions for livestock producers in fiscal 2012 were relatively more favorable to feed demand than the present year. Gross profits increased by 11.3% in the third quarter to $22.3 million as average unit margins increased as a result of the continuing shift in product mix to higher value added products.
U.S. Feed Operations (USFO) reported a $3.1 million increase in operating income for the third quarter this year on higher average margins, increased volumes of value added products and reduced operating costs. USFO earnings last year included a charge of $2.0 million for the closure of two feed production facilities in fiscal 2012. Ridley Block Operations (RBO) reported a $0.2 million increase in operating income on improved unit margins and the contribution from Stockade Brands. Ridley Feed Ingredients (RFI) reported operating income of $0.7 million compared to $1.0 million last year on reduced volumes and higher administrative expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management Discussion and Analysis dated as at May 7, 2013 and the accompanying interim consolidated financial statements for the three and nine months ended March 31, 2013 have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) which incorporate International Financial Reporting Standards (IFRS).
Third Quarter Results
The following summary data is presented to assist in understanding the fiscal 2013 third quarter results.
Consolidated Third Quarter Results
Revenue from continuing operations was $144.6 million in the third quarter of fiscal 2013, an increase of $8.0 million over the same period last year. A comparison of revenue is not necessarily indicative of the strength of Ridley's business because revenue is influenced by fluctuating commodity prices. Raw material prices were generally higher this year than the same period last year, which had the effect of increasing average unit selling prices for the Company's feed products. Overall sales volume, as measured in tons of feed products sold, was lower by 1.0% in the third quarter reflecting mainly the shift in product mix from complete feeds to higher value-added products. Consequently, the 5.9% increase in sales revenues in the third quarter was largely the result of higher raw material prices relative to last year. Sales volume in the third quarter continued to benefit from good producer economics in the beef and dairy sectors. Although the beef cattle population has declined for several years, tighter stocks resulted in significantly improved cattle prices in the six months leading up to the third quarter, which was positive to the demand for feed products.
Consolidated gross profit from continuing operations in the third quarter of fiscal 2013 was $22.3 million compared to $20.0 million in the same period last year. The increase of $2.3 million in gross profit in the third quarter was largely the result of the continuing shift in product mix to higher value-added products, particularly feed supplements and blocks, and an increase in average unit margins relative to last year when feed ingredient prices were declining.
Operating expenses, which include technical services, selling, administration expenses and research and development, were $13.3 compared to $14.2 million last year. Operating expenses last year included a $0.3 million loss on the sale of facilities and charges of $1.7 million for restructuring and plant impairment related to the closure of two feed production facilities in fiscal 2012. Excluding exceptions, the increase of $1.1 million in operating expenses over last year reflects generally higher sales and marketing expenditures as well as an increase in reserves for performance based employee incentives.
EBITDA is comprised of operating income of continuing operations before depreciation, amortization and exceptions. For the three months ended March 31, 2013 EBITDA was $10.7 million compared to $9.6 million for the same period last year. The increase of $1.1 million in EBITDA is mainly comprised of the $2.3 million increase in gross profit, partly offset by the $1.2 million increase in overhead expenses. There were no material exceptions in the third quarter of this year. As noted above, exceptions last year totaled $2.0 million from the closure of two feed production facilities in fiscal 2012.
Net income from continuing operations, net of income tax expense, for the third quarter of fiscal 2013 was $5.7 million ($0.45 per share) compared to $3.7 million ($0.29 per share) in the same period of fiscal 2012.
Discontinued operations are comprised of the Company's feed manufacturing business in Canada, previously reported as the Canadian Feed Operations (CFO) segment, which was merged into a limited partnership with Masterfeeds Inc. in the second quarter this year. Prior period results of CFO have been re- presented as discontinued operations. Net loss from discontinued operations in the third quarter of fiscal 2013 was $0.1 million compared to net income of $0.2 million last year.
The Company owns a non-controlling interest in the limited partnership, Masterfeeds LP. The Company's share of the earnings of Masterfeeds LP is reported as share of income of associate, which amounted to $0.3 million in the third quarter of fiscal 2013.
Including income from discontinued operations, the Company reported net income after taxes for the third quarter of $5.6 million ($0.44 per share) compared to $4.0 million ($0.30 per share) in the same period last year.
Consolidated Nine Months Results
For the nine months ended March 31, 2013, revenue of $444.7 million from continuing operations was $35.0 million higher than the same period last year. Higher feed ingredient prices accounted for the major part of the increase in revenues in the nine months of fiscal 2013. An increase of 1.7% in sales volume, mainly in feed supplements and blocks, also contributed to the 8.5% increase in sales revenue in the year- to-date. Factors bearing on sales volume in the nine months of fiscal 2013 included generally favorable economic conditions for livestock and poultry producers and increased demand for feed supplementation during the drought in the U.S.
Consolidated gross profit from continuing operations for the nine months of fiscal 2013 was $63.3 million compared to $53.1 million in the year-to-date last year. Average unit margins increased this year as a result of generally higher feed ingredient prices and the continuing shift in product mix to higher value-added products.
Operating expenses before exceptions in continuing operations in the nine months of fiscal 2013 were $36.9 million, an increase of $0.5 million from last year. Exceptions last year included a $0.6 million loss on the sale of facilities at Bushnell, IL and Syracuse, IN and charges of $1.7 million for restructuring and plant impairment related to the closure of facilities at Bushnell, IL and Castleton, IN in fiscal 2012.
EBITDA from continuing operations in the nine months of fiscal 2013 was $31.5 million compared to $22.0 million for the same period last year. There were no material exceptions in the nine months of the current year. As noted above, exceptions in the prior year totaled $2.3 million from the sale of two plants and the closure of one plant in fiscal 2012.
The Company's share of the earnings of Masterfeeds LP, reported as share of income of associate, was $0.5 million for the year-to-date of fiscal 2013.
Net income from continuing operations, net of income tax expense for the nine months ended March 31, 2013 was $16.9 million ($1.32 per share) compared with net earnings after taxes of $9.1 million ($0.71 per share) in the same period last year. Net income from discontinued operations was $0.5 million compared to a loss of $0.5 million last year. Including income from discontinued operations, the Company reported net income after taxes for the nine months of fiscal 2013 of $17.4 million ($1.36 per share) compared to $8.6 million ($0.67 per share) in the same period last year.
Comprehensive Income
Comprehensive income (loss) is the change in net assets that results from transactions, events and circumstances from sources other than investments by and/or distributions to shareholders. Other comprehensive income (OCI) is comprised of unrealized gains and losses on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency. Comprehensive income in the third quarter of fiscal 2013 was $5.0 million which was comprised of net income of $5.6 million, as reported above, less unrealized loss of $0.6 million on the translation of the financial statements of Canadian entities to U.S. currency. For the nine months this year comprehensive income was $19.6 million which was comprised of net income of $17.4 million, as reported above, less unrealized loss of less than $0.1 million on the translation of the financial statements of Canadian entities to U.S. currency, plus reclassification of $2.1 million of accumulated currency translation losses from equity to net income related to the transfer of Canadian assets to Masterfeeds LP in the second quarter this year.
The following table is a reconciliation of EBITDA to net income, the most closely comparable GAAP measure to EBITDA:
Loss on sale of facilities, asset impairment loss and restructuring charges totaling $2.3 million in the nine months of fiscal 2012 as noted above relate to the closure of a production facility at Castleton, IN and the sale of facilities at Bushnell, IL and Castleton, IN.
SEGMENT RESULTS
In the second quarter of fiscal 2013, the Company modified its reporting segments to eliminate the Canadian Feed Operations (CFO) segment following the sale of substantially all of the assets of its Canadian operations to Masterfeeds LP. The following is a summary of operating income (loss) of the reporting segments of the Company's continuing operations for the third quarter and nine months year-to- date of fiscal 2013 and 2012.
U.S. Feed Operations (USFO)
The U.S. Feed Operations (USFO) segment consists of twenty-one full-line production facilities operating in the United States producing and marketing products for the core animal nutrition market. USFO plants derive most of their business by manufacturing and marketing a broad range of complete feeds, supplements and premixes to meat, milk and egg producers, and owners of equine and companion animals located mostly in the Midwestern United States.
Tonnage volume was lower by 4.2% in the third quarter of fiscal 2013 compared to last year. Lower volumes in the third quarter largely reflected the continuing shift in product mix from complete feeds to higher value-added products. For the year-to-date, USFO volumes were approximately even with last year as strong sales of beef supplements at the start of the current year offset lower volumes later in the year.
Gross profits in the third quarter this year were $11.6 million compared to $10.1 million in the same period last year as a result of improved average unit margins and lower manufacturing costs. Average unit margins were higher this year as a result of rising commodity prices and increased volumes of higher value added products such as block supplements. Gross profits for the nine months year-to-date were higher by $5.5 million, also reflecting improvement in average unit margins over last year when commodity prices were declining.
Operating expenses were lower in the third quarter this year by $1.6 million as operating expenses in the same period last year included $2.0 million in charges for termination of operations at feed manufacturing facilities in Castleton, Indiana and Bushnell, Illinois in the third quarter of fiscal 2012. Operating income for the quarter was $3.5 million, an increase of $3.1 million over last year, reflecting a $1.5 million improvement in gross profit this year and charges last year of $2.0 million related to closed facilities. For the year-to-date, operating income was $10.4 million, an increase of $5.8 million over last year excluding exceptions.
Ridley Feed Ingredients (RFI)
The Ridley Feed Ingredients (RFI) segment produces and distributes vitamin and trace mineral premixes, small packaged specialty products, medicated and non-medicated feed additives and micro feed ingredients to customers throughout North America from its facility in Mendota, Illinois. Revenue in the third quarter of fiscal 2013, including intersegment sales, decreased by 6.7% from the same period last year as a result of declining prices of certain commodities and lower volumes from last year in feed-grade vitamins and amino acids.
Gross profit of $1.8 million in the third quarter this year was lower by $0.1 million or 4.4% below last year as improved unit margins relative to last year partly offset lower volumes this year. Gross profit for the year-to-date was $4.7 million, unchanged from last year. Operating expenses in the third quarter increased over the prior year by $0.2 million and, for the year-to-date, increased by $0.1 million on generally higher administrative expenses. Operating income for the quarter was $0.7 million, a decrease of $0.3 million from last year. For the year-to-date, operating income was $1.8 million compared to $1.9 million last year.
Ridley Block Operations (RBO)
The Ridley Block Operations (RBO) segment manufactures a complete range of block supplements, including low moisture, pressed, compressed, composite and poured blocks, loose minerals and dried molasses from eight U.S. facilities. Tonnage volume in the third quarter of fiscal 2013 was ahead of last year by 9.5% mainly due to the contribution of Stockade Brands which RBO acquired in the second quarter of fiscal 2013. For the year-to-date, RBO volumes were 12.5% ahead of last year as a result of a favourable beef cattle economy, the effects of drought earlier in the current year and the contribution of Stockade Brands.
Gross profits of $8.9 million in the third quarter this year were higher by $0.9 million over last year primarily as a result of a more favorable product mix. For the nine months year-to-date, gross profits were ahead of last year by $4.7 million on increased tonnage volumes and improved average unit margins. Operating expenses in the third quarter of fiscal 2013 increased by $0.7 million over last year on generally increased administrative costs. For similar reasons, operating expenses for the year-to-date were also higher by $0.7 million. Operating income increased over last year by $0.2 million in the third quarter and $4.0 million for the year-to-date. Operating income in the first half of the current year was favourably influenced by drought conditions and good producer economics that provided a positive stimulus to demand for feed supplementation.
Liquidity/Capital Resources/Cash Flow
Ridley's working capital and debt-to-equity positions are summarized below.
Working capital balances increased by $2.1 million in the three months between December 31, 2012 and March 31, 2013. Accounts payable were lower as a result of the timing of normal payments and the seasonal reduction in advances from customers who prepay their feed accounts for tax reasons. Compared to the same point in time a year ago, working capital balances as at March 31 2013, were $11.8 million lower than a year ago. About $11.1 million of this reduction in working capital from last year was accounted for by the sale of Canadian operations to Masterfeeds LP in November 2012.
Subsequent to the end of the third quarter, the Company declared a special dividend of CAD $1.50 per common share to shareholders of record on May 21, 2013 payable on May 31, 2013. The special dividend of approximately CAD $19.2 million is not indicative of any intention at the present time to initiate a regular dividend payment to shareholders. The Company intends to designate 100% of the special dividend as "eligible dividends" for purposes of the Income Tax Act (Canada).
The following is a summary of cash generated or utilized by business operations, net of capital expenditures on plant and equipment and other intangibles, excluding business acquisitions.
For the third quarter of fiscal 2013, cash flows from operations net of capital expenditures and business acquisitions and disposals were $4.0 million compared to $5.9 million in the same three-month period last year. Cash flows from increased working capital balances were $2.0 million in the third quarter of fiscal 2013 and mainly reflect reduced accounts payable.
Business acquisitions of $5.7 million this year reflect the net purchase price for the assets of Stockade Brands Inc. in the second quarter. Distributions from associate of $7.9 million this year were the return of cash from Masterfeeds LP following the transfer of working capital assets of Canadian operations to Masterfeeds LP. Proceeds of $2.1 million on the transfer of Canadian operations were the excess of working capital over start-up requirements set by the partners of Masterfeeds LP.
The Company's borrowing capacity under its loan agreement with U.S. Bank National Association was $50.0 million as at March 31, 2013.
Capital Expenditures
Capital expenditures on property, plant and equipment, and intangible assets (software) in the third quarter of fiscal 2013 were $1.6 million, unchanged from the same period a year ago. Capital expenditures for the year-to-date were $8.2 million compared to $5.7 million last year. Major capital expenditures this year included $1.5 million for completion of facility renovations at Brandon, Manitoba.
Business Acquisitions
On November 28, 2012, the Company acquired substantially all of the assets and assumed certain liabilities of Stockade Brands Inc. (Stockade) for cash consideration of $5.7 million. Stockade manufactures blocks, loose minerals and dried molasses products for livestock from a single production facility in Pittsburg, Kansas. The business was integrated and reported within the RBO segment.
Investment in Masterfeeds LP
On November 30, 2012 the Company and Masterfeeds Inc. completed the merger of their respective livestock and poultry feed and nutrition businesses in Canada into a new limited partnership called Masterfeeds LP. The merger joins the Company's Feed-Rite brand with Masterfeeds to create the second largest feed provider in Canada operating, among other things, 22 feed manufacturing plants and employing over 500 people in a business spanning Quebec, Ontario and the Prairie Provinces. Masterfeeds Inc. and Ridley Inc. each contributed essentially all of their respective Canadian feed operating assets and liabilities in exchange for relative unit holdings in Masterfeeds LP. Ridley owns a non-controlling interest in Masterfeeds LP.
Starting in the second quarter of fiscal 2013, results of the Company's Canadian operations up to November 30, 2012 are reported as net income (loss) from discontinued operations. In the third quarter of fiscal 2013, a loss of $0.1 million was reported in discontinued operations. For the year-to-date this year, net income of $0.5 million was reported in discontinued operations, which was comprised of an operating loss in Canadian operations of $1.8 million, offset by a net pre-tax gain of $3.8 million on the disposal of $21.5 million of Canadian assets at book value to Masterfeeds LP, less income tax expense of $1.5 million. Pre-tax earnings accruing from the Company's investment in Masterfeeds LP are reported as share of income of associate under the equity method of accounting, which in the third quarter of fiscal 2013 was $0.3 million and in the year-to-date was $0.5 million. The Company's investment in Masterfeeds LP is reported as an investment in associate, which as at March 31, 2013 was $17.5 million, consisting of the initial investment of $25.4 million, less a cash distribution of $7.9 million received from the limited partnership, plus pre-tax share of income of associate to-date of $0.5 million, less foreign currency adjustment of $0.4 million. As a limited partnership, Masterfeeds LP is not subject to income taxes; any taxable income is allocated between the respective partners.
The following chart describes the disposal to Masterfeeds LP on November 30, 2012 of the Company's Canadian business unit net assets and related pre-tax gain.
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Outstanding Share Data
Ridley's share capital consists of an unlimited number of common shares, with no par value. On December 13, 2012 Ridley received approval from the Toronto Stock Exchange (the "TSX") to initiate a normal course issuer bid for the Company's shares through the facilities of the TSX. The shares repurchase program permits the Company to purchase for cancellation up to 639,499 of its common shares over the twelve month period ending December 14, 2013. As at March 31, 2013 the Company had repurchased no shares under the current normal course issuer bid. The number of shares outstanding as at March 31, 2013 and as at May 7, 2013 was 12,789,978.
Seasonality and Commodity Variability
The Company experiences seasonal variations in revenue. Historically, revenue is strongest in the second and third fiscal quarters when colder weather from October to March typically increases demand for beef feed. Other product lines are only marginally affected by seasonal conditions. Certain of the raw materials comprising the Company's products incorporate commodity-based products and the by-products of commodity processing. Fluctuating commodity prices may therefore influence revenues and associated cost of sales as the Company's selling prices are adjusted to reflect current raw materials markets.
Selected Quarterly Financial Information
Internal Control Over Financial Reporting
The Chief Executive Officer and Chief Financial Officer have each signed form 52-109F2 - Certification of Interim Filings and filed it with the appropriate securities regulators in Canada in compliance with National Instrument 52-109: Certification of Disclosure in Issuers' Annual and Interim Filings issued by the Canadian Securities Administrators. There has been no change in Ridley's internal controls over financial reporting or disclosure controls and procedures that occurred during the most recent interim period that has materially affected, or is reasonably likely to materially affect, Ridley's internal control over financial reporting.
Forward-Looking Information
This report contains "forward-looking" information. The forward-looking information includes statements concerning the proposed transaction described herein, Ridley's outlook for the future, as well as other statements of beliefs, plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. Forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, contemplated or implied by, such statements. These risks and uncertainties include the risk that the proposed transaction described herein will not be completed, the ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, the availability and prices of raw materials and supplies, livestock disease, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards and other regulatory requirements affecting Ridley's business, adverse results from ongoing litigation, and actions of domestic and foreign governments. Other risks are outlined in the Risk Management section of the MD&A included in Ridley's Annual Report. Unless otherwise required by applicable securities law, Ridley disclaims any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. Ridley cautions readers not to place undue reliance upon forward-looking statements.
OUTLOOK
Since 2008, high feed ingredient prices have limited herd and flock expansion. The potential for continuing volatility in feed ingredient prices will remain one of the more significant drivers for Ridley's results. Ridley's business will be sensitive to any changes in the economic environment for producers and herd or flock populations. Ridley's growing lifestyle markets and higher-value added products tend to be more stable in market demand. In the face of these external uncertainties, the Company continues to improve its cost competitiveness through a number of initiatives to improve operating efficiencies including additional manufacturing automation, using lean manufacturing techniques and better utilization of information technology.
Ridley Inc., headquartered in Mankato, Minnesota, is one of North America's leading commercial animal nutrition companies. Ridley employs more than 700 people in the manufacture, sales and marketing of a full range of animal nutrition products under highly regarded trade names. Ridley's common shares are listed on The Toronto Stock Exchange (trading symbol: RCL). Additional information, including the notes to the interim financial statements and Ridley's Annual Information Form (AIF), are available at . Visit our website at .
Refer to accompanying notes to the interim consolidated financial statements.
Approved by the Board of Directors
(signed) B. P. Martin, Director (signed) W. Harden, Director
Refer to accompanying notes to the interim consolidated financial statements.
Accumulated other comprehensive loss is comprised entirely of the unrealized loss on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency.
Refer to accompanying notes to the interim consolidated financial statements.
Refer to accompanying notes to the interim consolidated financial statements.
Contacts:
RIDLEY Inc.
Steve VanRoekel
President and CEO
(507) 388-9400
RIDLEY Inc.
Gordon Hildebrand
Chief Financial Officer
(507) 388-9577
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