Knobias Clip Report (08-26-2008) MGPI
Submitted By Knobias ClipReport
MGPI: Plunges as Commodities Prices Force Lower Q4 and FY08 Results
By Fain Hughes, fhughes@knobias.com
Shares of MGP Ingredients, Inc. (MGPI) plunged to a multi-year low after the Company reported a net loss of $9,989,000, or $0.60 in diluted earnings per share, for the fourth quarter of fiscal 2008, which ended June 30, 2008. This compares with net income of $1,668,000, or $0.10 in diluted earnings per share, for the fourth quarter of fiscal 2007. Total sales in the fourth quarter of fiscal 2008 were $104.2 million versus fourth quarter sales a year ago of $101.6 million.
For fiscal 2008, the company had net a loss of $11,742,000, or a diluted loss per share of $0.70, on sales of $392,893,000. This compares to net income of $17,566,000, or $1.04 in diluted earnings per share, on sales of $367,994,000 that the company had for all 12 months of the prior fiscal year.
Tim Newkirk, President and CEO of MGP Ingredients, commented in a conference call today, “The prices of corn, wheat and fuel have significantly impacted our annual operating costs. Corn prices in Q4 were 44% higher; wheat was more than 90% higher; and natural gas was 3% higher than levels in Q4 of last year. Our 2008 results clearly illustrate the impact of price movement on selling prices and costs. Grain analysts expect some downward pressure on corn and wheat prices later this fall.”
He added, “We are not making excuses for reporting a negative earnings performance, but we want our shareholders to understand the industry dynamics that came into play, some of which are still in force.”
Mr. Newkirk said the Company is implementing several initiatives. “We have decided that we can create and sustain more shareholder value by putting our resources behind a smaller number of very large opportunities. We are already seeing the value of this strategy in our ingredients solutions segment where we have narrowed the portfolio of products. Value, price and cost are producing a winning combination there.”
The Company’s fourth quarter results led to the breach of several financial covenants under MGPI’s credit facility. “We have discussed our default with our bank lenders,” Newkirk said. “Although they could have terminated our ability to borrow or accelerated our debt, they have elected not to do so at this time and have continued to honor our draws under the credit facility. They are working with us to develop our new credit terms.” Newkirk added that “Although they have proposed to eliminate our unused term facility and reduce the length of our revolving line of credit facility to a year, at most, and tighten other credit arrangements in certain respects, they have told us that they will be increasing our revolving line of credit to $55 million. We are discussing a definitive agreement with them and expect to enter one in the next few days. Under their latest proposal, we would be restricted from paying dividends and there will be a 60-day standstill period, during which time they could review our commodity positions and hedging strategy and measure our performance under new, forbearance period financial covenants that would set minimum adjusted EBITDA and tangible net worth requirements. After the standstill period, the banks can decide whether and how they want to proceed.”
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