Imperial Sugar forecasts difficult year

- Last updated on GMT

Related tags: Imperial sugar, Generally accepted accounting principles, Sugar beet

Imperial Sugar yesterday (Thursday) announced a higher
first-quarter profit, but predicted that operating income would
fall significantly in 2005 as the sugar industry remains
challenging, reports Philippa Nuttall.

Quarterly income was up to $6.5 million, or 59 cents per share, compared to $3.5 million, or 32 cents per share for the same period last year. During the same time, sales rose to $260 million from $256 million.

The increase in net income was, according to Imperial Sugar, due to a gain of about $3.9 million from asset sales, while the 1.6 percent improvement in revenue was explained by higher consumer and foodservice sales volumes.

However, the growth was diminished by a one percent drop in prices owing to a "continuing surplus of sugar"​ from a large domestic sugarbeet crop.

This factor, coupled with higher energy costs, increased costs for warehousing and manufacturing, caused the company's gross margin to decrease by 7.2 percent.

"We are pleased with our first quarter net income results and believe the quarter's financial and operating results were solid in the face of challenging sugar induastry and energy markets,"​ said Robert Peiser, CEO of Imperial Sugar.

He countered this muted enthusiasm with the warning that the situation was likely to get worse, adding that the company expected, "the trend of lower margins caused by the difficult environment to continue this fiscal year"​. The only way that this would be avoided, he said, was if there were "a change in supply and demand fundamentals in the domestic sugar market or siginificant decreases in energy costs"​.

In the face of such a tough market, Darrell Swank, the company's chief financial officer explained to that the company is trying to distinguish itself from the opposition by focusing on consumer orientated value-added products.

"One of the key planks of our strategy over the last couple of years has been innovating in products and packaging,"​ he said.

He added that although contracts with industry players contributed to more than 50 percent of the company's sales, Imperial Sugar would be "moving the needle away from food manufacturers"​ and towards consumers, who are prepared to pay for value-added convenience products.

Imperial Sugar also announced that Hal Mechler will replace Swank as vice president and chief financial officer from the beginning of next month. Swank is leaving for personal reasons , according to the company.

The latest sugar outlook published by the Economic Research Service (ERS) late last month said that the estimated sugarbeet area planted for fiscal year 2005 was 1.346 million acres, down only slightly from the previous year.

It said the national yield is forecast at 22.9 tons, up slightly from 22.7 tons last year. Sugarbeet production is forecast at 29.932 million tons, down 778,000 tons compared to 2.5 percent in 2004.

Swank said rumours were circulating that there may be a reduction in coming years, but added that even if this were to happen, the sugarbeet processors still have large stocks of beet from past years, "which continues to put downward pressure on prices."

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