SunOpta Gets Q2 Boost
Second quarter 2008 results include professional and related fees and severance costs of $6,352,000 related to the Company's investigation into the write-down in the SunOpta Fruit Group Berry Operations.
12/08/08 SunOpta Inc. has achieved its highest ever quarterly revenues during the three months ended June 30, 2008, realizing its 43rd consecutive quarter of increased revenue growth versus the same quarter in the previous year. Revenues in the second quarter of 2008 increased by 41.5% to $291,945,000 as compared to $206,378,000 in the second quarter ("Q2") of 2007. Second quarter 2008 revenues in the SunOpta Food Group increased 41.9% to $266,226,000 versus $187,665,000 in Q2 2007, driven by internal growth of 20.5% and the impact of the acquisition of The Organic Corporation B.V. (referred to as Tradin Organics) in April 2008 which contributed revenues in the second quarter of approximately $37,000,000. Revenues in Opta Minerals Inc. increased 37.3% to $25,248,000 for the quarter and revenues in the SunOpta BioProcess Group increased to $471,000 versus $319,000 in the second quarter of 2007. Consolidated internal revenue growth for the quarter was 20.8%.
Earnings for the quarter were $719,000 or $0.01 per diluted common share as compared to 2007 second quarter earnings of $3,405,000 or $0.05 per diluted common share. Second quarter 2008 results include professional and related fees and severance costs of $6,352,000 related to the Company's investigation into the write-down in the SunOpta Fruit Group Berry Operations and resulting delay in filing Annual Report 10-K for the year ended December 31, 2007.
Without the investigation related professional fees and severance costs, adjusted earnings(2) for the quarter would have increased from earnings in Q2 2007 by approximately 49% to $5,070,000. Without the impact of the investigation related professional fees, severance costs and the segment operating loss of ($1,077,000) (2007 - ($1,676,000)) incurred within the SunOpta Fruit Group Berry Operations, second quarter 2008 adjusted earnings would have increased approximately 29% to $5,727,000 versus 2007 second quarter adjusted earnings of $4,427,000.
For the six months ended June 30, 2008, the Company realized revenues of $522,389,000 versus $389,878,000 in the first six months of 2007, an increase of 34.0%. Consolidated internal growth the first six months was 20.8%. Earnings for the six month period in 2008 were $2,205,000 or $0.03 per diluted common share versus $4,459,000 or $0.07 per diluted common share in the comparable 2007 period. These results include professional and related fees and severance costs of $7,720,000 related to the Company's investigation and related activities into the write-down in the SunOpta Fruit Group Berry Operations and resulting delay in filing Annual Report 10-K for the year ended December 31, 2007. Without these professional fees and severance costs, adjusted earnings(2) for the first six months of 2008 would have been $7,493,000, representing an increase in earnings of approximately 68% versus the same period in 2007. Without the impact of the professional fees and severance costs and the segment operating loss of ($5,109,000) (2007 - ($4,818,000)) incurred within the SunOpta Fruit Group Berry Operations, 2008 adjusted earnings would have been $10,609,000 versus adjusted earnings of $7,398,000 in 2007, an increase of approximately 43%.
Operating income for the quarter was $5,491,000 as compared to $6,809,000 in Q2 2007. Segment operating income(1) within the SunOpta Food Group increased 23.7% to $9,051,000 and segment operating income in Opta Minerals Inc. increased 62.6%. Offsetting these increases were operating losses and costs in the combined BioProcess & Corporate segment, largely driven by an increase in costs in this segment of $4,340,000, which includes the impact of the incremental professional fees and related costs of $6,352,000, as noted above. Excluding these professional fees and related costs, adjusted operating income would have increased from Q2 2007 results by approximately 74% reflecting strong results in the Company's operations.
The SunOpta Food Group reported segment operating income of $9,051,000 versus $7,319,000 in Q2 2007, an increase of 23.7%; these results include the impact of $910,000 in increased corporate cost allocations in the 2008 period. The improved segment operating income was driven by the SunOpta Grains and Foods Group which realized a 10.9% increase in segment operating income comparing Q2 of 2008 to Q2 of 2007 due to strong sales and margins of non-GMO and organic grains and grains based ingredients and continued growth in packaged soymilk products, offset by increased input costs that were not entirely passed along to customers during the quarter and costs associated with the installation and commissioning of new aseptic filling equipment in Alexandria, Minnesota which commenced production in July 2008. The SunOpta Distribution Group realized an increase in segment operating income of 64.1%, due primarily to continued strong demand for natural and organic grocery and natural health products as well as the impact of cost rationalization initiatives. The SunOpta Fruit Group realized improved segment operating results in Q2 2008 versus Q2 2007, realizing a net segment operating loss of ($281,000) versus a loss of ($1,137,000) in Q2 2007. Included within the SunOpta Fruit Group results, the Berry Operations realized a net segment operating loss of ($1,077,000) versus ($1,676,000) in Q2 2007. The Berry Operations realized a 72.9% improvement in results versus the loss of ($3,974,000) that was realized in the first quarter of 2008, reflecting improved results as inventories that were written down in 2007 to net realizable value are sold through and improved pricing and reduced storage costs are realized in hand with the expected benefits of the new management team and improved internal processes that are being implemented. Segment operating income in the SunOpta Ingredients Group decreased when comparing Q2 2007 to Q2 2008 by $902,000 as a result of rapid increases in input and processing costs in advance of customer pricing, and approximately $350,000 in costs related to the temporary shutdown of two fiber facilities as a result of the recent flooding in Iowa. The Company expects to recover these costs in the future via business interruption insurance and both of the facilities have now returned to service.
Opta Minerals realized segment operating income in the second quarter of 2008 of $3,351,000 as compared to $2,061,000 in Q2 2007, an increase of 62.6%, driven by strong sales of abrasive products in the U.S. combined with increased sales of magnesium desulphurization products and the 2007 acquisition of Newco in July 2007, the Company's industrial minerals operation located in Slovakia. Opta Minerals continues to pursue strategic transactions and new product development to complement its existing product portfolio, and on July 10, 2008 announced the acquisition of 67% of MCP Mg-Serbian SAS ("MCP") of France. MCP sells ground magnesium products to a variety of industries in Europe and further expands the Company's European operating platform.
There continues to be a strong interest in the SunOpta BioProcess Group's technology and equipment for the pre-treatment of biomass for the production of cellulosic ethanol. Segment operating results for the second quarter of 2008 improved versus the same period in 2007 and reflect continued investment and development spending as the group works on a number of projects that are expected to utilize its technology in the production of cellulosic ethanol.
At June 30, 2008, the Company's balance sheet reflects a current working capital ratio of 1.63 to 1.00, long term debt to equity ratio of 0.45 to 1.00 and total debt to equity ratio of 0.89 to 1.00. The Company has total assets of $676,889,000 and a net book value of $4.03 per outstanding share. The Company has obtained amendments to certain covenants under its credit facility for the fiscal quarters ended June 30, 2008, September 30, 2008 and December 31, 2008 and March 31, 2009 and is in compliance with these amended covenants at June 30, 2008.
Steve Bromley, President and Chief Executive Officer of SunOpta commented, "The results of the second quarter reflect strong growth and operating earnings in the Company's core operations, the impact of the ongoing turnaround efforts in the Berry Operations and the costs of the Company's independent investigation and related activities. These results are within our expectations for the first half of the year and based on this we are able to reconfirm our annual revenue guidance for fiscal 2008 of in excess of $1 billion and net earnings guidance in the range of $0.25 to $0.30 per diluted common share, before the impact of one time professional fees and severance costs related to the independent investigation and related recommendations and legal costs to defend the class action lawsuits in the United States and Canada."
