Food ingredients, not fuel, helps Penford post profit

07-Apr-2013 - Last updated on 08-Apr-2013 at 15:03 GMT

A coating for French fries is one of Penford's signature products.

Higher profits and margins in the human nutrition portion of the company helped Penford Corporation swing from a loss to a profit, according to the company’s recent second quarter earnings statement.

Using grain for food ingredients instead of ethanol was a key difference from a year ago, according to statements by company officials during an earnings call with analysts discussing the company’s Q2 2013 results.

“Sales of our Food Ingredients division grew by 7% over last year to $26.6 million. The improvement in revenue was driven largely by growth at existing customers and new business gains in several segments, including dairy, gluten-free, protein and sauces,” said Thomas D. Malkowski, Penford CEO in an earnings call with analysts.

“Penford's second quarter ethanol sales of $18.2 million decreased $6 million or 25% from last year. During the second quarter, Cedar Rapids-based production was shifted towards industrial and food starches,” he said.

Net income for the whole company was $1.2 million for the quarter compared to a loss of $300,000 a year ago, the company said. Diluted earnings per share improved $0.10 from a loss per share of $0.03 in last year's second quarter. Gross margin expanded 17% from a year ago to $11 million, and gross margin as a percent of sales expanded 150 basis points to 12.4%.

New product launches, new partnerships

Malkowski said the company had launched several promising new products in the first half of fiscal 2013, including a highly soluble enzyme-treated starch for enhanced crispness in coated products like french fries, chicken and fish. He said Penford is targeting clean label markets with product are targeting clean label markets, our cost-effective nonallergenic egg replacer for bakery products and a proprietary resistant starch that provides fiber enrichment and caloric reduction.

Malkowsi said the company expect to maintain strong single digit growth in the food ingredients division in the near future. He also said the company is working on a number of strategic partnerships in the food sector that are still at a nascent stage, and are still too new to detail furhter.

“A lot of our food products offer a cost reduction opportunity for our customers. It's not based on lower pricing. It's simply that our ingredients work better than more expensive ingredients that they may be using,” Malkowski said.

By contrast with the strong performance in food ingredients, Penford’s Industrial Ingredients division reported a loss of $500,000 in the second quarter on revenue of $62.4 million. That revenue figured represented a 2% increase over Q2 2012, Malkowski said.