SALINAS, CA (August 10, 2006) -- Monterey Gourmet Foods (NASDAQ: PSTA) today announced second quarter net sales of $23.1 million, a 9% increase over the second quarter 2005. The Company also reported operating profits of $400,000, a 106% increase from $194,000 in the second quarter 2005. Net income was $146,000, or $.01 per share (diluted) vs. $11,000, or $.00 per share in the second quarter 2005. Year-to-date net income was $246,000, or $.02 per share (diluted), compared to $28,000, or $.00 per share for year-to-date 2005. Year to date sales were $45.6 million, an increase of 17% over year to date 2005.
Mr. Jim Williams, President/CEO of Monterey Gourmet Foods, explained, “We are pleased to report another quarter of progress. Our 9% increase in sales in the second quarter was driven by a 20% increase in our core Monterey Pasta sales, and a 23% increase at CIBO Naturals.”
Commenting on profits, Mr. Williams said, “Our profit improvements for the quarter resulted from higher sales and a 4.1% increase in gross margin to 30.2%, compared to 26.1% for the second quarter 2005. Key factors in our gross margin improvement included margin contribution from higher sales, cost savings from our Salinas (CA) plant consolidation project, and lower raw material costs. Hampering profitability for the quarter versus prior year were higher SG&A costs and higher slotting expenses. The SG&A increase resulted from higher freight costs of $546,000 of which $462,000 was in higher freight rates, stock-based compensation expense of $94,000, higher club store marketing expenses of $364,000 and higher public company costs of $53,000. Slotting allowances were $237,000 higher in the second quarter 2006 due to our achieving new distribution with 13 retail chains. While the slotting costs were expensed in the second quarter, we expect to see significant sales and profit contributions from these new retail accounts in future quarters.”
Continuing, Mr. Williams commented, “We generated $4.3 million in cash from operating activities for the six months ended June 30, 2006 compared to $0.8 million generated from operating activities for the six months ended June 30, 2005. Earnings before interest, taxes, depreciation, amortization and stock-based compensation were $2.5 million and the remaining cash generated from operations resulted from a reduction in working capital.
In conclusion, Mr. Williams stated, “With the initiatives we have underway and the momentum in our core business, we remain confident that our results will continue on a positive trend in the coming quarters.”
This press release contains forward-looking statements concerning the effect of Monterey Gourmet Foods’ corporate acquisitions and product innovations on projected sales for future periods including without limitation statements including such terms as “expect to see”, “momentum” and “confident that we will see continuing progress” and words of similar import. These forward-looking statements are based on currently available competitive, financial and economic data and management’s views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Consequently, the Company wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Monterey Gourmet Foods’ actual results to differ from such forward-looking statements are the following: (i) the process associated with the integrations of Sonoma Foods and Casual Gourmet operations, processes, and products, (ii) a significant reduction of sales to two major customers currently comprising a majority of total revenues, (iii) the retention of newly acquired customers including achieving volume projections for these new customers, (iv) the Company’s ability to achieve improved production efficiencies in connection with the introduction of its new items, (v) the timely and cost-effective introduction of new products in the coming months, (vi) retention of key personnel and retention of key management, (vii) the risks inherent in food production, (viii) intense competition in the market in which the Company competes and (ix) Monterey Gourmet Foods’ ability to source competitively priced raw materials to achieve historical operating margins. In addition, the Company’s results may also be affected by general factors, such as economic conditions, political developments, interest and inflation rates, accounting standards, taxes, and laws and regulations in markets where the Company competes.
The Company has provided additional information regarding risks associated with the business in the Company’s Annual Report on Form 10-K for fiscal 2005, its Proxy Statement filed April 21, 2006, and Form 10-Q filed March 31, 2006. The Company undertakes no obligation to update or revise publicly, any forward-looking statements whether as a result of new information, future events or otherwise.
Monterey Gourmet Foods manufactures USDA inspected, fresh gourmet refrigerated food products at its integrated 143,000 square foot corporate headquarters, distribution, and manufacturing facilities in Salinas, (Monterey County) California, its organic food production facility in Eugene, Oregon and its newly acquired facility in Seattle, Washington. Monterey Gourmet Foods has national distribution of its products in over 10,000 retail and club stores throughout the United States and selected regions of Canada, the Caribbean, Latin America, and Asia Pacific.
