Ralcorp Holdings: announces results for Q4 and fiscal 2007

St. Louis / MO. (rh) Ralcorp Holdings Inc. reported results for the fourth quarter and full fiscal year ended September 30, 2007. For the year, reported diluted earnings per share were 1,17 USD including the impact of a non-cash loss on forward sale contracts related to Ralcorp´s investment in Vail Resorts Inc.; or 3,27 USD excluding that impact. For fiscal 2006, reported diluted earnings per share were 2,41 USD including the impact of a loss on the forward sale contracts; or 2,64 USD excluding that impact. Net sales for 2007 grew more than 20 percent to 2.233,40 million USD from 1.850,20 million USD in 2006, and Food EBITDA – earnings before interest, income taxes, depreciation, and amortization, excluding equity method earnings and other gains or losses related to the Company´s investment in Vail Resorts, Inc. – was 242,9 million USD compared to 193,3 million USD last year.

In the quarter ended September 30, 2007, significant increases in raw material costs reduced profit margins. These costs are expected to remain at elevated levels in fiscal 2008 compared to fiscal 2007 levels. Because of the nature of the Company´s private label business, the effects of mitigating efforts may lag behind the impact of these cost increases, and results of operations could be negatively affected, especially in the short run. However, based on current forecasts, fiscal 2008 diluted earnings per share, excluding the effects of any gains or losses on the forward sale contracts, will be approximately five percent above the corresponding 3,27 USD reported for fiscal 2007.

Approximately 92 million USD of the fourth quarter´s 123,1 million USD sales growth came from fiscal 2007 business acquisitions, namely Cottage Bakery (approximately 32 million USD), added to the Frozen Bakery Products segment on November 10, 2006; and Bloomfield Bakers (approximately 60 million USD), added to the Cereals, Crackers + Cookies segment on March 16, 2007. For the year, Cottage and Bloomfield contributed approximately 108 million USD and 130 million USD, respectively, to the 383,2 million USD sales increase. In addition, approximately 30 million USD of the year´s increase is attributable to the timing of the fiscal 2006 acquisitions (Western Waffles and Parco Foods) in the Frozen Bakery Products segment.

For the quarter and year ended September 30, 2007, the Company´s overall ingredient and packaging costs were unfavorable by a total of about 20,2 million USD and 47,4 million USD, respectively, compared to last year´s rates. These impacts are net of the results of commodity risk management efforts including the use of futures, options, and forward contracts.

Amortization of intangible assets related to acquisitions (primarily customer relationships and trademarks) increased with the addition of amounts for Bloomfield and Cottage. Total amortization of such intangibles was 6,8 million USD for the fourth quarter of fiscal 2007, but only 2,4 million USD for the fourth quarter of fiscal 2006. For the full year, the corresponding amortization was 20,3 million USD for fiscal 2007 and 9,6 million USD for fiscal 2006.

As noted above, net earnings were affected by unrealized non-cash losses on the Company´s forward sale contracts related to its shares of Vail Resorts Incorporated. The contracts, which include a collar on the Vail stock price, operate as a hedge of the future sale of the stock in that the Company will receive no less than the 140 million USD prepaid proceeds for the 4.950.100 shares subject to these contracts. However, because Ralcorp accounts for its investment in Vail Resorts using the equity method, these contracts are not currently eligible for hedge accounting. Consequently, gains or losses due to changes in the fair value of the contracts are immediately recognized in earnings. Amortization of the prepayment discounts, which is included in interest expense, totaled 2,2 million USD and 8,3 million USD in the quarter and year ended September 30, 2007, respectively, and totaled 1,5 million USD and 3,7 million USD in the corresponding periods of fiscal 2006.

Cereals, Crackers + Cookies Segment Results

Excluding the incremental sales from the Bloomfield acquisition, net sales in the Cereals, Crackers + Cookies segment grew two percent for the fourth quarter and four percent for the year due to increases at the Ralston Foods cereal and snacks division, partially offset by small declines at the Bremner cracker and cookie division. This growth is primarily attributable to higher prices, raised in an effort to offset increasing input costs, as overall volumes were up only slightly at Ralston Foods and down at Bremner (but with a shift toward higher-priced items).

At Ralston Foods, base business net sales grew $7.0 million (six percent) and 27,8 million USD (six percent) in the three and twelve-month periods, respectively, largely as a result of improved pricing, as total volume was up less than two percent. Ready-to-eat (RTE) cereal volume was up two percent for the quarter but down one percent for the year, hot cereal was up four percent for the quarter and three percent for the year, and snacks were up two percent for the quarter and five percent for the year. RTE sales were helped by several new product introductions, accounting for approximately 2,4 million USD for the quarter and 8,5 million for the year, but these effects were partially offset by declines in other product sales. Co-manufacturing generated approximately 1,3 million USD of the increase in fourth quarter net sales (despite a three percent volume decline) and 10,3 million USD for the year (with 24 percent higher volume), demonstrating that co-manufacturing projects and volumes can fluctuate significantly from period to period.

At the Bremner cracker and cookie division, overall sales volume declines were partially offset by the effects of price increases and a favorable product mix. For the quarter, cracker volume was down eleven percent, cookie volume was up three percent, and co-manufacturing volume was down 20 percent, for an overall volume decline of six percent. For the year, overall sales volume was four percent lower, with cookies up three percent, crackers down eight percent, and co-manufacturing down nine percent. Most of the volume shortfalls can be attributed to increased promotional activity by branded competitors, partially offset by incremental sales due to new product lines. New product offerings added approximately 1,3 million USD and 6,1 million USD for the quarter and year, respectively. The product mix was especially favorable for the full year, with an impact of approximately five million USD.

Results from the acquired Bloomfield business added about 3,1 million to the Cereals, Crackers + Cookies segment´s profit contribution in the fourth quarter and about 10,2 million since acquisition in March (net of intangible asset amortization of 2,0 USD and 4,1 USD, respectively). Sales and profit contribution for Bloomfield were greater than anticipated as a result of an initial volume surge related to new product introductions during the third quarter.

In the base businesses of the segment, the combined negative effects of higher raw material costs, lower overall volumes, and production cost increases were only partially offset by the favorable effects of increased selling prices and lower freight rates. Compared to last year, higher raw material unit costs reduced profit by approximately 6,9 million USD and 24,2 million USD in the three and twelve months ended September 30, 2007, respectively. The most notable cost increases were in wheat and corn products, oats, rice, sugar, and soybean oil. Lower rates reduced freight costs by about 0,8 million USD for the quarter and 2,5 million USD for the year.

Frozen Bakery Products Segment Results

The increase in year-over-year net sales in the Frozen Bakery Products segment is attributable primarily to sales from the recently acquired Cottage Bakery business and, for the year, the timing of the acquisitions of Western Waffles (November 15, 2005) and Parco Foods (February 07, 2006). However, base business sales also grew about twelve percent for the fourth quarter and nine percent for the full year due to higher volumes and some slightly improved pricing. Excluding results from Cottage Bakery, fourth quarter sales growth was 18 percent, six percent, and twelve percent in the segment´s foodservice, in-store bakery (ISB), and retail channels, respectively, with each channel benefiting from both volume gains and improved pricing. For the year, sales growth in the segment´s base business came from an eleven percent increase in foodservice, a six percent increase in ISB, and an eight percent increase in retail. The base foodservice volume improvement came from new products and increased distribution of existing products. The base ISB volume gains were driven primarily by breads, though cookie volumes were also higher. In the base retail business, incremental sales of private label waffles accounted for most of the growth.

The segment´s profit contribution was reduced by higher raw material costs (primarily wheat flour, eggs, dairy products, and soybean oil), slightly higher manufacturing costs, and (for the full year) higher warehousing costs, but incremental profits from the recently acquired businesses and the base business growth offset most of those effects. Raw materials rates raised costs by about 5,8 million USD and 14,8 million USD for the three and twelve months ended September 30, respectively. Cottage Bakery contributed approximately 4,6 million USD of profit in the fourth quarter and 15,6 million USD since acquisition (net of intangible asset amortization of 1,9 USD and 5,9 USD, respectively). In addition, the extra 20 weeks of results from Parco and the extra seven weeks of results from Western Waffles added an estimated 7,0 million USD of profit in the year ended September 30, 2007.

Dressings, Syrups, Jellies + Sauces Segment Results

In the Dressings, Syrups, Jellies + Sauces segment, also known as Carriage House, fourth quarter net sales increased ten percent as a result of improved pricing, three percent volume growth, and a slightly favorable product mix among product groups. For the year, net sales increased nine percent on four percent volume growth. In the fourth quarter, the segment sold 32 percent more peanut butter than a year ago (contributing to a 23 percent increase in peanut butter sales for the full year), while jellies and table syrups also grew about six percent in both the quarter and the year. The increase in peanut butter sales volume was primarily due to a February recall of a competitor´s products and amounted to approximately six million USD and 15 million USD of additional net sales in the fourth quarter and the year, respectively.

For the fourth quarter, Carriage House operating profit was lower than a year ago as raw material cost increases (6,6 million USD) slightly exceeded the selling price increases, repair and maintenance spending and loss on asset disposals were 1,4 million USD higher than last year, and last year´s profit included a 1,6 million USD property tax refund. Favorable outbound freight costs (0,7 million USD) and the effects of the overall volume growth were offset by other cost increases. For the full year, operating profit improved, primarily because the effects of selling price increases were slightly greater than the effects of raw material cost increases (15,9 million USD), the incremental volume provided incremental profit, and freight was 1,8 million USD favorable. Those net benefits were partially offset by higher production overhead costs and the effect of the 1,6 million USD property tax refund in the prior year. The raw material cost impacts came from corn sweeteners, sugar, soybean oil, peanuts, eggs, fruits, tomato paste, and plastic and glass containers.

Snack Nuts + Candy Segment Results

Fourth quarter net sales for the Snack Nuts + Candy segment, also known as Nutcracker Brands, were four percent higher than last year, as the effects of a favorable product mix was partially offset by a one percent overall volume decline. For the fiscal year, net sales were up six percent as a result of five percent volume growth and the shift toward higher priced items. Selling price changes had no significant net effect on the segment´s fourth quarter net sales (compared to last year), but for the year, price decreases outweighed increases.

The segment´s profit contribution for the fourth quarter was lower than last year because of higher raw material costs (0,9 million USD) and higher production costs. Profit was up for the full fiscal year, as the effects of favorable raw material costs (7,5 million USD) and volume (2,0 million USD) were only partially offset by the effects of higher production costs, an unfavorable product mix, price decreases, and higher freight rates.

Outlook

Ralcorp Holdings purchases significant quantities of certain ingredients (e.g., wheat flour, soybean oil, corn syrup and sweeteners, peanuts and various tree nuts, other grain products, cocoa, fruits), packaging materials (e.g., resin, glass, paper products), energy (e.g., natural gas), and transportation services (which include surcharges based on the price of diesel fuel). The costs of some of these items, notably wheat and corn products (as well as other grain products), peanuts, and oil-related products, have increased significantly compared to values realized in fiscal 2006 and 2007. For fiscal 2008, Ralcorp currently expects the net year-over-year increase in unit costs for ingredients, packaging, and transportation will be more than 75 million USD. To offset the impact of these significant cost increases and maintain profitability levels, the Company will need to take additional actions, including further pricing changes and spending reductions. To the extent mitigating efforts trail or fall short of the impact of cost increases, results of operations will be negatively affected, as is expected to be the case in the first quarter of fiscal 2008. However, based on current forecasts (which do not include any potential future business acquisitions or share repurchases), any near-term shortfall will be recovered during the remainder of fiscal 2008 so that annual diluted earnings per share, excluding the effects of any gains or losses on the Vail forward sale contracts, will be approximately five percent above the corresponding 3,27 USD reported in fiscal 2007 (source).

_{About: Ralcorp Holdings Inc. produces a variety of store brand foods that are sold under the individual labels of various grocery, mass merchandise and drug store retailers, and frozen bakery products that are sold to restaurants and other foodservice customers. Ralcorp´s diversified product mix includes: ready-to-eat and hot cereals; nutritional and cereal bars; snack mixes, corn-based chips and extruded corn snack products; crackers and cookies; snack nuts; chocolate candy; salad dressings; mayonnaise; peanut butter; jams and jellies; syrups; sauces; frozen griddle products including pancakes, waffles, and French toast; frozen biscuits and other frozen pre-baked products such as breads and muffins; and frozen dough for cookies, Danishes, bagels and doughnuts. In addition, Ralcorp holds an interest of approximately 19 percent in Vail Resorts Inc., the leading mountain resort operator in the United States.}