Grainnet

Arden Hills, MN--Land O'Lakes, Inc., reported on Nov. 7 its third-quarter and year-to-date financial results, while also commenting on the company's balance sheet and individual business unit performance.

The company reported significant increases in year-to-date sales and net earnings, as well as improved third-quarter results (compared to third quarter 2006).

Year-to-date sales are $6.3 billion with net earnings of $156.6 million, compared to sales of $5.2 billion and net earnings of $44.2 million in the first nine months of 2006.

Looking at the third quarter, historically a slow quarter for Land O'Lakes, the company is reporting $2.1 billion in sales and a net loss of $2.8 million, compared to $1.5 billion in sales and a net loss of $16.7 million in 2006.

Total EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $31.4 million for the quarter and $286.2 million year to date, as compared to $9.7 million and $154.7 million for the same periods one year ago.

The company also reports Normalized EBITDA (which excludes the effects of unrealized hedging, significant asset sales or impairments, legal settlements, debt extinguishment costs and other special items).

Normalized EBITDA for the quarter was $24.7 million, compared to $26.9 million for the third quarter of 2006.

Year-to-date Normalized EBITDA was $252.6 million, compared to $153.4 million for the first three quarters of 2006.

The company reaffirmed its guidance for full-year 2007 Normalized EBITDA of $305 million.

"We've seen solid performance over the first three quarters of the year, with strong markets, particularly in dairy and eggs, helping to boost dollar sales and earnings," Land O'Lakes President and Chief Executive Officer Chris Policinski said.

"Higher prices have dampened volumes and we don't expect the fourth quarter to be without its challenges.

"However, our results year to date, the positive momentum we have generated and our ongoing commitment to cost control, brand strength, targeted marketing and strategic portfolio management put us in a very good position to meet any challenges which may emerge."

BALANCE SHEET

Total balance sheet debt, including capital leases, was $960 million at the end of the quarter, compared to $770 million as of September 30, 2006.

Company officials indicated the increased debt was primarily due to higher working capital requirements, as the company builds inventory and receivables at higher price levels, plus cash requirements related to the September acquisition of Agriliance LLC's crop protection products business.

The company improved its Long-Term-Debt to Capital ratio, which is at 36.8% as of September 30, 2007, compared to 40.5% September 30, 2006.

Liquidity, defined as cash on hand plus unused capacity on short term debt facilities, was $270 million at September 30, 2007, versus $340 million one year ago.

BUSINESS UNIT PERFORMANCE

Dairy Foods

Dairy Foods sales through September were $3.0 billion, compared to $2.4 billion one year ago. Sales for the quarter totaled $1.1 billion, compared to $766 million for the third quarter of 2006.

Year to date, Dairy Foods is reporting pretax earnings of $79.7 million, compared to $2.4 million in pretax earnings for the first three quarters of 2006.

The Dairy Foods earnings include a $28.5-million gain on the sale of Cheese & Protein International, a West Coast cheese and whey manufacturing facility.

For the third-quarter, Dairy Foods reported $0.2 million in pretax earnings, compared to $5.1 million in pretax earnings for the third quarter of 2006.

While strong markets boosted sales and earnings, higher prices did work to dampen volumes.

Year-to-date retail butter volume was down 1% versus 2006, while total butter and spreads were down 6% versus one year ago.

Value Added cheese volumes were down 16%, and Foodservice volume was down 4%.

Company officials attributed Dairy Foods strong year-to-date earnings to a combination of improved commodity markets, brand strength, consumer-focused product innovation, effective cost control and continued improvement in the company's Dairy Foods manufacturing operations.

Feed

Feed sales through September were $2.2 billion, up from $2.0 billion one year ago.

Year to date, Feed is reporting pretax earnings of $2.7 million, compared to $8.5 million for the first three quarters of 2006.

For the third quarter, Feed reported $723 million in sales and a pretax loss of $2.8 million, compared to $629 million in sales and $6.4 million in pretax earnings for the third quarter of 2006.

High commodity (grain) prices adversely impacted both volumes and margins, as resulting higher feed prices led to reduced feed purchases and a shift toward a lower-cost product mix, company officials noted.

Improved forage conditions in part of the company's trade territory also have had an unfavorable impact on volumes.

Year-to-date volumes were down 10% in Livestock feed, 5% in Lifestyle feed and 9% in Milk Replacers.

Feed Ingredient and Feed Additive volumes were up 4% and 6%, respectively.

Layers/Eggs

Strong markets continued to drive improved performance in the company's Layers/Eggs business (MoArk LLC).

Average shell egg prices over the first three quarters were $1.07 per dozen, compared to 71-cents per dozen over the same period one year ago.

The company is reporting $124 million in Layers/Eggs sales for the third quarter, up from $74 million for the third quarter of 2006.

For the quarter, Layers/Eggs reported pretax earnings of $11.4 million, compared to a $29.7-million pretax loss for the same quarter one year ago.

Year to date, Layers/Eggs is reporting $355 million in sales and pretax earnings of $18.3 million, compared to sales of $287 million and a pretax loss of $41.8 million one year ago.

Year-to-date shell egg volumes are up 5%, led by branded and specialty eggs, up 45% over the first three quarters of 2006.

Seed

Seed is reporting $740 million in sales and $43.7 million in pretax earnings through September, compared to $607 million in sales and $39.4 million in pretax earnings one year ago.

For the third quarter, Seed recorded sales of $80 million and a $0.6-million pretax loss, company officials reported, noting that Seed is currently in its off season.

In the third quarter of 2006, Seed reported $55 million in sales and a $7.7-million pretax loss.

Volumes for the year were affected by two significant factors, a shift of acreage to corn to meet ethanol industry demands and the impact of court rulings related to challenges to the USDA's process for approving non-regulated status for Roundup Ready(R) Alfalfa.

Volumes through September are up 39% in corn, down 7% in soybeans and down 16% in alfalfa.

Agronomy

Land O'Lakes is reporting $49.1 million in pretax earnings in Agronomy through September, up from $28.1 million for the same period one year ago.

Those earnings were generated primarily through the company's 50-percent ownership in the Agriliance LLC joint venture, which was substantially repositioned late in the third quarter.

For the quarter, the Agronomy business (in its off season) reported a pretax loss of $6.2 million, versus a $3.9-million pretax loss for the same quarter one year ago.

Late in the quarter, the company made progress in repositioning its investment in Agriliance, with the assets of the Agriliance Crop Protection Products business being distributed to Land O'Lakes and the wholesale Crop Nutrients business being distributed to joint venture partner CHS Inc.

Efforts to reposition the Agriliance retail business continue.

Company officials said these strategic repositioning efforts are intended to align the core Crop Protection Product and wholesale Crop Nutrients businesses with each parent company's (Land O'Lakes and CHS) market strengths and core competencies, deliver cost reductions and enable more effective delivery of agronomic inputs to local cooperatives, dealers and producers.

The company's Crop Protection Products business is now Winfield Solutions LLC and is aligned with the closely related Seed business under a new WinField Solutions(TM) marketing identity.

While Agriliance sales have not been included in Land O'Lakes financial reporting in the past, Land O'Lakes is reporting $94.0 million in Crop Protection Product sales through Winfield Solutions LLC since the September 1, 2007, repositioning.

Investor Call

Land O'Lakes, Inc. third-quarter earnings call for investors will begin at 1:00 p.m., Eastern Time, Nov. 7.

Presentation materials related to the call will be made available on Wednesday morning at the Land O'Lakes Web site, under the heading "Investor Relations," then "Investor Call" and will be available through Nov. 14.

The dial-in numbers are: USA -- 1-800-862-9098, International -- 1-785-424-1051, and Conference ID is LANDOLAKES.

A replay of the conference call will be available through November 14, 2007, at: USA -- 1-800-695-2122, or International -- 1-402-530-9027.

For more information, call Lydia Botham at 651-481-2123, or Dave Karpinski at 651-481-2360.

See Related Websites/Articles:

• Full Financial Results
• Land O Lakes

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