Michael Foods reports $50 million fourth-quarter debt reduction

By Jennifer Lanning Drey

Portland, Ore., March 24 - Michael Foods, Inc. generated strong fourth-quarter cash flow, which allowed the company to prepay $50 million of term B debt in December, Mark Witmer, Michael Foods' treasurer, said Monday during a company conference call held to discuss fourth-quarter earnings.

The company ended 2007 with a leverage ratio of 3.3 times, he said.

During the fourth quarter, Michael Foods continued to face extreme price volatility and cost pressures but reported EBITDA of $51.5 million, showing a slight increase over the $50.8 million reported in the fourth quarter of 2006. Net earnings were $12.7 million in the fourth quarter of 2007, compared with $4.6 million in the 2006 quarterly period.

The company is executing price increases to battle cost pressures, but at the same time it is carefully monitoring the impact of those price increases on overall demand, David S. Johnson, chief executive officer of Michael Foods, said during the call.

"The commodity volatility out there is still pretty extreme, which creates a lot of executional difficulty. I would say that we're very encouraged by our execution to date, but more volatility can create difficulties and is just something that's going to keep us on our toes here for awhile until the markets settle down to some degree," Johnson said.

The company believes price increases coupled with possibly settling price volatility could set the stage for a return to normal margins during the balance of the year in branded cheese, which has faced particularly extreme cost pressures during the year.

Abbotsford acquisition

Michael Foods executives also reported that the company acquired specialty egg products firm Abbotsford Egg Products in January. The company specializes in organic and cage-free eggs, which will allow Michaels Foods to meet customer demand for such products in both its food service and retail segments.

"This deal gives us a more complete line of products for serving our customers," Witmer said.

"We believe Abbotsford will provide a nice, profitable growth opportunity."

Michael Foods is always looking for acquisition opportunities that would add to its core business and would consider future acquisitions, Johnson said in response to a question during the question-and-answer portion of the call.

"It's a constant and ongoing process, and if we think there's something there that could really add value to the company ... we're willing to do that," he said.

Michael Foods is a Minnetonka, Minn., diversified foods processor and distributor.

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