Land O'Lakes Records Q4 Loss

NEW YORK - Feb 7/06 - SNS -- Land O'Lakes, Inc. reported a net loss of U.S. $1,638,000 on sales of $2,001.275 million for the fourth quarter ending December 31, compared to a loss of $10.553 million on sales of $1,891.635 million during the same three month period in 2004.

The reduced the company's net earnings for the 2004 fiscal year to $128.943 million on sales of $7.556.677 million, compared to net earnings of just $21.433 million on sales of $7,656.826 million during the previous fiscal year.

In releasing the latest financial statements, the company said 2005 earnings were bolstered by a $69.7 million after-tax gain, net of related expenses, on the third-quarter sale of the company's 38% interest in CF Industries (domestic fertilizer manufacturing). Full-year 2005 results included unrealized hedging gains of $5.3 million, versus unrealized hedging losses of $23.1 million in 2004.

Overall, the company reported strong and improved performance in its Feed, Seed and Agronomy businesses, and solid performance in its Dairy Foods value-added markets. This positive performance was partially offset by losses in its Layers business and Dairy Foods industrial markets.

Dairy Foods reported $6.3 million in pretax earnings for the fourth quarter and $0.4 million for the year, as compared to 2004's pretax earnings of $28.1 million for the fourth quarter and $16.5 million for the year. Dairy Foods reported sales of $1.06 billion for the quarter and $3.9 billion for the year, as compared to $1.06 billion and $4.0 billion, respectively, in 2004. Dairy Foods 2005 earnings included an unrealized hedging loss of $4.2 million, as compared to an unrealized hedging loss of $2.6 million one year ago.

From a volume perspective, full-year volume in butter and spreads was up 1%, deli cheese up 2% and total cheese up 1% versus 2004.

The company continued to face significant challenges in its Dairy Foods manufacturing operations, the result of industry-wide milk supply/processing demand balance issues, significantly higher energy costs (up more than $10 million year-over-year) and weak whey and mozzarella margins.

Financial performance was improved at the company's Cheese and Protein International cheese and whey processing facility, which became wholly owned in December. The company continued to focus on restructuring aimed at a right-sized, strategically located, profitable manufacturing infrastructure.

As part of that effort, earlier this month, the company announced plans to close its Greenwood, Wis., cheddar cheese manufacturing facility, which operated at a $5 million pretax loss in 2005. The company took a $3.6 million charge against earnings at the end of 2005 for severance and asset write-downs related to this plant closing.

Feed reported fourth quarter pretax earnings of $17.8 million and full-year pretax earnings of $36.7 million, compared to pretax earnings of $13.9 million and pretax loss of $7.3 million, respectively, in 2004. Feed earnings in 2005 included an unrealized hedging gain of $5.8 million, while 2004 earnings included an unrealized hedging loss of $13.6 million.

Feed sales were $705.5 million for the quarter and $2.6 billion for the year, compared to $603.4 million for the quarter and $2.6 billion for the full year in 2004.

From a volume perspective, livestock feed volume was down 4%, while all other segments were up. Lifestyle feed volume was up 2%, milk replacer volume up 11% and ingredients volume up 4%.

Key factors driving improved earnings were cost control, product mix adjustments and a partial recovery in the markets.

Seed delivered strong results in 2005, with full-year pretax earnings of $29.3 million, versus $15.8 million for 2004. For the fourth quarter, Seed reported a $1.6 million pretax loss, compared to $2.0 million in fourth-quarter earnings one year ago. Seed sales were $121.1 million for the fourth quarter and $653.9 million for the full year, compared to 2004's $109.2 million and $518.8 million, respectively. Seed recorded an unrealized hedging gain of $0.5 million in 2005, as compared to a $3.0 million unrealized hedging loss the previous year.

For the year, corn volume was up 26%, alfalfa up 24%, soybeans up 16% and forages up 16% versus 2004.

The company participates in the Layers segment through MoArk, LLC. In this segment, the company reported a full-year pretax loss of $31.8 million, compared to pretax earnings of $21.0 million in 2004. For the fourth quarter, the Company reported a $4.2 million pretax loss in Layers, compared to a pretax loss of $6.0 million in the same quarter one year ago. Results in Layers in 2005 included a $0.8 million unrealized hedging gain, compared to a $1.1 million unrealized hedging loss in 2004.

This earnings decline can be attributed to a 23% decline in average egg prices year over year. Egg prices averaged approximately 72 cents per dozen over 2005, as compared to 91 cents per dozen in 2004.

Sales for the year were $407.0 million, with fourth quarter sales of $119.9 million. This compares to sales of $541.3 million in 2004, and $111.4 million in the fourth quarter of last year. The decline in sales dollars, like earnings, is attributable to lower egg prices.

Shell egg volume was up 3% and processed egg product volume up 2% versus 2004. As previously announced, MoArk, LLC became a wholly owned subsidiary of Land O'Lakes in January 2006.

Land O'Lakes conducts its Agronomy business primarily through the Agriliance joint venture, in which Land O'Lakes holds a 50% interest. The company reported $95.5 million in pretax earnings in Agronomy for the year, compared to a $16.7 million pretax loss in 2004.

The 2004 loss included a $36.5 million non-cash impairment charge related to the company's investment in CF Industries (fertilizer manufacturing), while 2005's earnings include a $69.7 million after-tax gain (net of related expenses) on the sale of that investment. Agronomy results included a $0.2 million unrealized hedging loss at the end of 2005, as compared to an unrealized hedging gain of $0.4 million in 2004.

For the quarter, the company reported a $20.0 million pretax loss in Agronomy, compared to a $46.3 million loss for the fourth quarter of 2004. Again, the CF Industries impairment was recorded in the fourth quarter of 2004.