Higher raw sugar cost which along with lower volumes reduced gross margin was the primary reason for the loss in the current quarter.
"Our inability to increase prices in the face of higher raw sugar costs because of competitive pressures from domestic and Mexican sources was the principal driver of the quarter's disappointing results," commented John Sheptor, president and CEO of Imperial Sugar. "Raw sugar purchased during the quarter was priced largely against the March and May futures contracts, which peaked near $40 per hundredweight prior to the USDA import quota announcement in early April. The subsequent decline in the raw sugar futures market which occurred after the quota announcement was only temporary and the raw market has rallied back to near the same level. Our raw sugar costs in the fourth fiscal quarter should see little relief, while sales prices thus far in the fourth quarter have only improved modestly."
Gross margin as a percent of sales was a negative 6.1% for the third fiscal quarter, compared to 0.7% for the third quarter of fiscal 2010. The prior year's third quarter margins benefited from the recognition of raw sugar derivative gains intended to hedge subsequent periods; gross margin without such gain was a negative 3.4% of sales for the prior year's third quarter.
Raw sugar purchased during the third quarter averaged $38.08 per cwt (on a raw market basis), a 34% increase from the same period of the prior year and 12% higher than the immediately preceding quarter. Domestic sales prices for the third quarter averaged $47.77 per cwt, a 21% increase from the prior year's third quarter and 2.9% higher on a consecutive quarter basis.
Net sales for the third fiscal quarter were $197 million, compared to $261 million for the same period last year. The reduction in quarterly sales was principally due to the loss of direct sales volumes from the Gramercy refinery, which has been operated since January 2011 by Louisiana Sugar Refining LLC ("LSR"), a one-third owned joint venture, offset in part by higher sales prices.
Manufacturing costs for the quarter did not improve from the same period in the prior year. The Port Wentworth refinery's progress toward full production rates was hampered by raw sugar quality and mechanical reliability, including significant interruptions in the steam boilers providing power to the plant. The refinery operated at an average daily melt rate of 4.5 million pounds, approximately 75% of average rates prior to the 2008 industrial accident.
Commented Sheptor, "The Company is reviewing potential operating and capital improvements, particularly in the utilities, raw sugar melt and water management areas of the refinery, to begin addressing mechanical reliability in these operations. These areas, which were not part of the reconstruction efforts following the accident, have proved to be impediments to sustaining efficient operations at the production rates achieved prior to the accident."
Selling, general and administrative expenses for the third quarter decreased 7.0%, primarily due to lower compensation costs, offset in part by higher legal and professional costs.
Other income, which includes equity investment earnings, decreased $2.7 million in the third quarter as compared to the same period last year, primarily due to a loss from equity earnings in LSR in the current period, which offset gains in the Company's Wholesome Sweetener and Mexican marketing joint ventures.
Capital expenditures totaled $20.1 million during the nine months ended June 30, 2011. Cash and cash equivalents at June 30, 2011 were $0.3 million and the Company had $78.8 million of outstanding borrowings under its revolving line of credit. Available, unused borrowing capacity under the $140 million line, which was renewed and extended to December 31, 2015 during the quarter, was $53.5 million as of June 30, 2011.
Nine Months Ended June 30, 2011
For the nine-month period ended June 30, 2011 the Company reported a net loss of $20.8 million, or $1.75 per diluted share, compared to net income of $139.2 million, or $11.53 per diluted share, for the same period last year. The current period results include a $3.6 million pretax gain related to the contribution of the Gramercy refinery to LSR. Included in the prior year's nine-month results are $278.5 million of pre-tax gains ($178.2 million after tax) associated with the settlement of insurance claims related to the February 2008 Port Wentworth accident. Absent the insurance gains, results for the prior year's nine-month period would have been a net loss of $39.0 million. The narrower loss in the current nine-month period was primarily the result of higher sales prices which increased more than raw sugar costs.
Net sales for the current nine-month period were $616.5 million compared to $643.6 million during the same period last year primarily due to a reduction in sales volumes from the contribution of the Gramercy refinery on January 1, 2011 which was substantially offset by higher sales prices.
Gross margin as a percent of sales for the nine months ended June 30, 2011 was a negative 0.9% compared to a negative 4.1% for the same period last year primarily due to higher refined sugar prices which more than offset higher raw sugar costs. Selling, general and administrative expenses for the current nine months were $8.5 million lower than the same period of the prior year due in part to a $3.7 million workers compensation charge in the prior year, as well as lower legal and employee compensation costs.
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