Imperial Sugar Co. reported a net loss of $16.1 million, or $1.35 per diluted share, for the third fiscal quarter ended June 30, 2011, compared to a net loss of $5.7 million, or $0.48 per diluted share, for the third fiscal quarter of 2010. 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 in a prepared statement. "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 percent for the third fiscal quarter, compared to 0.7 percent 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 percent 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 percent increase from the same period of the prior year and 12 percent higher than the immediately preceding quarter. Domestic sales prices for the third quarter averaged $47.77 per cwt, a 21 percent increase from the prior year's third quarter and 2.9 percent 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 percent 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 percent, 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.