May 10, 2012

Overhill Farms' Q2 net profit fall on high costs

Overhill Farms Inc. posted a drop in second-quarter net revenue, saying high commodity costs and strong price competition beat up profits despite strong income growth.

The Los Angeles-based prepared frozen foods maker said net sales soared by 24% from a year ago due to strong revenue from its Boston Market products and higher food service sales volume. But higher expenses dented profit.

"Our net income reflects the continuing very challenging conditions in the market, which include the high cost of freight and energy, increases in commodity prices, and strong price competition in the retail segment," Chief Executive James Rudis said.

Overhill Farms reported net income of US$974,400, or US$0.06 per share, on net revenue of US$50.2 million, for the fiscal second quarter ended April 1. This compares to net income of US$1.52 million, or US$0.09 per share, on net revenues of US$40.5 million, in the year-earlier quarter.

Higher freight costs, including for shipping Boston Market products, accounted for a major portion of the decrease in gross profit margins. The company said it is rebidding its freight arrangements and evaluating alternative distribution strategies.

The Boston Market line was profitable in the latest period as manufacturing and marketing expenses were reduced following the startup phase of the line during the prior quarter, the company said.

Commodity prices appear to have peaked, which will further reduce pressure on margins, Rudis said.