Packaging
Monterey Gourmet Foods Increases Ownership of Sonoma Foods to 100% and Implements Operational Improvements for the Sonoma Cheese Brand
Wednesday 07. May 2008 - Monterey Gourmet Foods (NASDAQ: PSTA) secured 100% managing control and ownership of Sonoma Foods effective March 31, 2008. As part of the transaction, in the first quarter of 2008, the company will write down intangible assets, severance, and inventory, which is expected to total approximately $2.4 million as well as implement cost savings programs which are expected to yield benefits of approximately $700,000 annually.
“We are very pleased to have gained full control of the popular Sonoma Cheese brand,” stated Eric C. Eddings, president and CEO of Monterey Gourmet Foods. “Sonoma Cheese brand equity has grown among our customers; however, critical production and procurement decisions created operating losses. Therefore, similar to our successful turnaround of our Casual Gourmet brand, we intend to focus Sonoma Foods on our core cheese business and return the unit to positive cash flow before we extend the product line.”
Scott Wheeler, Monterey Gourmet Foods CFO, said, “We are confident the Monterey Gourmet management team will increase productivity and improve margins of the Sonoma Cheese brand. Our plan contains concrete actions that eliminate managerial distractions and reduce our expense run rate by approximately $700,000.”
Managements Sonoma Foods Operational Plan
Purchase remaining 20% of Sonoma Foods for $50,000 and earn-out clause. In conjunction with the transaction, the company will write down intangible assets, severance, and obsolete finished goods and packaging inventory associated with underperforming non-core SKUs, which is expected to total approximately $2.4 million.
Release the Sonoma Foods executive leadership from its employment contracts reducing costs approximately $500,000 annually.
Consolidate the majority of operations, thereby reducing expenses by approximately $100,000 annually.
Return production of core stock-keeping units (SKUs) to California. These SKUs, which account for approximately 85% of Sonoma Cheese brands revenue, are sold in California and the change is expected to reduce shipping costs from Wisconsin manufacturing by approximately $100,000 annually.
Execute a brand package conversion that is expected to reduce waste by 25% and improve shelf appeal.
Add the California Milk Advisory Boards Seal of Approval, which was awarded this month, to labels for core SKUs produced in California.
Participate in promotional support associated with the California Milk Advisory Boards Seal of Approval.
Preliminary Net Revenue for the Three Months ended March 31, 2008
Management expects the first quarter 2008 net revenue will range between $24 million and $25 million, including approximately $1 million from Sonoma Foods, compared to first quarter 2007 net revenue of $24.7 million, including $2.0 million from Sonoma Foods. The Monterey Pasta, CIBO Naturals and Casual Gourmet lines continue to grow profitably; however, overall growth was tempered by Sonoma Foods lower sales and substantially increased costs.
Eddings concluded, “We believe in the underlying value of Sonoma Foods and our abilities to improve the units performance. Today with solid sales and marketing efforts, over two-thirds of our business is growing revenue profitably. With the impact of our operational changes, we believe Monterey Gourmet Foods will deliver stronger revenue growth and margin improvement.”