Milling & Baking News - April 20, 2004 - 14

F I N A N C I A L

R E S U L T S

from $110.7 million in the second quarter last year. Branded sales were up 10%
from last year, despite a 5% volume
decline (versus a 7% category decline
for branded pasta). The sales gain was
attributed to "initial shipments of reduced-carb pastas."
In private label and ingredients channels, which have not yet seen successful
rollouts of reduced-carbohydrate pastas,
sales results were not as positive. The
company described private label sales as
"slightly better than the overall private
label category trends."
The company was more specific about
its ingredients sales results, which were
extremely poor. "Our ingredient revenue declined over 20% versus prior
year, which was not anticipated," AIPC
said. "Weaker consumer demand for our
customers' products was 'compounded'
by trade and our customers' inventory
adjustments. Given we are an additional
step removed from the consumer in this
business, we have less visibility and control over expected performance."
Timothy S. Webster, AIPC president
and chief executive officer, was guarded
in his comments about the sales out-

look. "At this time we are the leading
manufacturer and marketer of low-carb
pasta (Atkins) and reduced-carb pasta
(where we have first mover advantage),
however, it is too early to predict and
quantify consumer demand for this
new category of pasta products," he
said. "We believe that our new products
could become the market leader in an
important new segment of the pasta
market. However, we do not believe
that in the short term, new product
volumes will compensate for volume
declines of traditional pasta."
In an effort to "better align" the
company's manufacturing capacity with
anticipated demand, Mr. Webster said
production schedules may be curtailed
at certain locations during the summer.
The down time will allow the company
to "modify some of our processes for
more efficient and broader geographic
manufacturing of our new reduced-carb
products and to reduce inventory levels," he said. While the adjustments will
raise per unit manufacturing costs in the
short term, the moves will "better position us for the future," he said.
Mr. Webster reinforced the company's

Webster: Impossible to project
pasta demand with confidence
KANSAS CITY - In an interview with
Bloomberg News, Timothy S. Webster,
president and chief executive officer of
American Italian Pasta Co., emphasized
the difficulty in projecting pasta demand
trends for the months ahead.
He noted that strong cases could be
made for any of a number of wildly
varying consumption trend scenarios for

the months ahead. "Our premise is this
is mostly about the diets and carb consciousness," Mr. Webster told Bloomberg.
"We entered our fiscal year in October
anticipating 1% to 2% category declines.
At the end of our first quarter we came
out and indicated 3% to 4% is what we
had seen in the prior quarter. Now we are
looking at 7% to 8% declines in total U.S.

Strong sales growth likely to abate
at McDonald's for rest of 2004
OAK BROOK, ILL. - McDonald's Corp.
recorded rising comparable sales for the
11th straight month during March, but the
company acknowledged that a slowdown
in growth from previous months portends
challenges ahead.
The world's largest fast-food chain, having rebounded strongly in the second half of
2003 from sluggish sales growth the previous
few years, said its comp sales at McDonald's
restaurants open at least 13 months grew 5%
in March and 9.4% in the first quarter.
As they have for the past year, the company's U.S. restaurants led the growth, with
domestic comparable sales rising 9.9% in
March and 14.2% during the entire quarter.
But March comp sales growth in both the
14 / Milling & Baking News, April 20, 2004

U.S. and worldwide slowed considerably
from the previous month. In February, comparable sales surged 20.1%
in the U.S. and 13.9% worldwide.
System-wide sales growth at all
McDonald's restaurants rose 5.8%
during March and 10.8% for the
quarter, compared with 22.6% in February
and 11.1% in January.
Jim Cantalupo, McDonald's chief executive, said the March results showed that the
company's U.S. business remains on strong
footing. But the company's monthly sales
results for the remainder of 2004 soon will
begin lapping last year's strong growth,
meaning growth through the rest of the
year won't be as robust.

commitment to spend money in support
of its brands. "With our new product offering, we expect to strengthen the image
and market share of our power regional
brands," he said. "In spite of the current
pressure on financial results, we intend to
implement in full our planned new consumer marketing program with a major
awareness program in May and June, supporting our excellent distribution level."
AIPC chairman Horst W. Schroeder
warned that pasta volume declines only
exacerbate the industry's already prevailing excess manufacturing capacity. "The
change in consumer preferences and resulting volume declines may actually increase price competition in the short term,
and should be increasing the pressure on
needed capacity rationalization in the
pasta industry," he said. "We believe we
remain the low-cost producer and market
share leader in pasta, with a strong financial position as the one stop shop for all
of our customers' pasta requirements. All
of this makes us confident we will profitably advance our leadership position in
the pasta industry."
Second-quarter earnings will be announced April 28. MBN

pasta consumption.
"I've got three different scenarios from
experts. One is that this last quarter is
the worst one because of the whole New
Year's resolution, post-holiday diet trend.
Another says it is going to stay here, and
another says take your ruler and extrapolate because it hasn't peaked yet.
"I don't have a feel for a market that
is clearly very peculiar right now and
somewhat unstable. It is unusual to see
declines in a food category like this, which
normally has tremendous stability." MBN

"While more challenging months lie ahead,
given strong U.S. comparable sales last year,
I remain confident in our 'Plan to Win,'" Mr.
Cantalupo said, referring to the company's
strategic plan, focusing on service, bettertasting food, updated menus and
extended service hours.
While the company adds more
salads to its European menu, it
plans to expand its domestic offerings of bunless sandwiches. The
Wall Street Journal reported that the company
has decided to take the bunless option nationwide with a uniform presentation.
Since January, many McDonald's restaurants in New York, New Jersey and Pennsylvania have offered low-carbohydrate menu
options that include bunless sandwiches. The
new nationwide bunless option will feature
meat placed on a bed of lettuce in a small
salad bowl, served with a knife and fork. MBN
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Milling & Baking News - April 20, 2004

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