Michael Foods making headway on Primera integration

by Eric Schroeder
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MINNETONKA, MINN. — Michael Foods, Inc. plans to fold “a significant amount” of Primera Foods Corp.’s volume into its existing capacity through the closing of Primera’s Altura, Minn., value-added egg products plant.

The announcement, which was revealed during an Aug. 9 conference call with analysts to discuss Michael Foods’ second-quarter earnings, comes a little less than two months after Michael Foods entered into an agreement to acquire the assets of Primera Foods Corp. The transaction includes Primera’s manufacturing assets located in Britt, Iowa, and Altura.

Mark Westphal, senior vice-president and chief financial officer of Michael Foods, said the company expects to be in the Altura facility for about six months, after which production will be transferred to the Primera facility in Britt or into other existing Michael Foods’ facilities.

He said Primera generates about $80 million to $90 million in annual sales, with about 20% of the total coming from international markets.

Jim Dwyer, president and chief executive officer of Michael Foods, said the acquisition was a fit for a number of reasons.

“First, it brought incremental drive capacity to our portfolio, which we needed,” he said. “Secondly, it brought incremental dedicated egg supply that is based in the Upper Midwest, and that can help fuel our longer term growth. Finally, there is a facility in Iowa that fits very well within our integrated supply chain footprint, and following some renovations is going to provide a nice addition to our value-added egg processing capability.

“We believe we can generate about $6 million in incremental EBITDA from the acquisition, driven by synergies. There are two main areas of synergy that we are seeking. First is to leverage across our existing manufacturing footprint, including moving out of the Primera Minnesota facility and into the Iowa facility. Finally, we are going to be looking to eliminate a significant overlap in the sales, administrative and back-office expense side of the business.”

In addition to the integration of the recently acquired Primera business, Michael Foods has been selectively investing in new products, Mr. Dwyer said.

“I am a fan of new products, but I am also a fan of testing new products because it can be very expensive to launch something and then not be 100% sure — at least very sure — that it’s going to be successful,” he said.

Mr. Dwyer said Michael Foods has “slowly” launched new flavors and new packaging over the past few years. One item he singled out as being successful was Nibblers, a line of 100% cheese snacks marketed under the Crystal Farms brand.

Introduced in July, Nibblers come in 1.5-oz stand-up bags and are available in four flavors, including Smoky BBQ seasoned cheddar cheese, habanero seasoned pepper jack cheese, chipotle pepper seasoned cheddar cheese and sour cream and onion seasoned Monterey jack cheese.

“Nibblers is a product that we think fits nicely in the world of snacking, especially with moms looking for healthy snacks,” Mr. Dwyer said. “We have taken a point of view on that where we are slowly rolling it out to key customers. We have made it available broadly.”

He added that the company also has seen good consumer response to new flavors in its cut potato business and in the breakfast potato segment.

Adjusted EBITDA at Michael Foods in the second quarter ended June 29 was $59,547,000, up 13% from $52,679,000 in the same period a year ago. Net sales were $464,350,000, up 6% from $436,661,000. Approximately 74% of Michael Foods’ sales come from egg products, 17% from cheese and other dairy case products, and 9% from refrigerated potato products.

For the six months ended June 29, adjusted EBITDA was $126,788,000, up 11% from $114,503,000, while sales increased 8% to $948,621,000 from $881,487,000.

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