Land O'Lakes officials today outlined the company's first quarter financial results, while also commenting on progress against several strategic initiatives. The company reported sales of $1.45 billion and a net loss of $400,000 for the quarter, as compared to sales of $1.52 billion and a net loss of $1.0 million for the first quarter of 2002. EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization and other items) for the quarter was $40.7 million versus $43.9 million for the first quarter of 2002.

Strategic Initiatives

Officials of the national dairy and agricultural cooperative indicated the quarter saw the company make progress in the areas of portfolio management, paying down debt and growing its branded businesses.

In portfolio management, Land O'Lakes reported progress in reducing its exposure to market risk in swine operations, the ongoing restructuring of its Upper Midwest dairy infrastructure and movement toward completion of Cheese and Protein International (CPI), its West Coast cheese and whey manufacturing facility, the first stage of which came on line last May.

In relation to paying down debt, Land O'Lakes reported $61 million in first quarter payments on term debt and an improvement in its long-term debt to capital ratio to 50.8 percent, as compared to 55.4 percent at the end of the first quarter of 2002. An additional $11 million of term debt was paid down in April.

The company's liquidity was also strong, despite seasonal increases in working capital needs. Land O'Lakes reported $34 million in cash balances and more than $200 million of unused borrowing capacity at the end of the quarter. In addition, the company is in compliance with all its financing covenants.

Highlights in the area of branded business growth included the upcoming launch of two new LAND O LAKES-branded butter products, as well as positive performance and growth in CROPLAN GENETICS-branded seed, the AgriSolutions brand of crop protection products, LAND O LAKES-branded animal milk replacers; and Purina brand horse feed.

Sales/Earnings

The company attributed the decline in sales and the net loss for the quarter to the shift in traditional Easter holiday Dairy Foods volume and margins from the first quarter to the second; slumping commodity markets; the impact of current economic conditions on consumer and agricultural-producer purchasing trends (leading to reduced volumes); the ongoing dairy processing capacity/milk supply imbalance in the Upper Midwest; and costs related to the start-up and completion of CPI.

Dairy Foods

Land O'Lakes reported a pretax loss of $19.6 million in Dairy Foods for the quarter, as compared to a $3.8 million loss in the first quarter of 2002. Those results included $320,000 in pretax earnings in its Value Added operations and a $19.9 million pretax loss in its Dairy Foods Industrial operations.

Outlining Value Added results, company officials noted that the timing of the Easter holiday affected first quarter volumes and earnings. First quarter volumes for branded butter and spreads were down 13 percent from the first quarter of 2002, but Land O'Lakes expects to make up that shortfall in April. Other Value Added highlights included a 2.3 percent increase in cheese volume, driven by positive performance in the Foodservice and Deli areas, partly offset by declines in retail cheese sales.

Commenting on the company's Dairy Foods Industrial (manufacturing) business, Land O'Lakes officials noted that commodity prices were down across the board versus the first quarter of 2002. (Statistically, butter was down 16 percent, cheese down 11 percent, nonfat dry milk down 11 percent and whey down 30 percent).

In addition, the company faced costs related to the restructuring of its Upper Midwest dairy manufacturing assets and the start-up of CPI. Company officials reported continued progress in Industrial restructuring, including the closing of its Perham, Minnesota, whey operations; the shut down of its Gustine, California, cheese manufacturing facility; and the planned closure, later this year, of its Volga, South Dakota, cheese plant. The company also reported progress in the CPI start-up, with 87 percent customer product approval, and affirmed its intention to move forward with the next stage of the project -- a planned capacity expansion which will reduce per unit costs and improve profitability.

Feed

Land O'Lakes reported $15.1 million in pretax earnings in Feed for the quarter, up from $3.5 million for the first quarter of 2002. The earnings increase was attributed to a combination of $8.9 million in litigation settlement proceeds, the continued capturing of synergies from the late 2001 acquisition of Purina Mills, additional internal cost-reduction efforts, and strength in branded lifestyle feeds and milk replacers.

Livestock/commodity feed volumes were down 12 percent versus the first quarter of 2002 due, in part, to depressed dairy and swine markets, which resulted in herd liquidations and reductions.

A highlight of Feed's performance was the success of the company's innovative Cow's Match(TM) Calf Growth Formula, which has now been rolled out nationally and accounts for 17 percent of LAND O LAKES milk replacer sales.

Swine

Swine markets remained depressed, with prices down 8.5 percent from the first quarter of 2002. Land O'Lakes reported a pretax loss of $4.1 million for the quarter in Swine, as compared to a loss of $521,000 for the first quarter of 2002.

The company reported progress in its efforts to reduce capital usage and decrease its exposure to market risk in Swine, through efforts to reposition underperforming assets and phase out higher-risk swine programs.

During the quarter, the company sold its interest in a Pennsylvania swine joint venture (Harmony Farms), as well as specific swine assets in Oklahoma. In addition, volumes in higher-risk swine programs were down 12.5 percent versus first quarter 2002, while volume in the company's profitable Aligned Swine program was up 6.8 percent. The company expects to continue efforts to reposition its swine operations, as additional swine contracts expire over the course of 2003.

Layers/Eggs

The company participates in the layers/eggs industry through its MoArk joint venture. The quarter saw a moderate rebound in egg markets, and Land O'Lakes reported $906,000 in pretax earnings for the quarter versus a $1.5 million loss in layers/eggs in the first quarter of 2002.

One of the highlights in this business was the continued growth of LAND O LAKES-branded eggs. Sales for the quarter averaged more than 3,000 dozen weekly, nearly double the first quarter of 2002. Overall, MoArk volume was up 3.6 percent over the first quarter of 2002 - to 202 million dozen eggs for the quarter.

Seed

Seed earnings continued strong for the quarter at $10.6 million, as compared to $11.1 million for the first quarter of 2002. These results were driven, in part, by the positive performance of CROPLAN GENETICS-branded seed.

During the quarter, the company also launched sales of a corn-rootworm (resistant) hybrid, following Environmental Protection Agency approval.

Agronomy

The company reported an $8.8 million pretax loss in Agronomy for the quarter, an improvement over the $15.4 million loss for the first quarter of 2002. The company participates in Agronomy through its 50 percent ownership in the Agriliance joint venture. First quarter losses are common in this segment, as the primary selling season does not start until spring. Land O'Lakes anticipates a cash dividend from Agriliance in 2003.