It's not meat and potatoes, but poultry and potatoes and other foods at Michael Foods Group. The group operates through Michael Foods, Inc., one of the top US producers and distributors of value-added egg products (frozen, liquid, pre-cooked, and dried). Its Egg Products division, comprised of four subsidiaries, supplies egg products to foodservice, retail grocery, and food ingredient customers. The group's business includes Crystal Farms, a distributor of cheese, butter, and other dairy case items to US groceries, and Northern Star, a supplier of refrigerated potato products to North American foodservice operators and grocery stores. GS Capital Partners and THL own 74% and 21%, respectively, of Michael Foods.
The group's ownership and direction is a result of a change in control in June 2010, which was intended to pave the way for Michael Foods to go public and return value to its stakeholders. To this end, private equity THL (Thomas H. Lee Partners) and members of Michael's management sold most of their interest in the group to affiliates of GS Capital (part of investment banking giant Goldman Sachs) in a transaction estimated at $1.7 billion. THL and management, which had acquired Michael Foods in 2003 from the founding Michael family, kept the remainder. The group filed to go public a year later but has yet to sell any shares.
Meanwhile, Michael Foods is setting itself apart from the pack of egg producers by focusing on valued-added, processed food products that keep pace with food trends. Its position provides some flexibility for passing through higher commodity costs and offsetting volume declines by tweaking its pricing. It may also help Michael Foods diversify its customer base. Its top egg product customers, Sysco Corporation and U.S. Foodservice, each represent more than 10% of total sales. Crystal Farms depends upon SUPERVALU, Wal-Mart, and Target, each of which account for more than 10% of divisional sales.
For 2010, Michael Foods reported more than a $34 million loss in the first six months and roughly a $3 million profit in the latter six months on a modest increase in year-over-year sales across all businesses. Bottom line results reflect the impact of higher depreciation, amortization, and interest costs, due the mid-2010 acquisition. Encouragingly, sales growth was attributable to a rise in sales volumes in the egg product and potato business segments, driven by a slight turnaround in the economy and gains in new business. A bump in Crystal Farm's sales was due to higher pricing, necessitated by higher cheese and butter costs.
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