Landec Corporation (Nasdaq: LNDC), a developer and marketer of technology-based polymer products for food, agricultural and licensed partner applications announced today that its food subsidiary, Apio, Inc., currently estimates that winter produce sourcing issues will reduce gross profits by approximately $1.5 million for the three months ended February 29, 2004.

Gary Steele, CEO of Landec stated, "We know that the winter season can be a challenge due to unpredictable weather patterns, and this winter has been particularly severe. The extended period of unusually low temperatures in the Western United States and heavy rains in Mexico, which dramatically impacted produce exports from Mexico during most of December and January, adversely affected produce quality and volumes during the peak demand time for our value-added products and at a time when our overall business is expanding. To put this winter season into perspective, the winter season of 2001-2002 had similar harsh weather conditions and the Company incurred an adverse financial impact of $1.6 million related to sourcing value-added produce. In comparison, this winter's harsh weather conditions lasted considerably longer than in the winter of 2001-2002 during which Mexico did not experience floods and was exporting produce to the U.S. But because of improved planning and purchasing controls and the use of technology for extending produce storage, the Company was able to reduce the financial impact from produce shortages this winter compared to the winter of 2001-2002 at a time when our value-added produce requirements are over 50% greater than they were two years ago."

"We expect that strong sales growth based on our expanding customer base and product lines will still deliver profitability in the second half and for all of fiscal year 2004, despite the financial impact of winter produce shortages. Market supply conditions have recently recovered and we are now meeting our customers' demands. The Company expects to meet its internal plan during its fiscal fourth quarter beginning in March," Steele added.

As discussed in the Company's second quarter press release and during its second quarter earnings call on January 9, 2004, the Company was experiencing tight produce supply beginning in late December, the extent of which became fully apparent during the past week as Apio's January financial results became available. Produce shortages during our primary sales months of December and January for specialty packaged products impact the Company's net income in four ways: 1) creates inefficient use of labor when the plant is idle or at low capacity while waiting on produce deliveries, 2) requires excess labor costs due to having to sort and eliminate inferior quality incoming produce prior to processing and packaging, 3) necessitates buying produce on the open market above contracted prices in order to meet contractual requirements, and 4) reduces gross profits from lost sales.

In spite of these severe challenges during our third quarter, Apio continues to expand its position as the number one supplier of vegetable trays to retail grocery stores in the United States, capturing 36% of the vegetable tray market for the three months ended December 2003, an increase of seven percentage points from 29% for the three months ended September 2003, based on AC Nielsen reporting stores. During the three-month period ended December 2003, sales of Apio's Eat Smart® vegetable trays grew 82% compared to the three months ended September 2003. During the last twelve months, Apio's market share of retail vegetable trays has increased 19 percentage points from 17% at December 2002. Apio also reported that its retail fresh-cut bagged market share grew to 20% in the U.S. during the three months ended December 2003. The Company expects to continue to grow its market share during the remaining months of fiscal 2004.

"We made two decisions during this period of extreme produce shortages: first, we limited any significant open market purchases of raw materials at extremely high prices and only covered existing contracted orders and, second, we continued our commitment to shipping quality product during this time of inconsistent produce quality resulting from harsh growing conditions. These decisions have had a short-term adverse financial impact, but our customers will be better served over the long-term," stated Steele.

The financial impact from these produce shortages was exacerbated this year because of the significant growth in the value-added business and the increased demand for the Company's specialty packaged products. In addition, the irregular weather patterns of persistently low temperatures in the desert regions and central coast of California plus the impact from floods in Mexico, lasted considerably longer than any period in recent memory and therefore caused substantial delays in the harvest of winter vegetable crop.

"Apio continues to expand sales of the Dole® brand under its packaging and marketing agreement with Dole Fresh Vegetable, Inc., in the United States. We are on pace to exceed our revenue expectations for the first twelve months with this new product line, especially since we have now returned to a stable produce supply situation," concluded Steele.

Landec Corporation designs, develops, manufactures and sells temperature-activated and other specialty polymer products for a variety of food, agricultural and licensed partner applications. The Company's temperature-activated polymer products are based on its proprietary Intelimer polymers which differ from other polymers in that they can be customized to abruptly change their physical characteristics when heated or cooled through a pre-set temperature switch.