Land O’Lakes, Inc. officials today reported on the company’s first-quarter financial results and outlined four ongoing strategic imperatives.

Land O’Lakes reported net sales of $2.1 billion and net earnings of $26.1 million for the first quarter of 2006, as compared to sales of $2.0 billion and net earnings of $24.3 million for the first quarter of 2005. Total EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $69.4 million for the quarter versus $71.3 million for the first quarter of 2005.

The company also reports EBITDA on a normalized basis, excluding the effects of unrealized hedging, asset sales, impairments, legal settlements, debt extinguishment costs and other special items. Normalized EBITDA for the quarter was $61.5 million, compared to $67.0 million in the first quarter of 2005. The company reaffirmed its guidance for full-year Normalized EBITDA of $260 million in 2006.

Company officials also reported on balance sheet improvement versus 2005, with an improved Long-term Debt-to-Capital ratio (41.1 percent as of March 31, 2006, versus 50.7 percent on March 31, 2005); increased equity ($915 million versus $864 million); and strong liquidity ($342 million in cash-on-hand and unused borrowing authority versus $227 million).

Strategic Imperatives
Officials of the national dairy and agricultural cooperative reported on four strategic imperatives intended to continue the company’s progress toward its goals of becoming more focused, more disciplined, financially stronger and positioned to deliver improved performance and explore strategic growth opportunities in its core businesses. Those imperatives include:

Best Cost – delivering meaningful cost reductions and improved efficiency. The company is dedicated to taking costs out of all its activities. This will involve a systematic and disciplined evaluation of all processes and overhead costs in all its businesses. Company officials indicated this is not a one-time, short-term initiative, but is focused on producing meaningful, ongoing savings over time and making strategic cost reduction an integral part of Land O’Lakes culture.

Best People – building a high-performance, winning culture with the best people. The company will intensify its focus on having the best people in the right positions. Company officials said they are in the process of identifying critical skills and roles, defining expectations and accountabilities and expanding employee development opportunities.

Superior Insight – winning in the marketplace through superior knowledge and insight. The company is committed to translating superior knowledge and insight into improved performance and competitive advantage. Initial efforts are focusing on updating and standardizing internal decision-making and strategic-planning processes.

Superior Portfolio Management – achieving leadership positions in attractive business categories through aggressive, disciplined portfolio management. The company will continue efforts to optimize its portfolio of businesses, with a focus on reducing involvement and investment in non-core or underperforming businesses, while intensifying its focus on core businesses. In 2005, this effort was reflected in the divestiture of the company’s swine production business and the sale of its investment in domestic fertilizer manufacturing. Current priorities include identifying strategic alternatives for the Layers business and improving the financial performance of the company’s Dairy Foods Industrial assets.

Dairy Foods

Land O’Lakes reported a pretax loss of $2.9 million in Dairy Foods for the quarter, as compared to a loss of $0.7 million in the first quarter of 2005. Contributing to the earnings decline were depressed dairy market prices (and related inventory devaluation), ongoing milk supply/processing demand balance issues and continued high energy and transportation costs. These factors were partially offset by an approximately $8 million asset sale gain.

Company officials indicated branded, value-added products did well in the marketplace. Retail butter volume was up slightly, while total butter and spreads volume was down 3 percent. The timing of the Easter holiday was a contributing factor in the butter and spreads volume decline. Total cheese volume was up 6 percent, driven primarily by higher Foodservice sales. In Deli Cheese, where Land O’Lakes holds the number-one market share, volume was up 3 percent.

New products also performed well. LAND O LAKES Light Butter with Canola Oil, for example, was selected by the International Dairy Foods Association as 2005’s “Best New Product.” Other recent innovations like the company’s FlavorProtect wrapper, new butter half-sticks and reduced-fat cheese offerings also performed well.

Company officials said returns from its industrial (manufacturing) operations were disappointing, particularly in the West, where the California milk pricing formula is depressing commodity cheese and whey margins.

Feed

Land O’Lakes reported $3.3 million in pretax earnings in Feed for the quarter, as compared to $8.8 million one year ago. The decline was attributed to tighter margins, particularly in dairy and horse feed, and incremental costs related to serving customers previously served by the company’s Statesville (N.C.) plant, shut down since late December due to fire damage. Feed sales for the quarter were $693 million, up about $60 million from the first quarter of 2005.

From a volume perspective, Livestock Feed volumes were down 1 percent versus one year ago, while the company achieved increased volume in Lifestyle Feeds (up 4 percent), Milk Replacers (up 14 percent) and Ingredients (up 8 percent). The strength of the LAND O LAKES, Purina Mills and Lake Country brands continued to contribute to the success of the company’s branded and proprietary product lines.

Layers/Eggs

The company participates in the layers/eggs industry through MoArk LLC. The quarter saw continued challenge in this cyclical business. For the quarter, Land O’Lakes reported a $6.3 million pretax loss in eggs, basically in line with one year ago. Sales for the quarter were $108 million, as compared to $105 million one year ago. Overall volumes were flat. However, the company did achieve double-digit volume increases in branded (LAND O LAKES and Eggland’s Best) eggs.

During the quarter, the company acquired full ownership of MoArk LLC, previously a joint venture. This action accelerated a 2007 buyout provision included in the original joint venture agreement. Company officials indicated full ownership will provide greater flexibility in managing the business and pursuing strategic repositioning options.

Seed

Seed pretax earnings for the quarter totaled $40.3 million, as compared to $28.7 million for the first quarter of 2005. Sales were also up, at $389 million for the quarter versus $337 million one year ago. These results were driven by increased volumes, with corn units up 13 percent, soybean units up 9 percent and alfalfa units up 38 percent. The growth in alfalfa volume is attributed in great part to last year’s successful launch of Roundup Ready alfalfa, developed by the company in a 10-year collaboration with Monsanto.

Agronomy

In Agronomy, the company reported a $6.4 million pretax loss for the quarter versus a $7.0 million loss for the first quarter one year ago. First-quarter losses are common in this segment, as the primary selling season does not start until spring.

Land O’Lakes is a national, farmer-owned food and agricultural cooperative, with annual sales of more than $7 billion. Land O’Lakes does business in all 50 states and more than 50 countries. It is a leading marketer of a full line of dairy-based consumer, foodservice and food ingredient products across the United States; serves its international customers with a variety of food and animal feed ingredients; and provides farmers and local cooperatives with an extensive line of agricultural supplies (feed, seed, crop nutrients and crop protection products) and services.