Hines Horticulture Reports 2004 Results

IRVINE, Calif. – Hines Horticulture, the leading operator of commercial nurseries in North America, today reported net sales for the fourth quarter of $41.9 million, up $1.2 million from the same period a year ago. Net sales in the southeast for the fourth quarter of 2004 increased approximately $2.6 million, or 19.2 percent, as the company began to see some early signs of recovery in the markets affected by the four major hurricanes that hit the region during the third quarter of 2004. The southeast also benefited from an increase in customer store listings, which helped to boost holiday crop sales.

"2004 turned out to be yet another challenging year for Hines," says Rob Ferguson, chief executive officer. "Faced with the daunting task of managing through four severe hurricanes in the southeast, a major strategic realignment of our customer base throughout most of the eastern United States, and a positive Sudden Oak Death find at our Oregon facility, Hines has continued to persevere in meeting its goals of reducing debt and better positioning itself for the future. As we look toward 2005, we see many opportunities ahead of us.”

One new opportunity of which Hines is taking advantage is implementing a new "pay-by-scan" relationship with The Home Depot, where the customer doesn’t take ownership of the inventory at their stores until the products is scanned at the register when sold to the retail buyer. In addition, Ferguson says the company expects to see stronger demand for bedding plants in 2005 as the southeastern United States continues to recover from last year’s hurricanes. “These are just two of the many opportunities that we currently envision for the upcoming year and we believe that we have positioned ourselves to recover sales and EBITDA levels equal to, or in excess, of our 2003 results," he notes.

Gross profit for the company’s fourth quarter of 2004 was $18.0 million, or 42.9 percent of net sales, compared to $17.2 million, or 42.2 percent of net sales, for the comparable period in 2003. The increase in gross profit and gross profit margin was mainly due to improved net sales of higher margin bedding plants and holiday crops in the southeast.

Operating loss during the fourth quarter of 2004 increased $1.6 million from the 2003 to $3.1 million total. The increase in operating loss was mainly due to a $2.5 million increase in selling and distribution expenses in the fourth quarter of 2004 compared to the same period a year ago. Selling expenses increased during the period mainly as a result of certain Sudden Oak Death remediation costs at Hines’s Oregon facility and increased merchandising costs. Distribution expenses increased as result of higher unit sales volume during the quarter and increased fuel costs and common carrier charges compared to the same period a year ago.

Net loss for the fourth quarter of 2004 increased to $5.6 million, or a loss of 26 cents per diluted share, versus $4.1 million, or a loss of 18 cents per diluted share for the comparable period a year ago. Earnings before interest, taxes, depreciation and amortization, severance costs and loss on early debt extinguishment ("Adjusted EBITDA") for the fourth quarter of 2004 was a loss of $400,000 compared to income of $900,000 for the same period last year. A reconciliation of net (loss) income to EBITDA and Adjusted EBITDA for the fourth quarters of 2004 and 2003 is included in this earnings release.

For the full year of 2004, Hines reports net sales of $335.2 million for the 12-month period ended Dec. 31, 2004. This was a $6 million decrease from 2003, primarily due to reduced unit sales volume and partially offset by a 2.3-percent increase in the company’s average net unit selling price compared to the prior year. Units sold for the 12-month period ended Dec. 31, 2004 decreased by approximately 4.3 million units, or 3.8 percent, from the number of units sold in 2003 mainly due to Hines’s strategic decision to consolidate and realign its customer base and due to reduced consumer demand in the southeast as result of the four major hurricanes.

Gross profit of $164.5 million for the year also decreased $6 million from 2003. The decline was mainly due to the decline in net sales volume, resulting from lower customer demand in the second quarter and the impact of the four major hurricanes during the third quarter of 2004. The decline in gross profit margin is due to higher labor costs, fuel costs and scrap rates on bedding plants, partially offset by the increase in average net unit selling price.