Archive for Tuesday, December 5, 2000

Farmland CEO foresees profitability

Lawrence resident to announce plan for cooperative recovery

December 5, 2000


— The president and chief executive officer of Farmland Industries expects the cooperative to be profitable this year.

Bob Honse's first official duty after his appointment Sept. 1 as CEO of the nation's largest farmer-owned cooperative was to announce a loss of almost $30 million for the 2000 fiscal year.

But Honse remains hopeful.

"Our loss is not large compared to the devastating losses in the 1980s," Honse said. "We were in the black in August and September. We are back on the road to recovery."

At the Kansas City-based cooperative's annual meeting Wednesday, the Lawrence resident plans to present his plans for returning Farmland to profitability.

Honse's formula to make Farmland profitable again: Cut costs, increase earnings by concentrating on higher-margin businesses and restore the company's investment-grade bond rating, which was downgraded last year after Farmland took on $480 million in debt.

During the decade that Honse's predecessor, Harry Cleberg, led Farmland, it quadrupled its revenue from about $3 billion to $12.2 billion in fiscal 1999 to become the largest farmer-owned cooperative in North America. However, as Farmland's revenue bulked up, its earnings slid from $162 million in 1995 to this year's losses.

"Building brand recognition and diversifying to spread our risk were all good plans when the economy was good," said Al Shivley, chairman of Farmland's board of directors. "I look at Harry as the builder and Bob as an operator. He is certainly capable of getting the most out of the assets we acquired during Harry's tenure."

Honse sees opportunities to enhance brand recognition and its line of products. For example, the cooperative is test-marketing its own bread.

Farmland also intends to double its advertising budget to $10 million this fiscal year and, if it gets results, to double it again the following year.

Honse also thinks Farmland can market a new technique to prevent E. coli contamination of meat to the entire industry. Farmland has the patent rights to the process developed by a California professor.

And Honse already has made moves to increase earnings.

After a failed merger with Cenex Harvest States of Minnesota, Farmland formed joint ventures with Cenex and Land O' Lakes to handle fertilizer, feed and other sales. That created some of the operations and savings Farmland had expected with the merger.

The ventures have resulted in the largest fertilizer and feed companies in the country, providing substantial discount buying power. The cooperatives also were able to cut costs and reduce staffs.

During the annual meeting, Honse expects most questions from members to focus on the ventures.

"There is some confusion of why we did the joint ventures," Honse said. "If you need to be one, two or three and need that on the marketing side, we have accomplished that. We are going to emphasize that it brings the efficiency in size without spending huge amounts of money. The other way to grow is to buy someone else's business."

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