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PFG's Expected Second Quarter Earnings Dip

RICHMOND, VA - Performance Food Group here today announced that it anticipates earnings for its second quarter to be in the range of approximately $0.38 to $0.40 per share diluted. The company had previously estimated second quarter earnings in the range of $0.50 to $0.54 per share diluted.

Bob Sledd, chairman and ceo, noted, "In our foodservice distribution divisions, we are pleased with the steady progress we're making in recovering from our operational challenges and are where we expected to be."

According to Sledd, PFG did not made the expected strides in its fresh-cut business though it is "aggressively addressing specific challenges in this business." While the division registered "overall solid sales growth and increases in retail market share," Sledd said the company's long term plan has been to rationalize some of the fresh-cut division's foodservice business over the course of time." Though he said the transition has been moving at a faster pace than anticipated.

PFG continues to realign its customer mix focus away from less stable customer relationships to more long-term partnerships with retail and foodservice customers. "During this transition, while our retail sales have shown continued good growth, the rate of growth in the retail category industry wide has slowed within the current quarter. We will continue to experience a temporary impact on our earnings as we lose the margin associated with the foodservice business and absorb costs associated with refocusing and retooling certain processing plants to a more stable and profitable customer and product mix," Sledd said.

Current trends indicate the expected impact of these factors on earnings to be approximately $0.08 to $0.09 per share diluted in the second quarter, he noted, adding that these factors are expected to impact earnings at a diminishing rate for the balance of this year and carry into much of next year.

"Additionally, during the second quarter, our fresh-cut division rolled out new fruit products from our Atlanta facility for Wal-Mart and Costco, as well as Apple Dippers from various facilities for McDonald's," Sledd said. "The new products were rolled out more quickly than planned to meet customer needs and ultimately were more costly than anticipated, with a projected impact on second quarter earnings of approximately $0.03 to $0.04 per share diluted. The impact on earnings related to the roll out of fruit is expected to lessen over the balance of 2004."

While the early opening of new plants and the introduction of new fresh-cut fruit products are having an impact on results, Sledd the company would remain focused on the long-term benefits from growing demand in the fresh-cut fruit category. "We continue to go through a learning process in the introduction of these products, however, fruit is an investment in our future," he pointed out.

Turning to a positive development, Sledd indicated that PFG continues to pursue significant new business opportunities in its broadline distribution segment, including the previously disclosed $50 million in new multi-unit business, scheduled to roll out during the third quarter of 2004.

"We continue to make steady progress in each of our divisions while attracting new business in all of our segments," noted Sledd. "We will continue to remain focused on aggressively making improvements in each of our business segments. Based on current forecasts, we expect earnings per share diluted to be in the range of approximately $0.42 to $0.46 in the third quarter, and $0.34 to $0.38 in the fourth quarter."

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