Lancaster Colony: Reports 2018 Q4 And FY Results

Westerville / OH. (lc) Lancaster Colony Corporation reported results for the fourth quarter and fiscal year ended June 30, 2018. Highlights are as follows:

Fourth Quarter Results

  • Consolidated net sales increased 6.3 percent to a fourth quarter record USD 308.2 million versus USD 289.9 million last year.
  • Retail net sales reached USD 156.8 million, an increase of 1.7 percent from the prior-year level. Notable contributors to sales growth included refrigerated dressings and dips along with shelf-stable dressings and sauces sold under license agreements. Frozen bread sales were down for the quarter as influenced by the impact of the shift in the Easter holiday from our fiscal fourth quarter last year to our third quarter this year. On the pricing front, we continued to make progress in implementing price increases with our retail customers to help offset higher commodity and freight costs. We also reduced the level of trade spending and coupon expenses as we continue to better optimize those costs through our investments in category management tools.
  • Foodservice net sales grew a strong 11.6 percent to USD 151.4 million driven by segment-wide sales volume increases, including sales attributed to limited-time-offer programs with our national chain restaurant accounts, and pricing actions taken to help offset higher freight and commodity costs.
  • Consolidated gross profit improved USD 3.7 million to USD 76.2 million as the favorable influences from the increased sales volumes, pricing actions, lower trade spending, reduced coupon expenses and cost savings realized from our lean six sigma program overcame the impact of higher freight and commodity costs.
  • Selling, general and administrative expenses increased USD 3.5 million as the prior-year quarter included a one-time pre-tax benefit of USD 1.4 million from the full settlement of a class-action lawsuit related to a provider of in-store promotional advertising. The higher level of SG+A costs also reflected added expenditures for retail consumer promotions.
  • Consolidated operating income was essentially flat at USD 42.9 million while consolidated operating margin declined about 80 basis points due to factors referenced above, including a less favorable sales mix as sales growth in the Foodservice segment outpaced Retail. Retail segment operating margin declined from 20.5 percent to 19.1 percent, most notably influenced by the USD 1.4 million one-time benefit in last year’s fiscal fourth quarter from the lawsuit settlement in addition to the higher costs in the current-year quarter for freight and commodities and the increased spend for retail consumer promotions. Foodservice segment operating margin improved from 9.9 percent to 10.6 percent.
  • Net income was USD 32.4 million, or USD 1.18 per diluted share, compared to USD 28.5 million, or USD 1.04 per diluted share last year. Note that the lower tax rate of 26.1 percent in the current year primarily reflects the favorable impact of tax benefits from stock-based compensation activity and continued refinements related to the Tax Cuts and Jobs Act of 2017.
  • The regular quarterly cash dividend paid on June 29, 2018 was maintained at the higher amount of USD .60 per share set in November 2017.

Fiscal Year Results

  • Consolidated net sales increased 1.8 percent to a record USD 1,223 million versus USD 1,202 million last year.
  • Retail segment net sales increased 1.4 percent to USD 650.2 million driven by increased sales volumes for shelf-stable dressings and sauces sold under license agreements, the incremental sales from the Angelic Bakehouse business acquired in November 2016, pricing actions, reduced trade spending and lower coupon expense.
  • Foodservice segment net sales grew 2.2 percent to USD 572.7 million. After a challenging first half of the fiscal year, segment sales improved significantly in the second half with both inflationary pricing and volume gains contributing to growth.
  • Consolidated operating income decreased USD 2.6 million to USD 172.1 million from USD 174.7 million last year. Excluding the pre-tax charge of USD 17.6 million in the prior year resulting from the company’s withdrawal from an underfunded multiemployer pension plan, operating income declined USD 20.2 million or 10.5 percent. Increased commodity costs, particularly eggs, and higher freight costs were the primary causes for the drop in operating income, partially offset by cost savings realized from the company’s lean six sigma program and pricing actions. At the segment level, Retail operating margin declined from 21.6 percent to 19.4 percent while Foodservice operating margin decreased from 11.8 percent to 10.2 percent.
  • Net income totaled USD 135.3 million, or USD 4.92 per diluted share, versus the prior-year amount of USD 115.3 million, or USD 4.20 per diluted share. In addition to the favorable impact of a lower federal income tax rate, the Tax Act also resulted in a one-time deferred tax benefit to this fiscal year’s net income of USD 9.5 million or USD .35 per diluted share. Conversely, last year’s net income amount was unfavourably impacted by the costs resulting from the company’s withdrawal from an underfunded multiemployer pension plan of approximately USD 11.5 million or USD .42 per diluted share.
  • The regular quarterly cash dividend was increased for the 55th consecutive year.
  • The company’s balance sheet remained strong, with no debt outstanding and over USD 205 million in cash and equivalents as of June 30, 2018.

Fiscal 2018 Commentary

CEO David A. Ciesinski stated, «We were pleased to report record net sales for fiscal 2018, a year that ended with strong momentum in our Foodservice segment and continued progress from our net price realization initiatives in the Retail segment. We also added to our successful offerings of shelf-stable dressings and sauces sold under license agreements in the retail channel. Cost inflation was against us the entire year, with both commodities and freight rates significantly higher, but we worked to offset those costs through both pricing actions and our lean six sigma cost savings program. We finished the year encouraged to see our efforts to overcome inflationary costs effectively taking hold».

Fiscal 2019 Outlook

Ciesinski added, «Looking ahead to fiscal 2019, Retail sales will benefit from new product introductions planned for launch throughout the year, including Marzetti® Simple Harvest® plant-based, non-dairy dips for the produce department; a fresh lineup of 60-calorie Flatout® flatbread wraps; and Angelic Bakehouse® non-GMO sprouted grain wraps with flavours such as Kale + Spinach, Beet and Sweet Potato. In addition, our Retail segment expects to build upon the recent rollout of the new Olive Garden® Parmesan Ranch dressing flavour and implement a follow-on program to our recent successful retail test of Buffalo Wild Wings® sauces sold under a license agreement. In the Foodservice segment, we expect to continue to strengthen our existing customer base and pursue new opportunities for profitable growth through our culinary expertise and noted reputation for custom-formulated dressings and dipping sauces, frozen breads and rolls, and frozen pasta. Based on our current assessment, commodity costs are projected to remain unfavorable in fiscal 2019, although to a lesser extent than we experienced in fiscal 2018. Freight costs are also expected to persist as a headwind through the first half of the fiscal year. Higher pricing in both the Retail and Foodservice segments will help to offset these increased costs. In addition, our supply chain team will remain focused on cost-saving initiatives and opportunities throughout the coming year».

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