Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal first quarter ended September 30, 2021. Summary:
- Consolidated net sales increased 12.3 percent to a first quarter record USD 392.1 million. Retail segment net sales grew 15.6 percent to USD 223.9 million while Foodservice segment net sales advanced 8.1 percent to USD 168.2 million.
- Consolidated gross profit was nearly flat at USD 92.4 million compared to USD 92.7 million last year.
- Consolidated operating income declined USD 8.4 million to USD 40.5 million. Note that last year’s operating income was favourably impacted by a USD 5.7 million non-cash reduction in the fair value of the contingent consideration for Bantam Bagels.
- Net income was USD 1.11 per diluted share versus USD 1.35 per diluted share last year.
CEO David A. Ciesinski commented, «We were pleased to complete another quarter with record sales. The growth in Retail segment sales was led by our licensing program, most notably «Chick-fil-A» sauces and «Buffalo Wild Wings» sauces, and increased demand for our «New York Brand Bakery» frozen garlic bread. The 15.6 percent increase in Retail segment net sales reflects significant growth on top of the 16.6 percent increase we reported in last year’s first quarter. In the Foodservice segment, sales grew 8.1 percent driven by inflationary pricing and volume growth for our branded Foodservice products. As expected, we experienced significant cost inflation during the quarter that reduced our profit before our pricing initiatives took full effect.»
«As we continue to navigate through the impacts of the Covid-19 pandemic and the associated supply chain challenges, I am very thankful for the tremendous support and ongoing commitment of the entire Lancaster Colony team to service and grow our business. Our top priorities remain the health, safety and welfare of our employees and continuing to play our part in the country’s vital food supply chain.»
«Looking ahead to our fiscal second quarter, we expect our licensing program to remain an important source of growth for Retail segment sales while our Foodservice segment should continue to benefit from higher demand for our branded Foodservice products and growth from select quick-service restaurant and pizza chain customers in our mix of national chain restaurant accounts. We anticipate the inflationary environment to continue in the coming quarter, including higher commodity costs, particularly for soybean oil, along with increased costs for packaging, freight and labor. Inflationary pricing, including Retail segment pricing actions that took effect near the end of our fiscal first quarter combined with additional pricing in the Foodservice segment, will help to partially offset the input cost inflation. Our ongoing cost savings programs and other net price realization efforts will also serve to reduce the unfavourable impacts of inflation in the quarter.»
First Quarter Results
Consolidated net sales increased 12.3 percent to a first quarter record USD 392.1 million. Excluding Omni Baking sales, which totalled USD 2.8 million last year, consolidated net sales increased 13.2 percent. The Omni Baking sales were attributed to a temporary supply agreement that was terminated effective October 31, 2020. Retail segment net sales grew 15.6 percent to USD 223.9 million, driven by «Chick-fil-A» sauces and «Buffalo Wild Wings» sauces, both of which are sold under exclusive licensing agreements. Frozen garlic bread was also a noted contributor to the increase in Retail net sales. In the Foodservice segment, net sales improved 8.1 percent driven by inflationary pricing and volume gains for our branded Foodservice products. Excluding all Omni Baking sales, Foodservice net sales increased 10.1 percent.
Consolidated gross profit was nearly flat at USD 92.4 million compared to USD 92.7 million last year as the sales growth, a more favourable sales mix and our ongoing cost savings programs were offset by higher commodity and packaging costs, incremental expenditures attributed to increased co-manufacturing costs, and increased freight and warehousing costs. We continue to monitor the protocols and guidelines provided by government health authorities and make the necessary investments to promote safe operations at all our plants and distribution centers.
SG+A expenses increased USD 3.7 million to USD 51.9 million including expenditures for Project Ascent, our ERP initiative, which totalled USD 9.4 million in the current-year quarter versus USD 8.3 million last year. SG+A expenses were also impacted by increased investments in personnel and business initiatives to support continued growth.
The change in contingent consideration in the prior-year quarter included the favourable impact of a USD 5.7 million non-cash reduction to the fair value of the contingent consideration for Bantam Bagels attributed to the effect of a SKU rationalization by a Foodservice customer. The associated loss of future sales to that customer also resulted in an impairment charge in the prior-year quarter of USD 1.2 million for certain intangible assets related to the Bantam Bagels business. Both of these items were reflected in the Foodservice segment results.
Consolidated operating income declined USD 8.4 million to USD 40.5 million as influenced by the factors referenced above including higher commodity and packaging costs, increased co-manufacturing costs, higher freight and warehousing costs, investments in personnel and business initiatives to support continued growth, and increased expenditures for Project Ascent. These unfavourable factors were partially offset by the benefit of the increased sales and our cost savings programs. The decrease in operating income also reflects the USD 5.7 million benefit to the prior-year quarter’s operating income for the non-cash reduction to the fair value of the contingent consideration for Bantam Bagels partially offset by the USD 1.2 million impairment charge.
Net income declined USD 6.4 million to USD 30.7 million, or USD 1.11 per diluted share, versus USD 37.1 million, or USD 1.35 per diluted share, last year. Expenditures for Project Ascent reduced net income by USD 7.2 million, or USD 0.26 per diluted share, in the current-year quarter compared to USD 6.3 million, or USD 0.23 per diluted share, in the prior-year quarter. In addition, the favourable impact of the prior-year quarter’s adjustment to the contingent consideration for Bantam Bagels increased net income by USD 4.3 million, or USD 0.16 per diluted share, while the impairment charge reduced net income by USD 0.9 million, or USD 0.03 per diluted share.
