Lancaster Colony: Reports Q3-2020 Sales And Earnings

Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal third quarter ended March 31, 2020. Highlights for the quarter are as follows:

  • Consolidated net sales increased 1.1 percent to a third quarter record USD 321.4 million versus USD 317.9 million last year.
  • Retail net sales increased 10.7 percent to USD 169.4 million compared to USD 153.0 million in the prior year. Retail net sales benefited from higher demand as the Covid-19 outbreak and related stay-at-home orders led to increased consumer demand in the retail channel during the second half of March in addition to contributions from several new products that were introduced during the quarter. The higher sales volumes were led by frozen garlic bread, shelf-stable dressings and sauces sold under license agreements and frozen dinner rolls.
  • Foodservice net sales declined 7.8 percent to USD 151.9 million as foodservice channel demand was unfavorably influenced by the impact of Covid-19. Excluding all sales resulting from the November 16, 2018 acquisition of Omni Baking Company, Foodservice net sales declined 6.6 percent. Omni Baking sales attributed to a temporary supply agreement totaled USD 5.3 million in the current-year quarter compared to USD 7.9 million in the prior-year quarter.
  • Consolidated gross profit grew USD 1.6 million, or 2.1 percent, to USD 77.0 million driven by the favorable sales mix shift to the Retail segment and our cost savings programs. Gross profit was unfavorably impacted by a USD 4.5 million inventory write-down attributed to an abrupt mid-March slowdown in Foodservice orders due to the impact of Covid-19. In addition, the company incurred a USD 1.0 million charge for bonuses paid to the front-line employees in our factories and distribution network in gratitude for their work in helping the company meet the shifting demand within our business.
  • SG+A expenses increased USD 8.9 million to USD 46.9 million primarily driven by expenditures of USD 4.9 million for our ERP initiative, a higher level of IT costs and increased consumer spending, as well as higher bad debt expense related to the impact of Covid-19.
  • Consolidated operating income declined USD 7.3 million to USD 30.0 million due to the impact of Covid-19 and the ERP expenses, partially offset by the benefits from the more favorable sales mix and our cost savings programs.
  • Net income declined USD 8.2 million to USD 22.4 million. The Foodservice inventory write-down and bonuses paid to front-line employees decreased net income by USD 3.4 million and USD 0.8 million, respectively, and the current-year ERP expenses decreased net income by USD 3.7 million. Net income was also unfavorably impacted by a higher tax rate.
  • Net income per diluted share decreased USD 0.30 to USD 0.81. The Foodservice inventory write-down and bonuses paid to front-line employees reduced net income per diluted share by USD 0.15 while current-year ERP expenses reduced net income per diluted share by USD 0.13. Net income per diluted share was also unfavorably impacted by a higher tax rate.
  • The regular quarterly cash dividend paid on March 31, 2020 was USD 0.70 per share, an 8 percent increase over last year’s USD 0.65 per share. The company’s balance sheet remained debt free on March 31, 2020 with USD 177.8 million in cash and equivalents.

For the nine months ended March 31, 2020, net sales increased 3.0 percent to USD 1,013.5 million compared to USD 984.1 million last year. Net income for the nine-month period totaled USD 106.6 million, or USD 3.87 per diluted share, versus the prior-year amount of USD 117.5 million, or USD 4.26 per diluted share. In the current-year period, the impact of the Foodservice inventory write-down and bonuses paid to front-line employees were as noted above for the fiscal third quarter while the spend for the ERP initiative decreased net income by USD 9.5 million, or USD 0.34 per diluted share, and restructuring and impairment charges reduced net income by USD 0.7 million, or USD 0.02 per diluted share. Prior-year net income includes a favorable non-cash reduction to the fair value of the acquisition-related contingent consideration for Angelic Bakehouse, Inc. in the amount of USD 7.4 million, or USD 0.27 per diluted share.

CEO David A. Ciesinski commented, «Like the rest of the food supply chain, our business is undergoing unprecedented shifts in demand as we confront the impact of Covid-19. As we navigate through this pandemic, our top priorities are the health, safety and welfare of our team members and continuing to play our part in the country’s vital food supply chain. I extend my sincerest thanks to every one of our dedicated team members for all their hard work and efforts during this extraordinary time.»

«In addition to the well-deserved bonuses paid to our front-line employees, our fiscal third quarter results also reflect a notable shift in sales from Foodservice to Retail and a write-down of Foodservice inventory which are directly attributed to the impact of Covid-19. While the influences of Covid-19 will persist into our fiscal fourth quarter and beyond, our financial position remains strong. The fact that our Foodservice segment includes successful quick-serve restaurant and pizza chains is also a positive in the current environment. We will continue to address and adapt to the near-term impacts posed by the pandemic while also maintaining our strategic focus on long-term growth opportunities.»