Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal third quarter ended March 31, 2023. Summary:
- Consolidated net sales increased 15.2 percent to a third quarter record USD 464.9 million versus USD 403.5 million last year. Retail net sales advanced 16.0 percent to USD 247.2 million while Foodservice net sales grew 14.4 percent to USD 217.7 million.
- Consolidated gross profit increased USD 25.9 million, or 37.9 percent, to USD 94.2 million. Third quarter gross margin improved to 20.3 percent, an increase of 330 basis points from last year’s third quarter.
- Consolidated operating income was USD 29.4 million compared to an operating loss of USD 7.6 million last year. Prior-year operating income was unfavorably impacted by a restructuring and impairment charge of USD 22.7 million.
- Net income was USD 0.89 per diluted share versus a net loss of USD 0.17 per diluted share last year. The restructuring and impairment charge reduced last year’s net income by USD 0.63 per diluted share.
CEO David A. Ciesinski commented, «We were pleased to report another quarter of record sales and higher profits. In the Retail segment, beyond the favorable impact of our pricing actions, net sales growth of 16.0 percent includes strong volume growth of 6.1 percent driven by our successful program for licensed dressings and sauces and another solid quarter for our «New York Brand Bakery» frozen garlic bread products. Retail net sales also reflect a modest benefit from a favorable shift in the timing of shipments in advance of the Easter holiday. In our Foodservice segment, net sales growth of 14.4 percent reflects the benefit of inflationary pricing, increased demand from several of our national chain restaurant customers, and improved sales volumes for our branded Foodservice products.»
«While we continued to experience significant cost inflation, the pricing actions we have implemented in both our Retail and Foodservice segments served to offset the higher input costs. The USD 25.9 million increase in gross profit reflects the pricing and continued progress in our management of manufacturing costs along with a more stable and predictable operating environment. In our fiscal third quarter, we successfully added our largest dressing and sauce facility in Horse Cave, Kentucky to our new ERP system as we completed the Wave 3 implementation phase of our ERP initiative, Project Ascent. As anticipated, the ERP implementation reduced our reported gross profit as production at that facility was unfavorably impacted by the system cutover process.»
«Looking ahead to our fiscal fourth quarter, we anticipate Retail sales will continue to benefit from our licensing program, including incremental growth from the new products, flavors, and sizes we have introduced this fiscal year. In the Foodservice segment, we expect sustained volume growth from select customers in our mix of national chain restaurant accounts. Consolidated net sales will compare to last year’s fourth quarter that benefited from an estimated USD 25 million in incremental net sales attributed to advance customer orders ahead of our July 1 ERP go-live date for Wave 1. Cost inflation will remain a headwind to our financial results, but the pricing actions we have in place along with our cost savings initiatives are expected to offset the increased costs.»
Third Quarter Results
Consolidated net sales increased 15.2 percent to a third quarter record USD 464.9 million versus USD 403.5 million last year. Retail segment net sales grew 16.0 percent to USD 247.2 million, including the favorable impact of our pricing actions. Retail segment sales volume, measured in pounds shipped, increased 6.1 percent. Retail sales volume growth was driven by the continued success of our program for licensed dressings and sauces. Our New York BRAND Bakery® frozen garlic bread products also contributed to the increase in the Retail sales volume. In the Foodservice segment, net sales improved 14.4 percent to USD 217.7 million as inflationary pricing combined with increased demand from several of our national chain restaurant account customers and growth for our branded Foodservice products led the segment’s sales higher. Foodservice sales volume, measured in pounds shipped, increased 0.4 percent.
Consolidated gross profit increased USD 25.9 million, or 37.9 percent, to USD 94.2 million as our pricing actions effectively offset the significant inflationary costs we have experienced for commodities, packaging, labor and warehousing. The higher gross profit also reflects improved manufacturing efficiencies, cost savings initiatives and the benefit of a more stable operating environment partially offset by the impact of the Wave 3 implementation phase of Project Ascent as our dressing and sauce production facility in Horse Cave, Kentucky transitioned to our new ERP system in early February as planned. The current-year gross profit compares to a very challenging year-ago quarter characterized by escalating inflationary costs across our entire supply chain, increased costs to service the shifting demands of our business, and shortages of select ingredients and packaging supplies.
SG+A expenses increased USD 10.3 million to USD 64.8 million, which reflects higher expenditures to support the continued growth of our business including investments in personnel and consumer promotions in addition to higher brokerage costs associated with the increased sales. SG+A expenses also include some nonrecurring legal charges for closed operations. Expenditures for Project Ascent, our ERP initiative, totaled USD 7.6 million in the current-year quarter versus USD 10.3 million last year.
In the prior-year quarter, the change in contingent consideration reflected the favorable impact of a USD 1.3 million noncash reduction to the fair value of the contingent consideration for Bantam Bagels in addition to noncash restructuring and impairment charges of USD 22.7 million for that business, which the company ultimately exited near the end of our fiscal fourth quarter ended June 30, 2022.
Consolidated operating income of USD 29.4 million compares to an operating loss of USD 7.6 million in the prior-year quarter. The increase in operating income was driven by the higher gross profit and the impact of last year’s restructuring and impairment charges, partially offset by the increase in SG+A expenses.
Net income of USD 24.6 million, or USD 0.89 per diluted share, compares to a net loss of USD 4.5 million, or a net loss of USD 0.17 per diluted share, last year. In the current-year quarter, expenditures for Project Ascent reduced net income by USD 5.9 million, or USD 0.21 per diluted share. Net income and earnings per diluted share in the current quarter benefited from a lower overall effective tax rate. In the prior-year quarter, the restructuring and impairment charges reduced net income by USD 17.4 million, or USD 0.63 per diluted share; expenditures for Project Ascent reduced net income by USD 7.9 million, or USD 0.29 per diluted share; and the adjustment to the contingent consideration increased net income by USD 1.0 million, or USD 0.04 per diluted share.
Fiscal Year-to-Date Results
For the nine months ended March 31, 2023, net sales increased 11.8 percent to USD 1.37 billion compared to USD 1.22 billion a year ago. Net income for the nine-month period totaled USD 102.1 million, or USD 3.71 per diluted share, versus the prior-year amount of USD 60.5 million, or USD 2.20 per diluted share. In the current-year period, spend for Project Ascent decreased net income by USD 18.7 million, or USD 0.68 per diluted share. In the prior-year period, spend for Project Ascent decreased net income by USD 21.6 million, or USD 0.79 per diluted share; restructuring and impairment charges reduced net income by USD 18.8 million, or USD 0.68 per diluted share; and the change in contingent consideration increased net income by USD 2.7 million, or USD 0.10 per diluted share.