Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal third quarter ended March 31, 2018. Highlights for the quarter are as follows:
- Consolidated net sales increased 0.8 percent to a third quarter record USD 296.2 million versus USD 293.8 million last year.
- Retail net sales were essentially flat at USD 152.0 million. Sales of shelf-stable dressings and sauces under license agreements remained a growth driver while frozen bread sales volumes declined from the prior-year quarter as we recovered from the disruptions in the supply of our garlic toast products. We implemented pricing actions for our primary refrigerated produce dressings and dips as planned, but our net price realization for the quarter was marginalized by offsetting trade spend, including our previous commitments to retailer promotional activities.
- Foodservice net sales grew 1.5 percent to USD 144.2 million driven by pricing actions taken to help offset higher freight and commodity costs combined with volume increases for frozen yeast rolls and frozen pasta.
- Consolidated gross profit declined USD 4.0 million to USD 67.9 million due to the impact of significantly increased freight charges and higher commodity costs. The Foodservice segment pricing and savings realized from our lean six sigma program served to partially offset the higher costs.
- Selling, general and administrative expenses declined USD 2.0 million on reduced spending for consumer promotions and cost savings gained through the realignment of our retail broker network.
- Consolidated operating income increased from USD 22.0 million to USD 37.7 million. Excluding the pre-tax charge of USD 17.6 million in the prior-year quarter resulting from the company’s withdrawal from an underfunded multiemployer pension plan, operating income declined USD 1.9 million or 5.0 percent. Based on the factors referenced above and excluding the multiemployer pension plan withdrawal charge, consolidated operating margin decreased about 80 basis points. Retail segment operating margin declined from 19.2 percent to 17.3 percent while Foodservice segment operating margin improved from 9.6 percent to 9.9 percent.
- Net income was USD 27.6 million, or USD 1.00 per diluted share, compared to USD 14.5 million, or USD .53 per diluted share last year. Note that the lower tax rate of 27.4 percent in the current year reflects the favorable impact of the recent federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). The aforementioned multiemployer pension plan withdrawal charge reduced the prior year’s net income by approximately USD 11.5 million or USD .42 per diluted share.
- The regular quarterly cash dividend paid on March 30, 2018 was maintained at the higher amount of USD .60 per share set in November 2017. The company’s balance sheet remained debt free on March 31, 2018 with USD 187.3 million in cash and equivalents.
For the nine months ended March 31, 2018, net sales increased to USD 914.8 million compared to USD 912.0 million a year ago. Net income for the nine-month period totaled USD 102.9 million, or USD 3.74 per diluted share, versus the prior-year amount of USD 86.8 million, or USD 3.16 per diluted share. As previously reported in our fiscal second quarter earnings release, 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 million or USD .33 per diluted share. Conversely, last year’s net income amount was unfavorably 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.
CEO David A. Ciesinski commented, «We were pleased to report record net sales in our fiscal third quarter and were particularly encouraged by the higher Foodservice segment sales as our pricing actions took hold to help offset increased commodity and freight costs while the segment’s overall sales volumes held nearly flat. Our lean six sigma program also had another successful quarter in identifying and implementing cost-saving projects throughout our supply chain. In the Retail segment, we finished the quarter with the disruption in the production and supply of our frozen garlic bread products behind us and are now positioned to return to growth and resume promotional support for that product line in the coming quarters. Freight costs were a notable headwind to our fiscal third quarter results and are expected to remain so through our fiscal fourth quarter. We have initiatives in place or planned for both the short- and long-term to address higher freight and commodity costs including further Retail pricing actions, a more optimized distribution network and tactical procurement».