Lancaster Colony: Reports Q1-2021 Sales And Earnings

Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal first quarter ended September 30, 2020. Highlights for the quarter are as follows:

• Consolidated net sales increased 3.6 percent to a first quarter record USD 349.2 million versus USD 337.1 million last year. Excluding all sales attributed to a temporary supply agreement resulting from the acquisition of Omni Baking Company, consolidated net sales increased 5.2 percent.
• Retail net sales grew 16.6 percent to USD 193.7 million as the impacts of the Covid-19 outbreak continued to drive higher demand for at-home food consumption. The increase in Retail net sales was led by frozen garlic bread, Olive Garden® dressings sold under a license agreement and frozen dinner rolls. New products sold under exclusive license agreements, specifically Chick-fil-A® sauces and single-bottle Buffalo Wild Wings® sauces, also contributed to the strong sales growth.
• Foodservice net sales declined 9.0 percent to USD 155.5 million as demand remained constrained by the impacts of Covid-19. Excluding all Omni Baking sales, which totaled USD 2.8 million this year versus USD 7.9 million last year, Foodservice net sales declined 6.4 percent. The Omni Baking sales are attributed to a temporary supply agreement that was terminated effective October 31, 2020.
• Consolidated gross profit reached USD 92.7 million compared to USD 92.1 million in the prior year. Gross profit benefited from the heavier retail sales mix offset by higher manufacturing costs, including expenses directly attributed to the impacts of Covid-19, and increased commodity and freight costs. Sources of the increased costs incurred due to the impacts of Covid-19 included higher hourly wage rates for our front-line employees, lower overhead recovery due to the decreased Foodservice volumes, increased expenditures for personal protective equipment and lower operating efficiencies. We continue to follow 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 8.7 million to USD 48.2 million as expenditures for Project Ascent in support of our ERP project and related initiatives increased USD 5.6 million. We also invested more in consumer promotions and IT infrastructure.
• The change in contingent consideration includes the favorable impact of a USD 5.7 million non-cash reduction in the fair value of the contingent consideration for Bantam Bagels. This reduction reflects the impact of a SKU rationalization by a Foodservice customer that will result in the loss of sales to that customer after November 30, 2020. The loss of those future sales also resulted in an impairment charge of USD 1.2 million for certain intangible assets related to the Bantam Bagels business. Both of these items are reflected in the Foodservice segment results.
• Consolidated operating income declined USD 2.8 million to USD 48.9 million driven by expenditures for Project Ascent, higher manufacturing costs, increased investments in consumer promotions and IT infrastructure, and higher commodity and freight costs.
• Net income declined USD 3.7 million to USD 37.1 million. The favorable adjustment to the contingent consideration for Bantam Bagels increased net income by USD 4.3 million while expenditures for Project Ascent reduced net income by USD 6.3 million and the Bantam Bagels impairment charge reduced net income by USD 0.9 million. Lower interest rates for our cash holdings also reduced net income. In the prior-year quarter, expenditures for Project Ascent decreased net income by USD 2.1 million and a restructuring and impairment charge resulting from the closure of our frozen bread facility in Saraland, Alabama reduced net income by USD 0.7 million.
• Net income was USD 1.35 per diluted share compared to USD 1.48 per diluted share last year. The favorable adjustment to the contingent consideration for Bantam Bagels increased net income by USD 0.16 per diluted share while expenditures for Project Ascent reduced net income by USD 0.23 per diluted share and the Bantam Bagels impairment charge reduced net income by USD 0.03 per diluted share. In the prior-year quarter, expenditures for Project Ascent decreased net income by USD 0.08 per diluted share and the restructuring and impairment charge reduced net income by USD 0.02 per diluted share.
• The regular quarterly cash dividend was continued at the higher level of USD 0.70 per share set in November 2019. The company’s balance sheet remained debt free on September 30, 2020 with USD 186 million in cash and equivalents.

CEO David A. Ciesinski commented, «We continue to navigate through the challenges posed by the impacts of Covid-19 with great resolve and I extend my sincere thanks to the entire Lancaster Colony team for their tremendous efforts during this time. 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.»

«We completed the first quarter with record sales as our core Retail business continued to benefit from the increase in at-home food consumption and we remain very excited about the new opportunities that lie ahead for our exclusive license agreements with Chick-fil-A® and Buffalo Wild Wings®. In Foodservice, positive sales trends continued from the lows of this past spring with continued growth from quick-service restaurant and pizza chain customers in our mix of national chain restaurant accounts.»

«Looking ahead to our fiscal second quarter, historically our biggest sales quarter of the year, we expect continued growth in consolidated net sales with Retail outpacing Foodservice. We anticipate manufacturing costs will remain higher due to the unfavorable impacts of Covid-19 and increasingly inflationary costs for both commodities and freight. Our ongoing cost savings programs and net price realization will help to offset these higher costs. Project Ascent is progressing as planned, with testing now underway and implementation on track to commence in early fiscal 2022.»