Lancaster Colony: Reports Q2-2021 Sales And Earnings

Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal second quarter ended December 31, 2020. Summary:

• Consolidated net sales increased 5.6 percent to a second quarter record USD 375.0 million versus USD 355.1 million last year. Retail net sales grew 19.5 percent to USD 222.6 million while Foodservice net sales declined 9.7 percent to USD 152.4 million.
• Excluding all Omni Baking sales attributed to a temporary supply agreement that was terminated effective October 31, 2020, consolidated net sales increased 7.3 percent.
• Consolidated gross profit increased 7.0 percent to a second quarter record USD 106.8 million.
• Consolidated operating income grew 8.4 percent to USD 58.6 million.
• Net income was USD 1.62 per diluted share versus USD 1.58 per diluted share last year.

CEO David A. Ciesinski commented, «We were very pleased to report record sales and gross profit for our fiscal second quarter despite all the challenges posed by the impacts of Covid-19. I truly appreciate the ongoing contributions and sacrifices of all the Lancaster Colony associates that led to these strong results in the face of very difficult circumstances. The top priorities for our business remain the health, safety and welfare of our employees and continuing to play our part in the country’s vital food supply chain.»

«In the fiscal second quarter, growth in our core Retail business was driven by higher demand for at-home food consumption due to the impacts of Covid-19 along with the success of our licensing program. «Olive Garden» dressings, «Chick-fil-A» sauces and «Buffalo Wild Wings» sauces were noted contributors to the Retail sales gains. In Foodservice, the growth of quick-service restaurant and pizza chain customers in our mix of national chain restaurant accounts remains a source of strength in the current environment.»

«Looking ahead to our fiscal third quarter, we expect net sales to benefit from continued gains in Retail for dressings and sauces sold under exclusive license agreements. We anticipate the impacts of Covid-19 will remain a headwind for our manufacturing costs while commodities and freight expense are expected to become increasingly inflationary. Our ongoing cost savings programs and net price realization efforts will help to offset these higher costs. Our ERP initiative, Project Ascent, is progressing as planned as we move through the testing phase with implementation on track to commence in early fiscal 2022.»

Second Quarter Results

Lancaster Colony’s consolidated net sales increased 5.6 percent to a second quarter record USD 375.0 million versus USD 355.1 million last year. Excluding all Omni Baking Company sales, which totaled USD 0.9 million this year versus USD 6.3 million last year, consolidated net sales increased 7.3 percent. The Omni Baking sales were attributed to a temporary supply agreement that was terminated effective October 31, 2020. Retail segment net sales grew 19.5 percent to USD 222.6 million as the impacts of Covid-19 continued to drive higher demand for at-home food consumption and new products also contributed to the sales gains. The increase in Retail net sales was led by «Olive Garden» dressings along with our recently introduced «Chick-fil-A» sauces and single-bottle «Buffalo Wild Wings» sauces, all of which are produced and sold under exclusive license agreements, in addition to strong growth for our frozen bread products. In the Foodservice segment, net sales declined 9.7 percent to USD 152.4 million as demand remained constrained by the impacts of Covid-19. Excluding all Omni Baking sales, Foodservice net sales declined 6.8 percent.

Consolidated gross profit increased 7.0 percent to a second quarter record USD 106.8 million compared to USD 99.9 million in the prior year. Gross profit benefited from the strong Retail sales growth and reduced Retail trade spending partially offset by higher manufacturing costs and increased commodity and freight costs. Manufacturing costs continue to reflect the impacts of Covid-19 including higher hourly wage rates for our front-line employees, increased expenditures for personal protective equipment and lower operating efficiencies. Our ongoing cost savings programs also helped to offset some of these costs. 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 2.5 million to USD 48.2 million as expenditures for Project Ascent, in support of our ERP project and related initiatives, increased USD 3.6 million. SG+A expenses also reflect a lower level of consumer spending in the quarter.

Consolidated operating income grew USD 4.5 million or 8.4 percent to USD 58.6 million driven by the Retail sales growth and resulting heavier Retail sales mix partially offset by higher manufacturing costs attributed to the impacts of Covid-19 and increased commodity and freight costs.

Net income increased USD 1.2 million to USD 44.6 million, or USD 1.62 per diluted share, versus USD 1.58 per diluted share last year. Expenditures for Project Ascent reduced net income by USD 6.5 million, or USD 0.23 per diluted share, in the current-year quarter compared to USD 3.7 million, or USD 0.14 per diluted share, in the prior-year quarter. Net income was unfavorably impacted by a higher overall effective tax rate of 23.8 percent in the current-year quarter compared to 21.0 percent last year.

Fiscal Year-to-Date Results

For the six months ended December 31, 2020, net sales increased 4.6 percent to USD 724.3 million compared to USD 692.2 million a year ago. Net income for the six-month period totaled USD 81.7 million, or USD 2.96 per diluted share, versus the prior-year amount of USD 84.2 million, or USD 3.06 per diluted share. In the current-year period, spend for Project Ascent decreased net income by USD 12.8 million, or USD 0.46 per diluted share, a favorable adjustment to the contingent consideration for Bantam Bagels increased net income by USD 4.3 million, or USD 0.16 per diluted share, and an impairment charge for certain intangible assets of the Bantam Bagels business reduced net income by USD 0.9 million, or USD 0.03 per diluted share. In the prior-year period, spend for Project Ascent decreased net income by USD 5.8 million, or USD 0.21 per diluted share, and restructuring and impairment charges reduced net income by USD 0.7 million, or USD 0.02 per diluted share.