Lancaster Colony: Reports Q4 And 2022 Fiscal Year Results

Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal fourth quarter and fiscal year ended June 30, 2022. Summary:

• Consolidated fourth quarter net sales increased 17.3 percent to a record USD 452.4 million. Retail segment net sales grew 8.8 percent in the quarter to USD 233.1 million while Foodservice segment net sales advanced 28.1 percent to USD 219.3 million.
• Consolidated gross profit improved 1.8 percent to a fourth quarter record USD 98.4 million.
• Consolidated gross profit margin was 21.8 percent, down 330 basis points versus last year’s fourth quarter, but improved 480 basis points from this year’s fiscal third quarter.
• Consolidated fourth quarter operating income declined USD 7.2 million to USD 33.7 million, including the unfavorable impact of USD 10.5 million in restructuring and impairment charges.
• Fourth quarter net income was USD 1.06 per diluted share versus USD 1.15 per diluted share last year. The restructuring and impairment charges reduced net income by USD 0.29 per diluted share.

CEO David A. Ciesinski commented, «We were pleased to report record fourth quarter sales and gross profit despite the difficult operating environment. I am also glad to share that the implementation phase of our ERP initiative, Project Ascent, which commenced July 1, is off to a great start with no notable concerns. Customer fulfillment levels remained strong before and after the system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. I extend my sincere thanks to all our associates here at Lancaster Colony for the tremendous effort they put forth to reach this important Project Ascent milestone, and for their ongoing support of this critical initiative to position our business for continued growth and success.»

«In both our Retail and Foodservice segments, fourth quarter net sales benefited from continued pricing actions taken to offset inflationary costs and incremental sales attributed to advance ordering by our customers near the end of the quarter ahead of our ERP go-live. Excluding the impact of the pricing and advance ordering, Retail segment sales volumes benefited from higher demand for our frozen garlic bread and frozen dinner rolls along with volume gains for Olive Garden® dressings. In the Foodservice segment, also excluding the impact of the pricing and advance ordering, sales volumes were driven by growth from select customers in our mix of national chain restaurant accounts and higher demand for our branded products.»

«In our fiscal fourth quarter, we continued to experience extraordinary inflation for raw materials, packaging and freight at levels similar to those we endured in our fiscal third quarter. Through the benefit of our ongoing pricing actions, we made good progress in reducing the gap between our price levels and the inflationary costs as indicated by the sequential improvement in our reported gross profit margin, an increase of 480 basis points from our fiscal third to fourth quarter.»

«Looking ahead to fiscal 2023, our Retail sales will benefit from another round of pricing on our dressing and sauce products that took effect in early August. We expect continued growth from our licensing program behind new items, but Retail sales volumes will also face offsets from consumer demand elasticity and the ongoing impact of fiscal 2022 rationalization initiatives for some of our low-margin products. In Foodservice, we expect sales volumes to be led by growth from select quick-service restaurant customers in our mix of national chain restaurant accounts while the external factors of a slowing economy and changes in consumer sentiment may dampen demand.»

«It is important to note that our fiscal 2023 first quarter sales will be unfavorably impacted by the advance ordering that occurred in our fiscal fourth quarter as mentioned above. In addition, we are currently forecasting a notable increase in our commodity costs in the coming year versus fiscal 2022 and higher costs for other items such as packaging, labor and freight to pose a headwind to our financial results. To help mitigate these rising costs, beyond the pricing actions taken in fiscal 2022, we recently implemented the aforementioned round of pricing for dressings and sauces in our Retail segment while our Foodservice segment will continue to realize offsets to increased commodity and freight costs through contractual-based inflationary pricing. Our cost savings programs and other net price realization efforts will also help to offset the unfavorable impacts of inflation in the year ahead. Finally, the implementation phase for Project Ascent will continue throughout fiscal 2023 as we integrate additional plants and warehouses into our new ERP network.»

Fourth Quarter Results

Consolidated net sales increased 17.3 percent to a fourth quarter record USD 452.4 million. Advance customer orders ahead of our ERP go-live accounted for an estimated USD 25 million in incremental net sales in the fourth quarter, of which approximately USD 11 million was Retail and the remaining USD 14 million Foodservice. Retail segment net sales grew 8.8 percent to USD 233.1 million, including the benefits of pricing and advance customer orders. Retail segment sales volumes, measured in pounds shipped, decreased 2 percent including the favorable impact of the advance ordering and the unfavorable impact of some planned product line rationalizations, and compares to a notable volume increase of 9 percent in the prior year. Excluding the advance ordering and product line rationalizations, Retail segment sales volumes declined 1 percent. In the Foodservice segment, net sales increased 28.1 percent to USD 219.3 million. Foodservice sales volumes, measured in pounds shipped, increased 2 percent including the benefit of the advance ordering. Excluding the favorable impact of advance ordering, Foodservice sales volumes declined 4 percent as influenced by our decision to discontinue certain lower-margin product offerings and a comparison to strong growth last year. In the prior-year quarter, Foodservice sales volumes were up a significant 29 percent.

Consolidated gross profit increased 1.8 percent to a fourth quarter record USD 98.4 million. Gross profit benefited from the pricing actions implemented throughout the year, including the action taken for our Retail frozen bread products midway through the fourth quarter. The increase in gross profit also reflects an estimated USD 5 million benefit from the approximately USD 25 million in incremental sales attributed to the advance customer orders ahead of our ERP go-live. While our gross profit margin showed sequential improvement from the fiscal third quarter, compared to last year our fiscal fourth quarter gross profit margin declined 330 basis points. Notable contributors to the gross margin decline include the inherent margin dilution with a dollar-for-dollar match between pricing and cost of sales inflation, along with the ongoing unfavorable impacts of significantly higher commodity and packaging costs; higher freight and warehousing costs; increased labor costs; increased costs to service the shifting demands of our business; and overall lower productivity.

SG+A expenses decreased USD 1.6 million to USD 54.2 million, due in part to a lower level of consumer spending compared to the prior year. Expenditures for Project Ascent totaled USD 11.0 million in the current-year quarter versus USD 10.3 million last year.

The restructuring and impairment charges of USD 10.5 million include the unfavorable impact of a noncash USD 8.8 million impairment charge to reduce the carrying value of the tradename intangible asset of Angelic Bakehouse, Inc. This impairment charge is reflected in the Retail segment.

Consolidated operating income declined USD 7.2 million to USD 33.7 million as the USD 1.7 million increase in gross profit and USD 1.6 million reduction in SG+A expenses were more than offset by the USD 10.5 million in restructuring and impairment charges. The incremental sales attributed to advance customer orders ahead of our ERP go-live added an estimated USD 5 million to consolidated operating income.

Net income decreased USD 2.7 million to USD 29.0 million, or USD 1.06 per diluted share, versus USD 31.7 million, or USD 1.15 per diluted share, last year. The restructuring and impairment charges reduced net income by USD 8.1 million, or USD 0.29 per diluted share. Expenditures for Project Ascent reduced net income by USD 8.4 million, or USD 0.31 per diluted share, in the current-year quarter compared to USD 7.9 million, or USD 0.28 per diluted share, in the prior-year quarter. Net income and earnings per diluted share in the current-year quarter also reflect the benefit of a lower tax rate due to the impact of nonrecurring favorable state tax adjustments.

Fiscal Year Results

For the fiscal year ended June 30, 2022, net sales increased 14.3 percent to USD 1.7 billion compared to USD 1.5 billion a year ago. Net income for the fiscal year totaled USD 89.6 million, or USD 3.25 per diluted share, versus the prior-year amount of USD 142.3 million, or USD 5.16 per diluted share. In fiscal 2022, expenditures for Project Ascent decreased net income by USD 30.1 million, or USD 1.09 per diluted share, restructuring and impairment charges reduced net income by USD 26.9 million, or USD 0.98 per diluted share, and changes in contingent consideration increased net income by USD 2.7 million, or USD 0.10 per diluted share. In fiscal 2021, expenditures for Project Ascent decreased net income by USD 28.9 million, or USD 1.05 per diluted share, impairment charges reduced net income by USD 0.9 million, or USD 0.03 per diluted share, and changes in contingent consideration increased net income by USD 4.3 million, or USD 0.16 per diluted share.