Lancaster Colony: Reports Q4-2020 Sales And Earnings

Westerville / OH. (lc) Lancaster Colony Corporation reported results for the fourth quarter and fiscal year ended June 30, 2020. Highlights are as follows:

Fourth Quarter Results

• Consolidated net sales declined 0.9 percent to USD 320.9 million versus USD 323.7 million last year. Excluding all sales attributed to a temporary supply agreement resulting from the November 16, 2018 acquisition of Omni Baking Company, consolidated net sales increased 0.7 percent.
• Retail net sales surged 24.5 percent to a record USD 192.4 million as the impacts of the Covid-19 outbreak drove 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. The segment’s results also benefited from recent introductions of new products sold under license agreements, including an expanded offering of single-bottle Buffalo Wild Wings® sauces and a regional pilot test for Chick-fil-A® sauces.
• Foodservice net sales declined 24.1 percent to USD 128.4 million as foodservice channel demand was unfavorably influenced by the impacts of Covid-19. After a very slow start in April, consumer demand at quick-service restaurants made a strong recovery in May and June, and sales for other restaurants also improved notably throughout the quarter.
• Consolidated gross profit improved USD 10.9 million, or 13.9 percent, to USD 89.1 million driven by the favorable sales mix shift to Retail, our cost savings programs and improved net price realization in Retail. The gross profit results were unfavorably impacted by costs related to Covid-19, including increased hourly wage rates for our front-line employees along with the effect of lower Foodservice volumes and reduced operating efficiencies as our factories and distribution centers adopted guidelines and implemented protocols provided by government health authorities to promote safe operations.
• SG#A expenses rose USD 8.9 million, principally driven by a USD 3.8 million increase in expenditures for Project Ascent in support of our ERP project and related initiatives in addition to costs attributed to the impacts of Covid-19, including a write-off of engineering expenses for a dressing plant expansion project. Shifts in demand between our Retail and Foodservice segments led us to cancel the expansion project, and we are now evaluating alternative investments that best align with the future needs and growth opportunities for our dressing and sauce products.
• The prior year’s change in contingent consideration included the favorable impact of a non-cash reduction to the contingent consideration for Angelic Bakehouse, Inc. («AB Adjustment») in the amount of USD 7.4 million.
• Consolidated operating income declined USD 3.1 million to USD 40.2 million as influenced by the favorable AB adjustment in the prior-year quarter, costs related to the Covid-19 outbreak and increased expenses for Project Ascent, partially offset by the improved top-line performance of the Retail segment and benefits from our cost savings programs.
• Retail segment operating income increased USD 6.5 million, or 20.1 percent, to USD 38.8 million driven by the significantly higher sales volumes. The Retail segment operating income in the prior-year quarter included the favorable impact of the USD 7.4 million AB Adjustment.
• Foodservice segment operating income declined USD 8.3 million, or 45.3 percent, to USD 10.1 million primarily due to the notable decline in Foodservice sales, the write-off of engineering expenses resulting from the cancelation of the dressing plant expansion project, lower factory overhead absorption and higher operating costs resulting from the impacts of Covid-19.
• Net income declined USD 2.6 million to USD 30.4 million. Expenditures for Project Ascent reduced net income by USD 4.2 million this year compared to USD 1.4 million last year. The favorable AB Adjustment increased net income in the prior-year quarter by USD 5.7 million.
• Net income per diluted share decreased USD 0.10 to USD 1.10. Expenditures for Project Ascent reduced net income per diluted share by USD 0.15 this year versus USD 0.05 last year. In the prior-year quarter, the favorable AB Adjustment increased net income per diluted share by USD 0.21.
• The regular quarterly cash dividend paid on June 30, 2020 was maintained at the higher amount of USD 0.70 per share set in November 2019.

Fiscal Year Results

• Consolidated net sales increased 2.0 percent to a fiscal year record USD 1,334 million versus USD 1,308 million last year.
• Retail net sales increased 8.8 percent to USD 714.1 million as higher retail channel demand attributed to the impacts of Covid-19 and contributions from shelf-stable dressings and sauces sold under license agreements, including new product introductions, drove Retail sales gains. Higher sales volumes for frozen garlic bread and frozen dinner rolls, along with some beneficial net price realization, also added to the growth in Retail net sales.
• Foodservice net sales decreased 4.7 percent to USD 620.3 million. After growth of 7.2 percent in the first half of the fiscal year, Foodservice net sales declined 16.1 percent in the second half as consumer demand shifted away from the foodservice channel due primarily to the impacts of Covid-19. Excluding all sales resulting from the November 16, 2018 acquisition of Omni Baking Company, Foodservice net sales declined 5.3 percent. Omni Baking sales attributed to a temporary supply agreement totaled USD 22.3 million in the current fiscal year versus USD 19.4 million last year.
• Consolidated gross profit increased USD 31.8 million, or 9.8 percent, to USD 358.0 million driven by the higher sales volumes in Retail, our cost savings programs, including continued contributions from our strategic procurement and transportation management initiatives, improved net price realization and lower commodity costs. Offsets to gross profit growth included higher manufacturing costs and other expenses resulting from the impacts of Covid-19.
• SG+A expenses rose USD 31.1 million to USD 180.9 million as expenditures for Project Ascent increased USD 16.3 million to USD 18.0 million. Investments in technology and IT infrastructure, the write-off for the canceled dressing plant expansion project and other expenses attributed to the impacts of Covid-19, and a higher level of consumer promotional spending also contributed to the rise in SG+A expenses.
• The prior year’s change in contingent consideration included a favorable AB Adjustment of USD 17.1 million.
• Consolidated operating income declined USD 15.0 million to USD 175.9 million driven by the impact of the prior year’s favorable AB adjustment, increased expenditures for Project Ascent, higher costs attributed to the impacts of Covid-19 and increased investments in technology and IT infrastructure partially offset by the more favorable sales mix, our cost savings programs, improved net price realization and lower commodity costs.
• Net income declined USD 13.6 million to USD 137.0 million. Expenditures for Project Ascent reduced net income by USD 13.7 million this year compared to USD 1.4 million last year. Last year’s favorable AB Adjustment increased net income by USD 13.1 million.
• Net income per diluted share was USD 4.97 compared to USD 5.46 last year. Expenditures for Project Ascent reduced net income per diluted share by USD 0.50 in the current fiscal year versus USD 0.05 last year. Last year’s favorable AB Adjustment increased net income per diluted share by USD 0.48.
• The regular quarterly cash dividend was increased for the 57th consecutive year.
• The company’s balance sheet remained strong, with no debt outstanding and over USD 198 million in cash and equivalents as of June 30, 2020.

Fiscal 2020 Commentary

CEO David A. Ciesinski stated, «I would first of all like to thank the entire Lancaster Colony team for the tremendous effort they have put forth and the resilience they have shown through this most challenging and unprecedented time as we confront the impacts of the Covid-19 pandemic. From the front-line workers at our plants and distribution centers to the leaders throughout our business, I am extremely proud of the way we have collectively pulled together to meet the shifting demands of our Retail and Foodservice customers while staying true to our top priority, the health, safety and welfare of our team members.»

«We were very pleased to finish the fiscal year with record sales in the Retail segment, positive momentum in the Foodservice segment and record gross profit. Despite all the challenges imposed by the impacts of Covid-19, our supply chain team navigated through the shifts in demand with safe operations and continued to deliver cost savings as we completed the fiscal year.»

Fiscal 2021 Outlook

Ciesinski continued, «Looking ahead to fiscal 2021, Retail sales will continue to benefit from the growth in shelf-stable dressings and sauces sold under license agreements, including sales gains for Chick-fil-A® sauces beyond the successful pilot test, expanded distribution of Buffalo Wild Wings® sauces in single bottles and added growth in the dollar and value channels for Olive Garden® dressings. We also anticipate sales for both our Retail and Foodservice segments will continue to be impacted by the shifts in consumer demand resulting from the Covid-19 pandemic, the extent to which is unpredictable and contingent upon the future spread or control of Covid-19 and the resulting effects on consumer behavior.»

«Based on our current assessment, following a year in which overall commodity costs were notably favorable, we anticipate a rise in commodity costs for fiscal 2021. The cost savings programs currently underway or planned for implementation by our supply chain team, in addition to favorable net price realization, will help to offset increased commodity costs in the coming year. We will also continue to make the necessary investments to help protect the health and safety of all our team members and follow the guidelines of government health authorities in response to the Covid-19 pandemic.»