Lancaster Colony: Reports Q4 And 2023 Fiscal Year Results

Westerville / OH. (lc) Lancaster Colony Corporation reported results for the company’s fiscal fourth quarter and fiscal year ended June 30, 2023. Summary:

• Consolidated fourth quarter net sales increased 0.5 percent to a fourth quarter record USD 454.7 million. Retail segment net sales grew 1.3 percent in the quarter to USD 236.2 million while Foodservice segment net sales declined 0.4 percent to USD 218.5 million. Last year’s fourth quarter included an estimated USD 25 million in incremental net sales, or 6 percent of the quarter’s total sales, attributed to advance customer orders ahead of our July 1, 2022 ERP go-live date.
• Consolidated fourth quarter gross profit decreased USD 5.2 million to USD 93.2 million. In the prior-year quarter, advance customer orders ahead of our ERP go-live accounted for approximately USD 5 million in incremental gross profit. This year’s fourth quarter gross profit was unfavorably impacted by startup costs at our dressing and sauce facility in Horse Cave, Kentucky; temporary production inefficiencies associated with our ERP implementation; and costs associated with a Retail product line that was discontinued.
• Consolidated fourth quarter operating income declined USD 22.2 million to USD 11.5 million. Noncash impairment charges reduced this year’s fourth quarter operating income by USD 25.0 million. Restructuring and impairment charges totaled USD 10.5 million in last year’s fourth quarter.
• Fourth quarter net income was USD 0.33 per diluted share versus USD 1.06 per diluted share last year. Impairment charges reduced fourth quarter net income by USD 0.70 per diluted share. Last year’s restructuring and impairment charges reduced net income by USD 0.29 per diluted share.

Chief Executive’s Commentary

CEO David A. Ciesinski: «We reported another quarter of record sales. In addition to inflationary pricing, the USD 3.1 million increase in Retail segment net sales was driven by our licensing program, including incremental growth from the new products, flavors and sizes we added to the program throughout the year. Circana data, which tracks consumer purchases, showed that consumption for our Retail segment’s branded products, measured in pounds, was up 4.7 percent in the quarter, led by our licensing program. In the prior-year quarter, Retail sales benefited from an estimated USD 11 million in advance customer orders ahead of our ERP go-live. The modest USD 0.8 million decline in Foodservice segment sales compares to a significant increase of 28.1 percent last year which included an estimated USD 14 million in advance customer orders. Foodservice segment sales were also unfavorably impacted by slower traffic for some of our national chain restaurant account customers.»

«The fourth quarter gross profit results fell short of our expectations as we experienced some transitory costs associated with our long-term strategic investments in production capacity and our ERP network. These issues have now been remedied, and we look forward to the many benefits these investments will provide our business in the years ahead.»

«Looking ahead to fiscal 2024, we anticipate Retail segment sales will benefit from volume growth led by our licensing program, including incremental growth from the new products, flavors and sizes we introduced in fiscal 2023. We are also excited to share our plans to add Texas RoadhouseTM steak sauces to our licensing program with a spring launch date. In addition, we foresee continued positive momentum for our «New York Brand» Bakery frozen garlic bread 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 external factors, including U.S. economic performance and potential changes in consumer sentiment, may impact demand. Consolidated net sales will also continue to benefit from the pricing actions taken in fiscal 2023.»

«We project the impact of inflationary costs to subside notably in the coming year. The pricing actions we have implemented along with our cost savings initiatives will help to offset remaining inflationary costs. With respect to our ERP initiative, Project Ascent, we completed the final wave of the implementation phase as planned and will devote our attention to leveraging the new system to strengthen our execution in fiscal 2024.»

Fourth Quarter Results

Consolidated net sales increased 0.5 percent to a fourth quarter record USD 454.7 million. Last year’s advance customer orders ahead of our July 1, 2022 ERP go-live date accounted for an estimated USD 25 million in incremental net sales, of which approximately USD 11 million was Retail and the remaining USD 14 million Foodservice. Retail segment net sales grew 1.3 percent to USD 236.2 million driven by our licensing program and the benefit of our pricing actions, partially offset by the segment’s lower sales volume and higher levels of trade spending. Retail segment sales volume, measured in pounds shipped, declined 3.3 percent. Excluding the prior-year quarter’s advance ordering, Retail segment sales volume grew 1.7 percent. In the Foodservice segment, net sales declined 0.4 percent to USD 218.5 million. Foodservice sales volume, measured in pounds shipped, declined 9.8 percent as influenced by the comparison to last year’s advance customer orders and slower traffic for some of our national chain restaurant account customers. Excluding the prior-year quarter’s advance ordering, Foodservice segment sales volume declined 3.9 percent.

Consolidated gross profit decreased USD 5.2 million to USD 93.2 million and compares to last year’s fourth quarter that benefited from an estimated USD 5 million in incremental gross profit attributed to the advance customer orders ahead of our ERP go-live. Gross profit was also unfavorably impacted by startup costs at our recently-expanded dressing and sauce facility in Horse Cave, Kentucky; temporary production inefficiencies at the facilities we recently added to our ERP network; and costs associated with a Retail product line that was discontinued.

SG+A expenses increased USD 2.6 million to USD 56.7 million due to higher expenditures for consumer promotions; investments in personnel and IT; and increased brokerage costs partially offset by lower expenditures for Project Ascent. Expenditures for Project Ascent totaled USD 5.6 million in the current-year quarter versus USD 11.0 million last year.

Impairment charges totaling USD 25.0 million resulted from the unfavorable impact of noncash charges to reduce the carrying value of certain intangible assets of our Flatout, Inc. flatbread business. The impairment charges are reflected in the Retail segment. In the prior-year quarter, restructuring and impairment charges totaling USD 10.5 million included the unfavorable impact of a noncash USD 8.8 million impairment charge to reduce the carrying value of an intangible asset of Angelic Bakehouse, Inc. That impairment charge was also reflected in the Retail segment.

Consolidated operating income declined USD 22.2 million to USD 11.5 million as influenced by the impairment charges in addition to the lower gross profit and higher SG+A expenses.

Net income decreased USD 19.9 million to USD 9.2 million, or USD 0.33 per diluted share, versus USD 29.0 million, or USD 1.06 per diluted share, last year. In the current-year quarter, the impairment charges reduced net income by USD 19.3 million, or USD 0.70 per diluted share, while expenditures for Project Ascent reduced net income by USD 4.3 million, or USD 0.16 per diluted share. In the prior-year quarter, restructuring and impairment charges reduced net income by USD 8.1 million, or USD 0.29 per diluted share, while expenditures for Project Ascent reduced net income by USD 8.4 million, or USD 0.31 per diluted share. Note that last year’s net income and earnings per diluted share reflect the benefit of a lower tax rate due to the impact of favorable state tax adjustments.

Fiscal Year Results

For the fiscal year ended June 30, 2023, net sales increased 8.7 percent to USD 1.82 billion compared to USD 1.68 billion a year ago. Net income for the fiscal year totaled USD 111.3 million, or USD 4.04 per diluted share, versus the prior-year amount of USD 89.6 million, or USD 3.25 per diluted share. In fiscal 2023, expenditures for Project Ascent decreased net income by USD 23.0 million, or USD 0.84 per diluted share, and impairment charges reduced net income by USD 19.3 million, or USD 0.70 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.