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Lancaster Colony Reports Fourth Quarter and Fiscal Year Results

Lancaster Colony Corporation (Nasdaq: LANC) today 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% to a fourth quarter record $454.7 million. Retail segment net sales grew 1.3% in the quarter to $236.2 million while Foodservice segment net sales declined 0.4% to $218.5 million. Last year’s fourth quarter included an estimated $25 million in incremental net sales, or 6% 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 $5.2 million to $93.2 million. In the prior-year quarter, advance customer orders ahead of our ERP go-live accounted for approximately $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 $22.2 million to $11.5 million. Noncash impairment charges reduced this year’s fourth quarter operating income by $25.0 million. Restructuring and impairment charges totaled $10.5 million in last year’s fourth quarter.
  • Fourth quarter net income was $0.33 per diluted share versus $1.06 per diluted share last year. Impairment charges reduced fourth quarter net income by $0.70 per diluted share. Last year’s restructuring and impairment charges reduced net income by $0.29 per diluted share.

CEO David A. Ciesinski commented, “We reported another quarter of record sales. In addition to inflationary pricing, the $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% in the quarter, led by our licensing program. In the prior-year quarter, Retail sales benefited from an estimated $11 million in advance customer orders ahead of our ERP go-live. The modest $0.8 million decline in Foodservice segment sales compares to a significant increase of 28.1% last year which included an estimated $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% to a fourth quarter record $454.7 million. Last year’s advance customer orders ahead of our July 1, 2022 ERP go-live date accounted for an estimated $25 million in incremental net sales, of which approximately $11 million was Retail and the remaining $14 million Foodservice. Retail segment net sales grew 1.3% to $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%. Excluding the prior-year quarter’s advance ordering, Retail segment sales volume grew 1.7%. In the Foodservice segment, net sales declined 0.4% to $218.5 million. Foodservice sales volume, measured in pounds shipped, declined 9.8% 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%.

Consolidated gross profit decreased $5.2 million to $93.2 million and compares to last year’s fourth quarter that benefited from an estimated $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 $2.6 million to $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 $5.6 million in the current-year quarter versus $11.0 million last year.

Impairment charges totaling $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 $10.5 million included the unfavorable impact of a noncash $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 $22.2 million to $11.5 million as influenced by the impairment charges in addition to the lower gross profit and higher SG&A expenses.

Net income decreased $19.9 million to $9.2 million, or $0.33 per diluted share, versus $29.0 million, or $1.06 per diluted share, last year. In the current-year quarter, the impairment charges reduced net income by $19.3 million, or $0.70 per diluted share, while expenditures for Project Ascent reduced net income by $4.3 million, or $0.16 per diluted share. In the prior-year quarter, restructuring and impairment charges reduced net income by $8.1 million, or $0.29 per diluted share, while expenditures for Project Ascent reduced net income by $8.4 million, or $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% to $1.82 billion compared to $1.68 billion a year ago. Net income for the fiscal year totaled $111.3 million, or $4.04 per diluted share, versus the prior-year amount of $89.6 million, or $3.25 per diluted share. In fiscal 2023, expenditures for Project Ascent decreased net income by $23.0 million, or $0.84 per diluted share, and impairment charges reduced net income by $19.3 million, or $0.70 per diluted share. In fiscal 2022, expenditures for Project Ascent decreased net income by $30.1 million, or $1.09 per diluted share, restructuring and impairment charges reduced net income by $26.9 million, or $0.98 per diluted share, and changes in contingent consideration increased net income by $2.7 million, or $0.10 per diluted share.

Conference Call on the Web

The company’s fourth quarter and fiscal year-end conference call is scheduled for this morning, August 23, at 10:00 a.m. ET. Access to a live webcast of the call is available through a link on the company’s Internet home page at www.lancastercolony.com. A replay of the webcast will also be made available on the company’s website.

About the Company

Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels.

Forward-Looking Statements

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). This news release contains various “forward-looking statements” within the meaning of the PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “believe,” “intend,” “plan,” “expect,” “hope” or similar words. These statements discuss future expectations; contain projections regarding future developments, operations or financial conditions; or state other forward-looking information. Such statements are based upon assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, expected future developments; and other factors we believe to be appropriate. These forward-looking statements involve various important risks, uncertainties and other factors, many of which are beyond our control, which could cause our actual results to differ materially from those expressed in the forward-looking statements. Some of the key factors that could cause actual results to differ materially from those expressed in the forward-looking statements include:

  • efficiencies in plant operations and our overall supply chain network;
  • the reaction of customers or consumers to pricing actions we take to offset inflationary costs;
  • price and product competition;
  • adequate supply of labor for our manufacturing facilities;
  • the impact of customer store brands on our branded retail volumes;
  • inflationary pressures resulting in higher input costs;
  • adverse changes in freight, energy or other costs of producing, distributing or transporting our products;
  • fluctuations in the cost and availability of ingredients and packaging;
  • dependence on contract manufacturers, distributors and freight transporters, including their operational capacity and financial strength in continuing to support our business;
  • stability of labor relations;
  • dependence on key personnel and changes in key personnel;
  • cyber-security incidents, information technology disruptions, and data breaches;
  • capacity constraints that may affect our ability to meet demand or may increase our costs;
  • geopolitical events, such as Russia’s invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;
  • the potential for loss of larger programs or key customer relationships;
  • failure to maintain or renew license agreements;
  • significant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, production planning, operations, and production processes resulting from the impacts of epidemics, pandemics or similar widespread public health concerns and disease outbreaks;
  • changes in demand for our products, which may result from loss of brand reputation or customer goodwill;
  • the possible occurrence of product recalls or other defective or mislabeled product costs;
  • the success and cost of new product development efforts;
  • the lack of market acceptance of new products;
  • the extent to which business acquisitions are completed and acceptably integrated;
  • the ability to successfully grow acquired businesses;
  • the effect of consolidation of customers within key market channels;
  • maintenance of competitive position with respect to other manufacturers;
  • the outcome of any litigation or arbitration;
  • changes in estimates in critical accounting judgments;
  • the impact of any regulatory matters affecting our food business, including any required labeling changes and their impact on consumer demand;
  • the impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit costs; and
  • risks related to other factors described under “Risk Factors” in other reports and statements filed by us with the Securities and Exchange Commission, including without limitation our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q (available at www.sec.gov).

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law. Management believes these forward-looking statements to be reasonable; however, you should not place undue reliance on statements that are based on current expectations.

LANCASTER COLONY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands except per-share amounts)

 

 

Three Months Ended

June 30,

 

Fiscal Year Ended

June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

$

454,661

 

$

452,413

 

$

1,822,527

 

$

1,676,390

 

Cost of sales

 

361,487

 

 

353,995

 

 

1,433,959

 

 

1,320,671

 

Gross profit

 

93,174

 

 

98,418

 

 

388,568

 

 

355,719

 

Selling, general & administrative expenses

 

56,730

 

 

54,178

 

 

222,091

 

 

212,098

 

Change in contingent consideration

 

 

 

 

 

 

 

(3,470

)

Restructuring and impairment charges

 

24,969

 

 

10,529

 

 

24,969

 

 

35,180

 

Operating income

 

11,475

 

 

33,711

 

 

141,508

 

 

111,911

 

Other, net

 

974

 

 

227

 

 

1,789

 

 

477

 

Income before income taxes

 

12,449

 

 

33,938

 

 

143,297

 

 

112,388

 

Taxes based on income

 

3,283

 

 

4,894

 

 

32,011

 

 

22,802

 

Net income

$

9,166

 

$

29,044

 

$

111,286

 

$

89,586

 

 

 

 

 

 

 

 

 

Net income per common share: (a)

 

 

 

 

 

 

 

Basic

$

0.33

 

$

1.06

 

$

4.04

 

$

3.26

 

Diluted

$

0.33

 

$

1.06

 

$

4.04

 

$

3.25

 

 

 

 

 

 

 

 

 

Cash dividends per common share

$

0.85

 

$

0.80

 

$

3.35

 

$

3.15

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

27,461

 

 

27,447

 

 

27,462

 

 

27,448

 

Diluted

 

27,490

 

 

27,453

 

 

27,482

 

 

27,472

 

(a)

Based on the weighted average number of shares outstanding during each period.

LANCASTER COLONY CORPORATION

BUSINESS SEGMENT INFORMATION (Unaudited)

(In thousands)

 

 

Three Months Ended

June 30,

 

Fiscal Year Ended

June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

NET SALES

 

 

 

 

 

 

 

Retail

$

236,183

 

 

$

233,108

 

 

$

965,370

 

 

$

915,210

 

Foodservice

 

218,478

 

 

 

219,305

 

 

 

857,157

 

 

 

761,180

 

Total Net Sales

$

454,661

 

 

$

452,413

 

 

$

1,822,527

 

 

$

1,676,390

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

 

 

 

 

 

Retail

$

10,269

 

 

$

31,630

 

 

$

139,464

 

 

$

151,627

 

Foodservice

 

25,319

 

 

 

30,055

 

 

 

106,349

 

 

 

82,745

 

Nonallocated Restructuring and Impairment Charges

 

 

 

 

(1,758

)

 

 

 

 

 

(25,507

)

Corporate Expenses

 

(24,113

)

 

 

(26,216

)

 

 

(104,305

)

 

 

(96,954

)

Total Operating Income

$

11,475

 

 

$

33,711

 

 

$

141,508

 

 

$

111,911

 

LANCASTER COLONY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)

 

 

June 30,

2023

 

June 30,

2022

ASSETS

 

 

 

Current assets:

 

 

 

Cash and equivalents

$

88,473

 

$

60,283

Receivables

 

114,967

 

 

135,496

Inventories

 

158,265

 

 

144,702

Other current assets

 

12,758

 

 

11,300

Total current assets

 

374,463

 

 

351,781

Net property, plant and equipment

 

482,206

 

 

451,368

Other assets

 

256,325

 

 

287,225

Total assets

$

1,112,994

 

$

1,090,374

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

111,758

 

$

114,972

Accrued liabilities

 

56,994

 

 

50,613

Total current liabilities

 

168,752

 

 

165,585

Noncurrent liabilities and deferred income taxes

 

81,975

 

 

80,102

Shareholders’ equity

 

862,267

 

 

844,687

Total liabilities and shareholders’ equity

$

1,112,994

 

$

1,090,374

 

Contacts

Dale N. Ganobsik

Vice President, Corporate Finance and Investor Relations

Lancaster Colony Corporation

Phone: 614/224-7141

Email: ir@lancastercolony.com

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