Lancaster Colony reduces expenses while growing its core business
The Westerville, Ohio-based Lancaster Colony Corp.’s management was happy with the company’s second-quarter performance as it expanded its core business, cut expenses through supply chain efforts, and made investments to support future growth.
After a 9% decrease from $47,907,000, or $1.74 per share, in the same time last year, Lancaster’s net income for the second quarter ended December 31, 2019, was $43,424,000, or $1.58 per share on the common stock.
From $349,581,000 to $355,117,000, net sales grew 1.5%.Net income for the six months ended December 31 was $84,169,000, or $3.06 per share; this is a 3% decrease from $86,935,000, or $3.16 per share, for the same period last year. Net sales increased to $692,171,000, or about 4%.
In a conference call with analysts on February 4, President and CEO David A. Ciesinski stated, “Retail net sales benefited from favorable net price realization, increased sales of frozen garlic bread, and continued gains for shelf-stable dressings and sauces sold under license agreements.” “We gained market share from other branded businesses this quarter thanks to our New York Bakery frozen bread products. After 3-Cheese Cheese Sticks were successfully launched, New York Bakery also profited and focused onconsumer support. In addition, our licensing business continues to grow nicely as our Olive Garden line increased share and remains the top-selling Italian dressing in the shelf-stable dressing category.
The quarter’s retail growth offsets were mostly caused by timing issues. First, we observed a stronger seasonal tilt toward Q1 in our Marzetti Caramel Apple Dip orders. Our bottle conversion effort, which is yielding a great net price realization benefit, led to a higher level of exports in Q1 compared to Q2, in produce dressing. We are moving forward in this market well overall, and we have a robust pipeline of new products that we hope to introduce in Q3.
According to Mr. Ciesinski, Lancaster has made great strides toward reducing costs and increasing profits by streamlining its supply chain. Consolidated gross profit rose $8.5 million, or 9%, to $99.9 million in the second quarter, and gross margin grew by 200 basis points to 28.1%, he reported. He credited the advancementto several key initiatives, including strategic procurement, transportation management and favorability in commodity costs such as eggs and soybean oil.
He also said the company continues to invest in its supply chain to support growth and reduce costs.
According to Mr. Ciesinski, “I’m happy to report that construction for our Sister Schubert’s frozen dinner roll plant in Horse Cave, Ky. was completed on schedule last month.” Later this month, the new production line there is anticipated to begin operating as scheduled. Additionally, we are currently working on a capital project for our Bantam Bagel company that will boost automation and extend production capacity. We anticipate having this project finished and running by the beginning of fiscal year ’21.
The first half of fiscal 2020 saw capital expenditures for property additions totaling $57.7 million, according to chief financial officer Douglas A. Fell. As the business concentrates on its goals, Lancaster anticipates capital expenditures for the entire year to be between $80 million and $100 million.
initiatives aimed at boosting productivity and capacity.Regarding the latter part of the 2020 fiscal year, Mr. Ciesinski stated that Lancaster is enthusiastic about multiple licensing-related projects. With intentions to enter the dollar channel later this month, the company first started shipping Olive Garden Italian dressing into the retail medication channel in January.
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“Lancaster Colony’s distribution network is new to both the drug and dollar channels, and they both represent a significant growth opportunity for our business,” the man stated. “We’re excited to add more products to these channels in the future, including some from our own family of brands.”
Additionally this month, Lancaster will launch and start shipping Asian sauces in accordance with a license from Bibibop Asian Grill. In addition to offering individual bottles of sauces in six flavors—traditional Buffalo, Asian Zing, honey barbecue, Parmesan garlic, mango habanero, and Caribbean jerk—Lancaster will extend its license deal with Buffalo Wild Wings in March.