MGP Ingredients addresses the first quarter’s natural gas restriction.
ATCHISON, KAN. A reduction in natural gas supplies in February resulted in a loss of approximately two weeks of production, which negatively impacted MGP Ingredients’ Ingredients Solutions segment’s first-quarter revenues. Executives from the company anticipate improved section performance in the second quarter. In the upcoming quarters, the corporation will also have to contend with challenges related to increased input costs and transportation availability.
For the first quarter of the previous year, Ingredient Solutions’ sales were $19.08 million, but they increased by 0.3% to $19.13 million in the quarter that ended on March 31. While sales of specialist wheat starches remained steady at $10.2 million, those of commodity wheat starches increased by 22% to $2.3 million. Specialty wheat starches had a 22% decline in sales to $2.3 million, while commodity wheat proteins saw an 8% decline in sales to$578,000.
It was cold temperatures that caused the energy restriction.”As anticipated, the current quarter’s outcomes may not accurately depict the robust demand we are still facing in the Ingredient Solutions division,” stated David J. Colo, the president and CEO of MGP Ingredients, during an earnings call on May 5. Apart from the short-term natural gas restrictions that caused us to lose output in February of this year and saw our margins drop by over 400 basis points during the quarter, we also encountered problems with backlogs at multiple ports and shortages of shipping containers that we require to ship our goods overseas.
Even though these problems affected the mix of products, we ended the quarter with good sales and margins in March, and because the weather-related events of the first quarter have passed, we expect better results in the second quarter. We think that the best product combination and our varied customer base are still in line with major market trends.
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MGP Ingredients, based in Atchison, reported net income of $15.4 million, or 90¢ per share on common stock, for the entire company. This represents a 57% increase from $9.8 million, or 57¢ per share, in the first quarter of the prior year. The Distillery Products division witnessed a more than 11% increase in sales, from $80 million to $89.2 million, accounting for 9% of the total revenue increase to $108.3 million from $99.1 million. MGP Substancesforecasted sales growth for the fiscal year to be between 0% and 2% higher than in 2020 and adjusted profits per share to be between $2.05 and $2.15.
“Even though we had great quarter-end results, we still face two major challenges for 2021,” Mr. Colo stated. The first obstacle is the rising cost of commodities. As you may be aware, during the last several months, US maize commodities exports have increased significantly, and adjustments to 2020 corn crop yields and stockpiles have resulted in higher prices for corn and wheat.
“Remember that we have a comprehensive risk management policy in place, which involves buying the appropriate grain. We decrease our product’s volume and price at the same time. However, we are unable to guarantee that we will always be able to price because we do not contract 100% of our sales for a variety of reasons.Supply chain interruptions are the subject of the second headwind.
“We still have problems with domestic transportation availability, backlogs at different ports, and a lack of shipping containers that we need to ship our goods overseas,” Mr. Colo stated. It is uncertain how long these delays and problems will last, even though these logistical problems are probably the result of the COVID-19 pandemic’s disruption of the world’s supply system. But there is still a strong market for our goods, and we think we have positioned our company well to weather these difficulties for the remainder of the year.