Milling & Baking News - May 7, 2019 - 16

Financial Results

Lancaster Colony quarterly
operating profit flat
WESTERVILLE, OHIO - Higher marketing spending, integration costs and increased investments in personnel cut into
third-quarter operating income growth
at Lancaster Colony Corp. Boosted by recent grain-based acquisitions, sales were
sharply higher with gains strongest in the
company's food service business.
In the third quarter ended March
31, Lancaster Colony net income was
$30,604,000, equal to $1.11 per share on the
common stock, up 11% from $27,621,000,
or $1.01 per share, in the third quarter last
year. Net sales were $317,882,000, up 7%
from $296,174,000.
Investors were disappointed with the
company's financial results. In trading
April 25 after the quarterly results were
issued, Lancaster Colony shares traded as
low as $141.42, down $12.14, or 8%, from
the April 24 close of $153.56.
A lower effective tax rate in the fiscal 2019
quarter accounted for most of the 11% earnings gain. Income before taxes was up 1.6%.
Half of the 7% sales gain in the third
quarter was attributed to the acquisitions

of Bantam Bagels and Omni Baking Co.,
transactions completed in the second
quarter of fiscal 2019. Retail sales during
the quarter were flat while
Foodservice sales rose 7%,
excluding the impact of
Bantam and Omni.
In Retail, sales of frozen
garlic bread grew during
the quarter, but flatbread
sales gave ground. The
Foodservice strength was
attributed to stepped-up
business with national
chain restaurant accounts
and strong demand for the company's
frozen pasta products.
Over the course of fiscal 2019, Foodservice has eclipsed Retail in terms of sales
contribution (Foodservice accounted for
52% of third-quarter sales) but remains a
smaller contributor of operating income
(42%, excluding corporate expenses).
"We were pleased to report record net
sales for the quarter led by our Foodservice segment," said David A. Ciesinski,

S O U R C E * B L E N D * I N N O VA T E

16 / May
7, 2019
Milling
& Baking
News
B.C.
Williams
Bakery
Service
| BCW Food Products | 800.527.4104

chief executive officer of Lancaster Colony. "Our Lean Six Sigma program completed another successful quarter with
cost savings that helped to offset the
higher costs we had anticipated for the integration of the Omni Baking operations
and incremental expenditures for product placement and brand
marketing in support of
increased retail distribution for Bantam Bagels.
The higher amount of
S.G.&A. (selling, general
and administrative) expenses also reflects our
continued investment in
strategic initiatives and
personnel to drive the
long-term growth of our
business. Looking ahead to our fiscal
fourth quarter, we expect packaging and
certain commodity costs to be modestly
inflationary. Our supply chain team will
continue in their efforts to offset those
costs, including the pursuit of ongoing
cost-out initiatives in strategic procurement and savings opportunities in distribution and warehousing. In addition to
the contributions from the Bantam Bagels
and Omni Baking acquisitions, our fiscal
fourth-quarter sales will also benefit from
the later Easter holiday."
During an April 25 call with investment analysts, Mr. Ciesinski expressed
enthusiasm about Lancaster Colony's
most recent acquisitions but cautioned
that the new businesses could weigh on
results for the balance of the fiscal year.
"We are extremely bullish on both
Bantam Bagels and the Omni Baking
acquisitions," he said. "Case in point, in
the 13 weeks ended March 31 Bantam
Bagels finished No. 1 in sales in their
retail category of frozen bagels. Having
said that, as we outlined during the Q2
call, we expect both Bantam and Omni
to remain a modest drag on earnings for
another few quarters as we continue to
strategically invest in these businesses
for our future."
In the nine months ended March
31, Lancaster Colony net income was
$116,539,000, or $4.28 per share, up 14%
from $102,927,000, or $3.75. Net sales were
$984,117,000, up 8% from $914,755,000.
Year-to-date net income for both years
feature significant unusual items. For the
current fiscal year, the company recorded
a $7.4 million gain associated with an
acquisition-related contingent consideration for Angelic Bakehouse, Inc.
The one-time benefit in the year-ago
period was a $9.3 million re-measurement of the company's long-term tax liability, associated with the Tax Cuts and
Jobs Act of 2017. MBN
bakingbusiness.com / world-grain.com

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Milling & Baking News - May 7, 2019

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