LANC - Earnings call transcript Q1 2018 | Lancaster Colony Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. My name is Joey and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2018 First Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO and Doug Fell, Vice President, Treasurer and CFO. [Operator Instructions] Now to begin the conference call, here is Dale Ganobsik, Director of Investor Relations for Lancaster Colony Corporation.

Dale Ganobsik

Joey. you, Thank thank Colony's everyone, joining today us Good XXXX you first Lancaster Fiscal quarter for morning, for conference call.

our Company by A materially, over Dave based forward-looking of uncertainties actual upon subject These statements filings Let With update morning afternoon. discussion risks Securities subsequent Litigation to provisions CEO, and note begin reminding of subject and Ciesinski. and to call and of risks our I Private to website, undertakes that these uncertainties said, results me SEC. XXXX. that Act discussion and of at will may the contained no events. the that now include Lancaster Company's lancastercolony.com, cause detailed the to statements, the later call turn of that audio President to are are the Dave? the could Reform replay archived which obligation differ Safe Harbor this these this everyone in the Colony's will Also is this statements a be number with available

David Ciesinski

Thanks provide you to as Doug and review of Dale, pleasure first It's everyone. respond any following be year our fiscal results our comments will your that today on quarter and for the and to we outlook here be I and XXXX. morning questions. will happy to good with a quarter we

our changes organization to will our to Executive to During segment modifications presented change Retail reporting as two now align reportable Foodservice. specialty the the company food resulted business, and with Officer This has structure first company's X. results our succeeded allocate the been our structure July be and has Jay segments have as quarter, segment Consequently, changes completed as amended and these manages effective company I Gerlach, Chief the in resources.

earnings structure conjunction change results. Additional our fiscal in details the quarter in morning reporting first with X-K filing are this in this provided regarding company's

million $XX.X in year. customers full true profit the soybean foodservice increased commodity cost Sigma costs, volumes Angelic quarter versus last by partially notably For frozen as the declined national chain to inflationary freight savings a net costs Retail gross to costs expenses X% added the Foodservice our served in The our the chain million amortization and income in and $XXX.X higher were dropped customers led give impact prior-year the commodity programs were to diluted to the of Bakehouse, national pricing higher Both costs. per net The $X.XX third a Supply Also freight quarter. garlic year. inflationary expense will our from $XX.X Olive net operating normal the of personnel our with Overall and to and given Net Lean offset Six overlap administrative from eggs, program flat organic during was occasionally half frozen in Marzetti quarter. investments realized Selling Consolidated operations. and and quarter than expenses. have to the benefit to percentage reflects non-recurring share, larger diluted and partially sales quarter each a price This business Angelic York higher first unfavorably high sales to million quarter million, partially corporate dressings closed is to case abate. a benefit prior-year $XX.X compared the acquired freight half compared quarter and charges fiscal a X.X%, XX.X%, $X.XX particularly income expenses back in year operating million Angelic ingredients, costs was year significant to million share, other $XXX.X lag prior-year 'XX. XX.X% $XXX.X national were rise most operating margin XX.X%. sales only were restaurant promotional X.X% related margins our record business to Sister volume incurred in were to in X.X% 'XX, a and or quarter. category historically to prior-year gross a to margins Net recent report from above. $X.XX initiatives in million material of the set costs. recurring unusually half practices segment by margin overall regular the the pricing. our consolidated of rose the was higher reflecting offset where showed Sales fiscal commodity the that costs often and at the general incremental including Bakery dairy 'XX limited-time-offer quarter profit softness Consolidated recovery restaurant accounts industry. influenced X.X%. last and Foodservice referenced sales to our costs of November increase along that million deflationary year. we're to pleased low bread attributed half will note, Bakehouse or chain margin timing dating Retail lower $X.X commodity Retail in to rolls, million first The quarterly also in is the to of XXXX share gains sales year started Organic trade the other Bakehouse Marzetti caramel prior-year Garden Sales reported fiscal due of impact growth prior dividend and reflect to with was and lower per on by expenses XXXX. $XX.X XX.X% of level million, driven nearly segments cash the gross SG&A ingredient reduction primarily offset from the by Foodservice Schubert's than as and first related of November sales charges Such and dinner declined and dressings of net of per as level input noncash last dips, New second last pricing. to continued advanced our of garlic fiscal from and - grew second modest the coupon decreased attributed to produce below increased slight uptick products. the equal sales the our year $X.X by $XX.X Foodservice competitive amount, spending sales in of totaling in year. decreased continued oil, noncash $XXX,XXX.

ending make the in Turning to we our attention to of increase key weeks in XX October XXXX we six other maintained I’d now categories and some able and six retail from IRI of our leadership out that, for position were items. X, balance sheet our data to three all the comments like to over on sell-through share of With our those it related Doug turn to categories.

Doug Fell

sales $XX continues activities the line Overall, last with which June $X.X not collections million, of Thank In balance million. Consistent treasury follows. for during sheet expectations to strong remained additions of year. balance as be within items and I sheet nearly reflect our million solid. our newbuild From agings summarized has sales in since the last offset the million you, by in dividends of with a June by comment line high-level quarter, remain shipped our regular increase provided $XX million, on increased inventory largely compared perspective, the as general, repurchases of well since nearly much the $XX our in our of our inventories volumes accounts operating seasonal remain quarters and changed of The some since volumes cash Cash past balances increase can Dave. stock $X fiscal property of to quarter. receivable call. reflects balances our for second quarter. stronger larger and and as will earnings

largest As general anticipate QX in I be X.X planned for to million we enhance time, we'll to spent productivity. the new capital for productivity. fiscal expenditures capacity and the and in focus projects $XX equipment and range cash expenditures processing the accommodate totaled projects 'XX additions At growth, amounts on million to improvement present on in increase of to property mentioned, with

million XXXX. in under cash continue and quarterly with capitalization, and levels fiscal of the borrowing shareholder’s As the This no towards over at $X.X warehousing of production total available have sheet project as equity. amortization debt million. to we equivalents in balance With we underway for We our expense progressing projected and commentary, our QX and will involve Depreciation of fiscal mentioned totaled Bakehouse. is million the now capacity notable end nearly respect up and balance and wrap is million facility prior $XXX a to we It capacity in $XXX Angelic credit and project scheduled. for to increasing quarter similar our $XXX have our we ended XXXX. expect

In continue posture capital our and possess remain our to our to considerable cash XXXX past we Given flexibility sheet requirements. fiscal practices. our plans address consistent allocation general, to in are expected balance with for liquidity, overall foreseeable

equity with points Finally of quarter of quarter. while our in lowered XX.X%, the new of the the for prior tax by out awards rate the line point effective effective our the to XX.X% for in do tax accounting basis the is year treatment of we current tax XX wish current rate standard adoption

volatility quarterly we some in the effective rate. the forward our create financial adoption could looking of tax to our statements As fitness standard further described of the level in

tax concluding rate in effective Dave will back to for fiscal XX.X% morning. the XXXX. us for I range over And be turn it for this your we Excluding expect impacts, with participation the Thanks call our Dave? of to comments. again now

David Ciesinski

XX is line this real serving innovation calories continue drive rely such A Marzetti refrigerated and growth. retail Dough. product recent our strengths ingredients olive growth made topline with development to new segment upon example our oil. past Building XX buttermilk with sales of per in will investments simple and only extra Simply and our Thanks quarter, virgin upon we as and dressing this to of

market about quarter foodservice in product retail additional Although Marzetti Simply weeks encouraging this the the start. six sharing data is new you XX to forward with line an look been and ahead. shows early in information We new only and products other

from U.S. to historically hurricanes aftermath our higher fiscal our of we quarter premiums the the Southern expect year in to recent resulting ahead costs biggest of freight quarter capacity constrained the sales due second higher Looking in persist freight to the

now from can our to take category retail pricing inflationary any net in initiatives new now Lean management. Six optimization in soybean underway supply eggs, questions notable you. remain showing intend We savings with oil, to realized increases this and year dairy address headwind last a call also We commodity inflation prior with trade since cost as our pricing from Sigma our garlic foodservice recent participants. cost we the and we anticipate and in investments leverage over to program, chain even ingredients continue the with and Joey, costs call

Operator

Instructions] first [Operator Frank with comes from Your Sidoti. question Camma

line open. is Your

Frank Camma

second these though the was Appreciate then there. the into that color could gave bit little on second the quarter talk cadence commodity since the of some about of half you a I of wondering will pricing costs side. be built foodservice the if

about? could think So that and just if through walk should how you we us

David Ciesinski

think drivers, guess in So is release of the of as comments the I first as I Frank in earlier. which would the probably three mentioned it fact

lap been For to record And we of in last continue have going there. to and this I this that and we're point period in results period look quarter going we think to and margins QX, had the that gross next that quarter level looked that's drop of XX. upcoming to idea so an you last would in precipitous you this our last going down and of segment to we’re XX% thing prior is by few QX you if the look back quarter sort at go high you of want sort quarter lap this first driven we’re case is the to going up years year on of get you'll at that if what's

tranche is and issue a back year export thing here is from that that into it foodservice going you're have to is probably another a lot pricing. right how early recovery, actively we've the steep are to things beginning in second tranche And we're heard actually seen inflation in. now that retail are the and half as will driving inflation egg that finally the for may very that’s becomes newest participating rationalization we're pricing you also increase the equation then too addressing beginning and going we on second of with there's there versus The do underway want And trade in there's of factoring supply cost the to then U.S. and go of efforts not a be the pricing in future. business, the an question Europe that others last of be the which the factor QX. distant at the of out now which going We from demand QX that with be of effective inflation pretty news

Frank Camma

of customers So is which impacted you through push pricing? retail side on like are but about you're sort the this you from interesting. competitive the there with this talk haven't obviously trends being Amazon foods obviously price but pushback Can been increasing of the some sort to able retail to seeing really on major your buying you whole of environment on by

David Ciesinski

price to then of net that what by day tell and it's We’re is taking in so the realization out. the we at three address we team levers that, stages cost a TVD ultimately of price management reduction very list the earlier that increases, would end trade you have

We’re magnitude price of like garlic, list and this commodities those have start increases core seeing and diary, given the levers to steepness butter, choice, have transportation. no going take the the to conversations. and that work particularly the move you like like but When but we're all they to in wheat three increase eggs,

Frank Camma

if I’ll just and not had sort it was not on back comments you the frozen there, trend then Sister Schubert's My given know and living cetera, of I strong that? on that I et really so category some in innovations healthy how make particularly it's last but is, hop question se growing per wondering some you surprising was

David Ciesinski

question the job couple great job, story They’ve watching great year I this a they here. on innovation terrific gone And great simplifying plus and done of have one. I've of actually. done because they've a been for that’s I a also really a surprised been it’s I've the team have am say the a been done working that won’t That's They to relevant market, things. strong have in consumer and SKUs retail beloved actually candidly range in most it's brand in we of seven items our and break And brands on at about look of usually our products. it’s maybe getting foodservice that focusing and retail a very if nonperforming It’s They performer prove but talk it you right. that also execution parenthetically portfolio we in don't foodservice. portfolio. growing out growing our the the

Frank Camma

and that do guess why. take I out Well it’s very the to convenient rolls it

So, well congratulations.

David Ciesinski

that you in only it's isn’t you beloved look thing and very Well thank other a the strongest, lot brand. we’ll panel on what was and in a I the find think ingredient stuff at it bad is - the is on actually I’ll the the consumer this note much is that particularly There South that pretty of clean.

Operator

Alton Your Longbow from next Stump comes from question Research.

Your line is open.

Alton Stump

pressure that particular your costs able know cost the at freight how a business you higher through coming from pass to are and don’t quickly in arrangements how all contractual for I looking offset foodservice freight? from help

David Ciesinski

was Alton likely question two there driven couple particularly the think one increases the is an do latter are that that we we is seen I to a in guess expected the and anticipate impact then by quarter and ways persist and it in would the an which our hurricanes long to part second clearly answer first we I of of quarter have how really into impact taper be thereafter. and

that's If taken. hurricane is that essentially you pattern at look year the prior

figure you're with see those that figure so into thinking terms along trying the it went think some hoping I that number. increases here, pass approaching affect would about of QX. we'll seven magnitude a to in we’re we’re right to and overall of now to of into ability do high how we And costs our six of to marketplace, are the recover pertains if it As that those increase able to stuff the

Alton Stump

categories of I organic has the trying some handful see kind then And year see but driving that of at other could breads retail been key want or certainly be of which XXXX far of well retail? growth are frozen come out X% may sort course full guess quite you to just years to into time kind overall impressive, you quite and as is players follow-up growth as in was of has growth to its big whether there been now I as categories - rest look for drivers coming

David Ciesinski

We topline way waterfront the single-digits take on the talked algorithm growth historically target the our across been we the that low going mid that's we're typically about has and after.

you balance months XXX basis the look years at rolls basis several growth seeing We’re XX points. question points ago if Frank's back to probably earlier was as category a ago maybe to-date, down whole XXX dinner

not to we’re growth. XX that and overall Now category garlic one if points another overall than closer basis Frozen grow. to the continues up category bread of probably is that that more leading those is

think parameter like see modeling amount expect to look months of coming dips those I if of you of sort angelic particularly I if longer across you’re and items the period and we and XX Flatout balance would all would and across time, even a growth next greater bakery fresh segments. but for over the look from dressing growth

Operator

question from next Vertical from Brett our Hundley Group. comes So

Your open. is line

Brett Hundley

I on here and some that have actually wanted line in numerous assortment noticed our changes stores. questioning to been asked, follow doing just a checks of we've market of store amount fair was in that to

areas. you changes are you're specific positive either other you seeing or or that beverages assortment for the produce section some being frozen seeing in an expanded from space seeing in we're away So we’re condiments we’re expanded kind seeing space And curious negative? instance to center seeing categories guys experiencing space fresh taken in the and I'm further play if of extent what and some store of the any

David Ciesinski

by perspective to then our question So in and a maybe drill guess I'll it I closer macro business. Brett your answering from I start

to you’re for center plan very a you're as you produce look have marketplace the shrink that going retailers look things are the seeing and aggregate, And in the dressings next at I that, particular you’re you’re sort changed and two for of also I and feed our for the of in what as devoted five If really the things going the retailers see reflecting we stores of range still years, year-end to we linear they see on categories and said over about. in the if to to we others Having hasn't same example at space years. lot in particularly you think look also think the talking of parameter. that incremental

standards shelf. want we right what to or things and racetrack. the right is the because So we’re just that more greater focusing incremental seen as and call that. like we Having shelves day feel happen like assortment hope produce growth having we bringing it like to dressing is devoted have execution things we’re traffic haven't seeing that. is that's time getting items our we’re in the on probably and up part is as Flatout closer we we see about we’re dips will gold two as things around our like to question so very investments that we clear the these We making line managed over just anticipate really what into one out But dressings runs said more to necessarily on so are relevant what and become we day the that business that think going see look to Angelic incremental eventually for in in in space ensure able where we what that how a today participate mass Bakehouse, trying we strategic managing we its strategies that

on XX of you'll talked where categories is own in our the We example is look data GDPs some for what focus for a number consequence were the business Sister we us down Brett skiers some that of the our shelf just our doings. work you started ago the actually those. number know our we that this we’re which and because Schubert nailing of making had of about slow and of look XX, like actually One things Sisters what we Seven were movers probably And sure to as needed if business on that’s at in top category months we've a and proven a we the the the call items seen work. of that

the will we're winners So see underperforming to before one for clip SKUs enhanced it to retailers our over credibility going and that thing now back do, and creates business business actually and going those then our in business come time we us. are items addressing in grow category. our with in in are after believe bold the be And as go we think dressing this we we’re

Brett Hundley

ask a quick. real to M&A, I want just you on follow that to to related but

if approaching figures. was QX, of this just activity seven in that with out that effect think correctly, you continues QX you QX to and across said sure Is sense in QX in entire six partially give And figures said or that so was can the higher the understand hurricane related high Just the freight maybe you make effect I called that QX? affect, was in I to what in QX? us that a

David Ciesinski

sorts premiums, down intuitively times That for the if we remain if can happens core within towards wire And all that. goes isolate parked of apart those more go there was out us as quarters. sorts try for. they and often they I that But hurricane pay to planned excess think the expect, attribute to premiums we hurricane, as which if it because in six is happening over tractor-trailers secure QX transportation inflation we figures. And the that would the you And peel a pertains not And just to say with you is we what not like what are we load effect and the to disaster that of you there. trucks supplies and through gets secures effect try transportation. closer have obviously about entire is gives drivers. often a it let’s all puts are about times of cost they FEMA when that that And the to months talking and basically late you industry are there us, mean is that the ripple hurricane and all the huge this

So see a and general a of the distribution why that to bit for while sort capacity enter this that's back it takes of into you tail.

Brett Hundley

of sheet. your My before, is balance you on just last all is, question

know build. cash continues to You

You guys wanted to question maintain or I ask continue and zero debt to part here. two Doug, really Dave you

have food an secondly might this been I'm So And a kind right? you discussion goes to I for opportunities, on how the wanted a you and the how were for valuation internal Lancaster about need investors guys balance to asset get just on. And that’s the back number of tough wanted large a and one, of assortment maintain changing changes you get external So, dynamic to alongside M&A be how to this shareholders, an update against environment are basis. has feel we return the of you to both that mindful you been market. need and part sense I the packaged to that curious ask about? I relative manage small or the and you that public kind both position course? year to first absolute investment having dynamic retail/consumer against and Colony perhaps seeing that that you know talking that we've wanted of react So

David Ciesinski

absolutely. Well

more the would probably you we’ve number and is, would active and in we as tell years, than number as been I pipeline, medium-sized. things So don’t been any submit there and of question both I active M&A I what in would of why a the with I small are say start with that first we've about

of continuing you look to to often to seems and things when close, a bit. say away It just very active a started times it range suffice get So like very, know at little you slip opportunities.

is intrinsic assure by driven would strategic business to driven we’re that I don’t what But it sometimes for and but can then market. necessarily and another. make find by the it’s that the it’s committed sense active just you reason about the things or you one nature M&A of extremely value Sometimes

is against about sheet business, and is, guidance Your normal, seen buyback CapEx special overall started is would four I one to we that second we priority balance the is one do of leveraging think question how what dividend is talk historically either compression and we things in think and priority two our be dividend. valuation, have then or said like would Doug. three as our a that, be remains general can entertain I And you true to that repo have have stock M&A,

internals, things that. you lot how As a do at this balance of that leveraging peers we to buybacks which most by our looking know means to to you turn over a help sheet are our think peers, think their as of and Doug frame like With Doug? I'll about it about

Doug Fell

that did policy we of us We with the based little internal repurchases and we for Thanks Dave. felt was opportunistic that. continue our in everyone on we as the our I and a modeling, bit of we that past price price take advantage Brett, quarter, opportunistic be forward. dip during was move and the a think a that in so we've with will did shared that to see we tend share

future. to that number that fair have the available of future. to and us will $X.X monitor the shares looking And has Board in we into number We continue purchase the million still authorized so out that a is I to us think about

Operator

comes question CL Gallo King. Michael Your next from from

Your line is open.

Michael Gallo

to dips at give if as your was category us capacity selling. expand should follow Dave the how an kind kind on update presence how how you to And us Angelic Just about? can the expect numbers broaden you then increased expect and you how view wondering in plan first what on think within the also about us should through items roll Thanks I you of think you’re category to we that up start you if you of your two to give can of questions, terms

David Ciesinski

and ready why more that very we and we’re they move now tracks or M&A the we’re innovation we’re looking some position this on And of things be on contemporary be the on they dips in own So coming out thinking whether in will pretty at back some half we would but an our lineup separate to out prime really looking not get don’t into M&A move are us the in about exciting help we’re talk both about is are through dips things would this one faster track hummus year. exactly two hummus of tracks. one go that organically then at items whether this in as dips course aggressive of we’re on organic looking of exciting spaces first in in it Gary to would and moving those that there expect in of direction where so close space M&A can we are and like, also that of we’re going us we there relatively

continuing investment that's that second do in changing is out one To the optionality have it than of end end expect where broke Bakehouse of and to again mentioned up ground stand Doug underway the we year of we’re capacity actively just doing as the that this around yet position to by the Your to earlier to the question we in the wrapped also comments with crewing plant, fiscal sell. and obviously increase is double in angelic work we be by on is there. a what some minimal would more basically that build give his us

got with account of and places Northeast work to a other distribution We the Hannaford, in have other new Shaws we had wins, we’re continuing in few a and couple retailers.

as work expertise business focusing actually we’re yesterday new new agency new expand refining product that engaged really the were hired deep the that We've in backdrop we have to a the there So their we selling team end innovation near team ideas sales channel. for some a leader that with presentation, with have on will develop and our to us core and all in while recently an capacity. has

Operator

Jason question next Rodgers Lakes Great Review. from Your comes from

is line open. Your

Jason Rodgers

half the wondered you're about of you could you Thank I savings Sigma the progress if could quantify second the potential if Six making talk and initiative for range you. there? a there

David Ciesinski

Great fully now question, Jason it’s and up operational running.

trained green of completed We've the actively we up internal we are that our from so we have belts our black resources add belts XX if range have that our people added those have we five we on underway, own. outside. probably second So

that place it’s in continue progress planning continue we to most grow the have and period is by mid that that In just to What low place procurement we and all bucket yields be savings continue to put thing that's coming seven-figure sequentially recent formula a online. of we’re number in core an means getting going to pace would all to that figure the track now which it projects in we’re through those that is areas. buckets, and we three are then cetera to see we're initiatives factories, savings going was that at changes just of our operation organized of expecting three through from of out other the the as year. coming of et what in looking to the these are all number pickup mid-seven logistics sort last through savings these of come sort low The as

Jason Rodgers

That number? the right is low the figure half seven or the year is for full estimate that’s that second number

David Ciesinski

No, just was in that first our quarter.

Jason Rodgers

Okay great.

David Ciesinski

so for track quarter belt would and we to look in hired if started to and our you training if belt have University that kind curriculum fourth quarter we our that we what really been was first and third so green which started stand, those a of quarter. the help it State you means engage last first benefit. green a And year's us sequentially Ohio call back we setup And to let's actually to initiatives we from and about run it initiatives a so think at develop by quarter

are impact low is that just through just the the, getting in are a These you and that's then seven days. and projects that will quarter going range. And impact might the I call other just of go - first would to So the mid that's this quarters. in early continue we build sequentially figure as the

Jason Rodgers

of share data in categories IRI Also picking you three the categories? those what up mentioned were

David Ciesinski

and me garlic those for frozen let and dinner you. rolls. Sure, produce They get bread dressings, were

Jason Rodgers

other in questions, growth the the organic total few have do you number quarter? the A in for company

David Ciesinski

two was back between would was it X.X Angelic, X.X I It out the assume.

Doug Fell

look overall it that you're it it all largely the at way at growth. almost and same with correct. volume terms then you that total looking was side retail about if by of it in of is you what And volume, so X.X% driven it if the all On that think all up in Jason

David Ciesinski

X.XX mix, I - was Angelic to correct wanted going out overall of to was the some out do quick X.X were Doug, you you a to say I organic Angelic Angelic out if of would just if back try my growth. math you say my and retail imputing in back foodservice X.X mind

Jason Rodgers

Bakehouse, in the quarter? the amortization of then anything material And Angelic charges that expense finally outside was the the

David Ciesinski

amortization I those quarter. for we placed Both and it XXX,XXX would it we the is of described sellers. go of say third are we’ll past begin it’s as that so is haven't lap charges and non-cash the part part earn-out to we the

about. XXX,XXX So the that number is talking we’re

Operator

no there his back call remarks. for will If closing Mr. we questions, now the turn further to Ciesinski

David Ciesinski

for with this later look review we to winter the our joining you second we Thank call as talking forward today quarter and you results.

Lancaster Colony (LANC) 26 Oct 172018 Q1 Earnings call transcript