LANC - Earnings call transcript Q2 2020 | Lancaster Colony Corporation

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Operator

Good morning. My name is Jason 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 2020 second quarter conference call.

Conducting today's call will be Dave Ciesinski, President and CEO and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise. completed remarks, have a will speakers period. question-and-answer the their there prepared be After Instructions]. [Operator you. Thank

Corporation. to now Ganobsik, Relations Lancaster of Dale conference Vice Investor Colony for Treasurer And and the President begin call, here is

Dale Ganobsik

joining Thank you Jason. second for morning everyone XXXX Colony's year conference us you fiscal and Lancaster quarter today thank Good for call.

the to this to Litigation provisions subject Harbor obligation Private undertakes Securities at of number the our Reform subsequent statements morning be of this and a SEC. events. of that actual available to include the these this These upon differ materially statements, afternoon. later archived in risks forward-looking and statements and could may discussion uncertainties of and risks update based Safe Our which the subject A is call XXXX. detailed with the will Also company's Act uncertainties company audio are of these note cause replay lancastercolony.com, discussion to contained the no are that results website, filings company's

call, respond Dave Ciesinski, on then Dave will to update an remainder to will results. outlook will any our of share an and your year. regarding At our conclusion happy for comments the today's strategic of of Pigott, of and financial President overview our then initiatives Tom with for will our some begin highlights provide CEO CFO, the the fiscal we the our our prepared be questions. quarter. remarks, For

Dave again, now and to I Colony's turn Dave? will appreciate the this CEO, over participation Lancaster morning. Once call President we your Ciesinski.

Dave Ciesinski

we fiscal our with It's a year second you morning quarter good today to pleasure and for everyone. be Dale XXXX. results here review as Thanks

we off by like have growth our to progress would plan I this quarter. made the sharing against start

business and and and Company reduce M&A our execute our Food margins to grow supply simplify accelerate simple three pillars, plan recall, identify our grow may to our you As cost of our growth, core. consists base our growth Better chain complementary

team, implementing results. the we During several plan the years, last growth our on strengthening and our harvesting have focused

During grew sales net this X.X%. past quarter, our consolidated by

sales price garlic foodservice segment Retail net shelf-stable sales while Our net realization, of retail favorable net flat sold sales and X.X%. increased dressings benefited sales continued from gains under frozen segment net agreements. grew sauces bread and license for our were

Our New growth share delivered sales from quarter as branded York frozen Bakery players. bread products we took of other another

Cheese York New also successful Sticks benefited support. Bakery launch X-Cheese targeted from consumer the of and

dressing and to licensing our top-selling the nicely as Italian shelf-stable dressing grow category. remains line our addition, in business increased In continues the share Olive Garden

growth retail Offsets timing primarily to in the quarter related. were

In Marzetti conversion First, a a in nice SKU we QX we higher dressing, call. products saw versus project, more launch in new shipments which net Dips benefit, progress of bottle seasonal towards resulted the orders good are in during of segment which QX. planned for and is QX. produce making strong level Apple this realization I have a discuss our in providing Overall, Caramel later of price will our QX, pipeline

led Omni foodservice increased segment quarter for growth solid second sales to November Bagels. closed Baking, to of sales sales sales which last XX, XX%. X% Bantam foodservice our net In attributed growth this increase The XXXX, and strong sales topline year by products segment, branded net X% over distributors through excluding in reported a compares on sold of higher net when

to attention our product Turning supply.

our margins. our We cost and our significant continue to second chain on progress supply to grow pillar, simplifying reduce make

oil. key as by This some along strategic handful commodity in with soybean improvement gross such was a profit million our management or to of QX, initiatives And million. $XX.X X.X% consolidated XXX increased basis points costs $X.X to gross procurement, improved favorability driven including During margin transportation eggs and XX.X%.

in roll invest as for to in Sister there up I the to frozen support growth the of new expansion Horse schedule am dinner that report planned continue and our month. our construction Schubert's be reduce expected line plant also is completed production and to later happy supply and month chain Cave, to costs. We was this last on Kentucky running

Bantam also in be early expect are capital automation project for the of a in We midst and production increase that business we operational capacity to expand fiscal our to Bagel and complete base year business, with chain and support made growth. during continued through second supply in growing the XXXX. pleased progress our we initiatives investing reducing were Overall, to fiscal quarter cost our

on will commentary our Pigott, for our QX now over CFO, turn Tom to results. his I it

Tom Pigott

are increased sales $XXX.X the Thanks results pleased we Dave. the for X.X% second to quarter a million. net with Overall, of quarter. Consolidated record

in $X.X million million consolidated Excluding basis and of quarter, prior the increased sales Omni by in sales current $X.X XX net the year quarter Baking points. year

with Omni are These the As agreement. end the the will agreement current that temporary decline supply XXXX. sales the you to will by a recall, quarters level in Baking sales expectation December attributed supply from coming will

profit commodity net programs, increase foodservice improved and Consolidated sales cost increased X.X% realization or by lower costs, to savings price gross $XX.X This million our mix. driven million. $X.X favorable was a

million administrative $X.X million quarter. or our in SG&A expenses increased XX.X%. was increase and The program, accounted ERP of which this general for for largest Selling, driver $X.X the

ERP stage $XXX,XXX expenditures activities. capitalized for of related development an also We application additional

for achieved the year million. margin to due the Reported these consolidated consideration growth, in operating $X.X operating XXX Key topline part excluding of as of the well reduction prior income contingent non-cash the growth. $X.X in the the current the declined point and the investment company include as Angelic favorable quarter Bakehouse items, expansion ERP drivers gross to million, income year's basis

of compensation this in tax The higher from Our fiscal XXXX. reflected tax primarily based quarter a XX% XX% decrease the to on decreased second benefit stock rate effective quarter activity.

forecasted of for Our to the year is be tax rate XX%. XXXX remainder fiscal

by period. consideration in decreased diluted quarter $X.XX. per to $X.XX $X.XX EPS and share prior adjustment in investment reduced increased earnings $X.XX year Second share The to non-cash ERP per earnings the by the contingent

fiscal With million year regard project $XX in the to continue expenditures be to of to $XXX range million. capital XXXX expenditures, to our we

Our in that includes Horse the facility Omni expansion frozen capacity of leased. $XX.X previously Kentucky, dinner was we facility investment million and roll spending year-to-date recently for purchase completed Cave, the Baking project of our the that for

In shareholders. investing the we into to to back funds addition returned business, also

$X.XX XX of increase Directors Our a quarterly to to approved or dividend with dividend our be paid companies Colony Board regular proud increases. X% Lancaster only is of that consecutive December. XX one was of in cash years U.S.

sheet. investments payouts, and Even with $XXX quarter free the the of balance level with million dividend we finished the debt increased cash on over higher

commentary, favorability that and gross discipline, growth. by our helped investments programs, commodity topline pricing strong So, for savings to quarter profit fund improvement driven featured growth up this my wrap and cost future margin

over will it I closing Now back turn Dave remarks. Thank for you. his to

Dave Ciesinski

Tom. Thanks

our half second growth be fiscal consolidated in year, we the to to expect low single the sales. topline Baking ahead Looking Omni digits, of excluding

mid expect base by innovation low segment, starting in the in store digits, be to single the For strong growth we a pipeline of QX. shelf business improved the retail driven that will hitting

and represent to these we to of into future. drug this to look are channels distribution our We began dressing a additional and into in announce significant forward for own products, month shipping expanding including bringing channels we and channel excited month. the Colony's drug will dollar are licensed our Lancaster brands that the be products, from Both dollar business. new later network growth Olive opportunity we channel the some the last In retail Garden Italian to family

casual February, Starting and and on sauce very later encompass license Yum this growing, shipping a with Grill. and fast flavors. sauces delicious BIBIBOP Yum chain will great in a we fast trend, BIBIBOP introducing Asian under license be Asian will new tasting agreement other agreement is their

an In be Asian six and Caribbean provides Mango their This retailers were Buffalo flavors, appointment pack to extending with grow begin increase bottle sauces and Honey Wild single our agreement not different and to Barbecue, Zing, with and distribution offering. Garlic, Traditional the March, with the expanded multi individual Parmesan and Jerk. Habanero brand we significantly bottles reach selling opportunity partner we license that offering with Buffalo, foodservice will current our license able of us Wings

product as source segment. licensed opportunities our growth for pursue selectively a to continue of will We retail

in an called tomato them the Finally, an I and that our for to sun-dried consist offered and package focus month, salad increased eight will Suffice Italian. will ranch opportunities. dressings a begin of growth great product shelf-stable later thrilled romano new be dressings growth am brand These ingredients, into tasting introductions and blackberry to shipping entirely new including will protects poppyseed, that Dressed. buttermilk, is we it our of innovation cleaner translating under expanding pipeline and say, Marzetti flavors retail Tastefully on of announce this line segment

months to you on We progress updating will forward ahead. in look the our

of half national accounts single sales, sales Baking the by In of of sales the initiative sales low the driven as Offsets excluding to for Omni products. increased branded fiscal impact slowing sector our foodservice a of a include growth growth second chain digit expected in foodservice sourcing back trends whole. by we segment, select year restaurant accounts and our anticipate our are traffic and national the one to

half, to outlook compared commodity fiscal year to projecting modestly most turn fiscal are full commodity we Regarding finish and fourth with our fiscal XXXX. margin second the for we inflationary, will notably expect the inflationary, our costs quarter in year costs

will net the savings offset cost impact increases. with our of Our combined price help programs cost realization initiatives commodity

to on our two to very my term long growth. up wrap like tied important I initiatives Before comments, you are I that would update

I an First, Ascent. would to you with Project update on initiative, ERP provide like our

current recall, while the savings. Project future a ERP the well acquisitions, system helping organic system. to infrastructure enable to The us and all Ascent will to our us XX-year facilitate provide cost will replace scalable with us new You growth into scale drive long system term ERP also may old

of progress the first for XXXX. design and We with year half remains the are schedule of making the fiscal on phase deployment good project

our releases cost with We separately and project community the to disclose filings and will investment to in clear quarterly understanding all associated the project. SEC with of of earnings continue ERP a stakeholders our important provide this costs

cost in with future the expect total to an you estimate We earnings calls. have to share ERP project of

requirements up Board and This of anticipate growth one a complete will capital million to of will project XX importantly is January, months expansion We business. enable and the slated in it increase dressing our business. the long Finally, expenditure our capacity retail roughly sauce foodservice at roughly our approved take and will keep of our $XX and facilities. our of to dressing for partners us the strategic own Directors production term to cost major capacity with it significantly

$XX the $XX fiscal to and in roughly included forecast Tom hit million million this the to is mentioned expect earlier in project $XXX this We call. that number cost of year CapEx million XXXX

today Jason? that you questions for any to remarks prepared have. we our concludes and may answer be happy This would

Operator

[Operator Instructions].

Your Holland from line Brian Davidson. first of question comes from the D.A.

Your line is open.

Jamesmichael Sherman-Lewis

morning everyone. Good Holland. Jamesmichael, Brian is This on for

Dave Ciesinski

Good James. morning

Tom Pigott

morning. Good

Jamesmichael Sherman-Lewis

Thanks.

a item questions your and Just license on the upcoming speak products of enabling at Olive and retail lines, you me. high for distribution? product then In SKUs few level those how Wings historically single for looking context a can key Garden the unlock Wild maybe could at Buffalo

Dave Ciesinski

Yes, great absolutely. a question. It's

a up to in was Sam's As limited recently, you multi-pack were are offering until that Walmart. aware, we and principally Costco,

been Wings able of an which in have into The addressable agreement the gives us excess would expanded all I Wild out work well Buffalo total to think billion. is We is that way move $X with about license this the of to probably retail. opportunity ability

run. sauces, and marinades to include Up they a Walmart a other the we line the were there where channel handle just sauces, though three-pack. where principally of space recently, for room the wing to is this could you until barbecue lot club just play, brand can If limited and

may provide approach what able So we and we this the do major be will potential with us give think Garden. a create unlock to been to to able that something it will Olive

Jamesmichael Sherman-Lewis

broader then Yes. have changing past about That's customers how quarters have helpful. in outperformed you your talked foodservice. very And few foodservice the subjects, nicely

on trend December. we on are impact in your you restaurant an up months? was deceleration your a growth, trends past wider slowing sequential some any in foodservice any looks in that And the in then maybe having seen comment seeing Have and you that U.S. change November, traffic It can few like back dynamic? business? As picked

Dave Ciesinski

Yes.

average Another guide marginally and business probably question. we a to couple that to here we sort great of performs XXX caused have basis are us XXX of Historically, seeing drivers. points are the sector down said what that our above

customers, I is, in transcript, the one strategic as of my sourcing our implementing mentioned One is second earlier initiative.

quarter of one we have absorbed So that.

We of take more expect quarters on. three to have to that

a supply have second we obviously like supplier. of to the add didn't just customer I So lose but think them chain create to redundancy decided do, many they

we down. and is that by go to is going but been we thing that marginally account-by-account, seeing are generally trending increased ring into we are the see things slight continue deeper other not It's data are we are that as that we general pull we though believe The but offset generally What us seeing traffic softness. back go are slowdown. see, we a to a leading seeing to is

Jamesmichael Sherman-Lewis

time, for Understood. your Thank everyone. you

Dave Ciesinski

Thank you.

Tom Pigott

Thanks James.

Operator

next from the Todd King. Your from line question Brooks comes of C.L.

line Your open. is

Todd Brooks

Hi. the quarter. Good morning on everybody. Congratulations

Dave Ciesinski

Todd. Thanks morning. Good

Tom Pigott

Good Thank morning. you Todd.

Todd Brooks

points? net could think I the what you just we the then QX XXX in improvements, then in and well, some margin within commodities and If gross the realization saw about benefit if can quantify the management? basis what's improvement, that the get maybe to fiscal transportation color And maybe was basis parse better the talk we could QX, chain the did from process attributable points we both XXX price as supply we

Tom Pigott

Tom. is This Sure.

So We tracking to million annually. the the $XX the was largest program growth were savings contributor of cost about there. margin

$X So inflationary approximately as savings. we another in forward. cost million And favorability going that Commodities million we the expect of are $X of Dave to do turn contributed range. mentioned,

foodservice the also price higher volumes in favorability realization got We segment. from the the and

So of achieved we key those that the accretion the in the some margin of quarter. drivers were

Todd Brooks

I And call. QX inflationary about getting it back the commodity half changed? the outlook, has you know talked on things

expecting you within more the What's inflation, you items? As inflecting looking individual much out, as are are line inflation?

Tom Pigott

Yes.

for being our you are neutral more us, more quarter in It's So it that just then little and commodities the favorable projections. if turns from this want bit that in quarter to based driving the a fourth on texture. current unfavorable

seen are the portfolio soybeans. going the last that's our to And a eggs, eggs, significant is see have quarters we reverse three overall other of to some pretty back Our deflation where pull over itself. on begin driven in that the

of and tighten back due watched I sort soybeans the the sector trade on soybeans we soybean knows to see both as outlook marginally who oil has well. think are to as everybody disputes pulled and this starting up

Todd Brooks

Okay. sweet a tasked from product revenue then product but or standpoint? retail, you second expected Great. from cheese the product in about Or rolls, talk can maybe of at at, is, as look the license you it's new house whether new a question my sticks with performance standpoint? development pipeline, not the products And we you the creation the the if side what revenue new partner at development look

Dave Ciesinski

pumpkin Schubert's is in rolls some into in into list, we that's didn't get there haven't anecdotally numbers. In some talked a It's great I I can We And continue X-Cheese we things going about there the a The but other going to which Cheese broken activity those talked are laundry question, well. you we perform Todd. lot out continues because Sister well. to want call about the didn't to of that of of there. have items a on tell Sticks items. Historically, do the on. spice last turn quarter, we sweet this

to us, by a is our brand, On for us is leader excited and broadly as very excess we about. become Olive that our has shelf-stable license of dressing. own very, in more It use real which a Garden, the one means besides reach to chance to of Italian. a our own Tastefully are about gives brand Dressed salad And billion $X.X that outside category with product which

go here get we were to and if this, satisfied sound that. internally, into not want lot towards a you So like more really ask usually a are I faster something the start to we lot team don't to and but until a would number, it

on New our and to make York to Sister those we and relevant renovating and we that sure portfolio see new others and are our existing and us So healthy are maintain innovation and bring items like going to you Schubert's in continuing there. brands that are focus just are exciting pushing

Todd Brooks

you of Is it that fulfill capacity Okay. capabilities? demand? guys Cave is unlock cost Is new And final does being then product Great. more on Or January. production? it on for end just it one side forward? to the Horse the What the of product at going a facility completed

Dave Ciesinski

this what addressing really And are it did Horse same that need. of They question. the Sister sort Cave project. Schubert's Great and is

business grow at roll to look the over continued capacity. running our and you has out we If of recent are past,

and to up foremost, foodservice, keep business. first to is enabled both do, with in it what growing So, and us Schubert's Sister retail our

When we structure. built built that look where with simplifying overall our at we facility it though, we potentially network the also optionality could

many that to looking we simplify XX term streamline by is, that we which material, know ways our factories, find chain are you and do continue As overall our supply to subscale have long are are going one through the we at and how structure. of of prudent things

up of we million in you point we you ago it there. not, just all on are through that give the dressing That while and dressing now pivot talked running we of increasing a one. of to that About year Cave XXX about to ago, And almost a sort XXX about, capacity. As facility were this four done pounds years the have idea our million sort give the through expansion we years to down now, Horse so, believe speak. will the about is pipe, doing case we I the facility or talk that five pounds, without or so you

events by capacity which kaizen have a of facility. to and Six Sigma existing as lot the of a more done wring have out We we leveraged means

growth business, business foodservice a first rather and our a room But have little point stuff maybe driver hit to without like retail on We extension given we and dressing years, have we where the bit probably of box. that. about size a expand have own increased expanding the don't XX our of that of sizes built in for than in we customers things like this new part have kettle big It's a more the the an box that. box was the that or our both And one.

Todd Brooks

you. Thank Great. Okay.

Dave Ciesinski

welcome. You are

Operator

no will If back to Mr. questions, Ciesinski his for we the further there call concluding are comments. now turn

Dave Ciesinski

you this morning. quarter our third everyone look results morning. Jason, sharing thank participating for early thank you We you Good forward to and in with May.

Operator

That conference concludes call. today's

now may You disconnect.

Lancaster Colony (LANC) 4 Feb 202020 Q2 Earnings call transcript