LANC - Earnings call transcript Q3 2022 | Lancaster Colony Corporation

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

Operator

Good morning. My name is Josh and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation's Fiscal Year 2022 Third 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 you. Thank Instructions] [Operator And the Investor to President Colony now begin of Ganobsik, is Corporation. Corporate Vice Dale Finance and Relations Lancaster conference for call, here

Dale Ganobsik

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

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

call, the over call CEO, again, appreciate the your we Colony's remarks, At we'll morning. any Once questions. Dave now Ciesinski, update Ciesinski. be Lancaster conclusion overview will business the an the the then Dave turn Dave today's highlights results. prepared then outlook. of our President share will regarding to and participation will and comments our President financial current your for CFO, happy to Dave? of with Tom and respond begin to quarter. of CEO, I'll provide some and Pigott, our our For strategy this

David Ciesinski

Foodservice gains our today. continued sales a ended segment sales third with up program Net Retail portfolio, a to growth It's record the our grew Schubert’s to prior quarter growth volume, comps March the net $XXX quarter. the X.X% good in licensing decision Sister you of pounds, sales exit XX.X%. XXst, and for but rolls, Dale, pleasure pricing fiscal and for to and and across volume sales the sales net up morning. quarter in sales driven be X%, Retail in a was net declined dinner million net of robust third X.X% XX.X% XX.X% by consolidated our Thanks, In the strong XX% growth strong select over compares year volume Retail year's in to measured sales Retail moreover gains products. with sales reflects in noncore to last

led perform these combined Retail X%. sauces volume the in third period, and rationalizations, gains these growth. aggregate, for Chick-fil-A of our Buffalo Wings Wild net well Retail quarter sales points net by grew continued program for over licensed Notably, X sales In percentage our two distribution to Excluding licensing account the sauces. to sauces

share IRI XX.X%. for our to croutons, share our were of and For rolls, for York the Retail gains to New Bakery sales with garlic the performance. On to our Sister IRI showed up up quarter, of gains Schubert's two-year York scanner several products for shows well, branded dinner frozen growth frozen double-digit dressings. with New stack reported basis Schubert's quarter, Marzetti share bread, continued data perform refrigerated we Bakery our share a and overall dinner brand basis points were Sister XX refrigerated basis rolls a Marzetti XX.X% dressings points were share a pleased of data XXX market and

in our our I On In incremental margin later the and my will growing platform sauce our at in tripled, cost Retail the has the than Retail discuss achieving licensed this to has co-manufacturing $XX was million. licensed performance quarter quarter, But for two-year sales our rapid sales Total as in Foodservice stack Foodservice summary, licensing pressure. $XX our was products. more demand environment. million labor for sauces by actions, growth branded comments, same nearly growth consumer a pricing driven our pounds from tight basis top-line influenced by volume in execution. of resulted from due in challenges market to industry-wide increased and pricing In growth a segment, for inflationary and net and store-level measured volume driven decreased operator program by XX% as weakening strong X%

our materials, our Turning in for for inflation freight. declined to increased sequentially nearly three ahead our quarter margin of performance, Costs the in pacing gross the well XX% all third margin reflects categories unprecedented previous and of expectations. raw quarter, packaging

incremental our actions the in period, along extraordinary impact inflation. net lag pricing pricing the pass we of While of these levels

supply disruptions adversely by Foodservice labor in impacted customer volatility continued Our higher demand. chain also margin and results costs, were

above, reflect bottled sauces. also our rapid Finally, on our satisfy for reliance increased to Retail as stated an growth lower co-manufacturers margins help in

we outlined reduce to us cost of that continue a discrete enable list quarter, our pursue focused will our improve As we actions last margin and to profile.

expect reduced and and efficiencies we during quarter of for construction the our Columbus-based to expansion First, our operating of one completed costs June that quarter, facility begin and improved this startup the project ending capacity benefits facilities at for XX. sauce

Columbus-based Second, benefits is our The delivering reducing during also of we operational our now location. both opened material cost party handling fully for the our and warehouse quarter, need warehouses. new and site third intended the

capacity increasing our of facilities Third, manufacturing the allowed. continue to our where to we our optimize use use situation by co-manufacturers internal

fiscal we've of Horse savings our most of realized until While on the SAP. is facility live will few next gone first be Cave the when construction complete waves we year of made these not progress, and

is management. fourth growth revenue Our initiative key

Given is remains that the rate single lever. the our pricing inflation of experiencing, most important magnitude our and business

pasta frozen round in late quarter, of April. the on bread implemented effective an During our Retail became additional and products that segment pricing

other their impact materially changed. of carefully In inflation on revenue behavior run well. we tied that the on To-date, dressings, commodity of another pursuing also monitor if quarter as inflation, it our we additional soon our continued pricing an of and to round actions not continue and sources consumers other pricing are categories. is in and and where the for our on our Foodservice implemented has up we can peers, of be does, round broad-based tactics freight When deploy. and contracts edible there oils inflation, sauces dips Retail Foodservice the segment customers. management Like Given to pricing we'll our

magnitude, ranging engineering improve activating product and nature inflation, These chain margin profile projects Finally, will the our projects. and term. aggressively productivity broad the and reduce given cost rate supply of long value we're further over our

during on decision industry store the Before to I also closures turn was pandemic, Bagels. declines. our and Foodservice I'd severely the like impacted it over exit traffic briefly to Tom, to Early Bantam comment by

business. the our was period, operators impact to reason. Consequently, and the segment, their in investments for commentary efforts exit best business. to his of During financial economics streamline for of at choices pandemic results. this support made Foodservice And the Bantam operating largest for decision difficult the Despite the this we prudent customer the quarter on to third we in unable segment discontinued but made turn I'll discontinuation their major pathway replace identify our of the CFO customer and our to Tom Bagels menus to a Pigott, over of Bantam the credible the to the the business. Bagels to for numerous This efficiencies. loss precisely restaurant the during period, growth this were profitability call Retail changed the sustained now

Thomas Pigott

supply higher quarter strong resulting costs challenges. and for the top Thanks, by Dave. performance inflationary offset Overall, reflected line impacts from significant chain results the

the that declined pricing commodities Third quarter $XX.X we higher both or by sales were growth XXX $XXX.X the pricing gross of million increased priced Gross decreased net to of and materials was basis actions XX-year by and outpaced consolidated nearly million. in Inflation This gross profit Consolidated The The inflation utilized at by to chain drivers XX%. million. profit near were decline XX.X% margins taken key points. costs. was majority supply increased commodity the driven up $XX.X segments. highs. packaging commodities for by

extension, significant approximately up inflation. soybean exposure and by of impact higher commodity our half our which of to was increase peers. Our oil soybean our inflationary drove oil, than drove The many cost notably dressings

also This experienced quarter, sequential costs. freight our we in increase a

execute revenue to management our against continue it program. growth pricing, As relates to we

As commodities, and supply the inflationary The costs further labor. addition quarter freight are chain from months in growth higher soybean the costs coming planned on management Dave in in revenue recover during oil, for number factors. a costs to resulted other to and increase highlighted, activities the eggs, of

inflation adequate this tight factory, and First, our labor high labor, our of level by serve in customers ensure to manufacturing costs. we our The we inflation raise wages market. decision experienced in staffing to labor a other was driven to had

personnel, lower were costs up some We environment. for operating manufacturing of costs facilities, costs experienced to overhead and absorption our support due this other additional challenges customers. in our Second, in incremental our to

and demand to of supply at been has program to savings impacts cost hampered efforts facilities. our external the react by volatility Our

Last, wage and Third, inventories built we we for production up co-manufacturing due to higher levels warehousing outsourced had sauces. demand improve as and inflation bottled costs higher growing to service. costs more fuel our of were our freight meet we and to

continued operations. As year driven Dave administrative expenses our in of increases quarter investment increased Project a the increase $XX.X company actions These general our quarter the brokerage included for growth This in to related to the by two $XX.X infrastructure and our million. million business. items we're Selling, initiatives, costs this The $X.X to sales highlighted, of address X.X% improve higher IT million business. Expenditures taking and the and Bagels support these ERP increased several attributed current-year to totaled improvements. Ascent, or higher versus investments level special recorded prior quarter. Bantam was the

impairment charge two its to impairment explore to by decision for the First, noncash and triggered we Due reportable $XX.X our our restructuring testing business. restructuring nature, a allocated million. strategic not unusual segments. was Impairment was recorded charge and alternatives of to this

operating Bantam chain zero the I value income liability P&L. and analysis, charges on income Bagels contingent the business Based the our adjustment to described. revalued this We the the declined the we we Foodservice payout Consolidated consideration see of impacts the fair line by using and $X.X the to due Second, to million loss reduced creating million of segment. that the current a to to on million related $XX of $X.X consideration value you contingent projected recorded supply challenges, inflationary accounting.

per versus $X.XX related the million. With quarter additions year quarter. And and Third for reduced to The benefit EPS per expenditures, to $X.XX change by Costs operating share. the The quarter income per quarter driven Ascent the the restructuring our of fiscal was rate for decreased decrease of tax to capital $X.XX estimate XX%. $XXX.X this prior We the $X.XX. the totaled $X.XX of a regard contingent decline. was impact EPS by share. Project earnings be $X.XX per was consideration loss diluted in share share impairment year-to-date, property fourth to

million $XX the the For for meet expansion are approximately fiscal help forecasting million. demand products. of expenditures dressings approximately forecast capital This year increasing will sauce that the for we Horse $XXX our Cave and includes project

to investing addition our also returned business, In to shareholders. funds in we

Our X% per quarterly on cash share, $X.XX the from of increase prior XX, represented paid a year March amount. dividend

Our stands currently streak at dividend of enduring annual XX increases years.

of the broad-based million financial To balance as third Our debt-free remained commentary, cash strong unfavorable results we up from $XX top-line on and challenges. quarter my the our the position growth, quarter inflation reflected supply with chain finished wrap impacts strong significant sheet.

to turn to continue challenges. longer-term address of time, in it as supply you. our remarks. investing discrete now management with the for we Thank are over chain our And business. I'll inflationary same We shared, the At cost to closing we address has back potential have place Dave his the increases other program. in Dave revenue actions the

David Ciesinski

Thanks, Tom.

our expand strategic grow business look simplify continue support our to to our accelerate of costs the and our our our and will our leverage core ahead, core the focused and combined pillars Lancaster three to team, sheet balance to licensing. margins, M&A plan: supply of strength simple of Colony strategy, to our growth in with growth, reduce we As chain, our operating and

Looking ahead gains we to quarter, fiscal our Foodservice contribute to actions expect pricing in the our sales segments. fourth both will that and Retail

the pricing will increased and X% net Foodservice unfavorable challenges, cost, help warehousing partially actions a headwind chain Retail in in higher freight these initiatives higher higher and will comp financial with impacts have underway, growth supply costs. our measured to of results We XX% ongoing strong and labor packaging in implemented, cost-savings of our will and in anticipate commodity our cost, along segment. sales segment the While pounds offset to quarter. The volumes to costs we our remain coming

expect initiatives. we to on two quarter, strategic progress of During the make key material our

keep will pace track year not to our our Cave but allow to manner. in and only also allow first remains potential us automated sauces so do and project at of First, our investment us with platform, a dressing more Horse and facility half for in cost-effective on This completion growth XXXX. of the the fiscal tremendous dressings sauces

initiative, Second, begin on of I first share XXXX. am implementation Project of in the Ascent, remains that phase quarter the ERP pleased our to fiscal to track

performance unique the centric Foodservice program, We increasing while consumer and our third remains very growth navigated Longer expectations, in of action June, and platform that restaurant operating of Lancaster for the step we strong We've supplies category of well current the cost combined growing are of incremental environment. have month the our come. the fell infrastructure, the quarter dates. team. plans national leading order When demand a live by of we advance Taking In unprecedented our the business adjust see build already sincere fastest disruptions. supply ongoing term, our preparing underway capacity finished through chain rapidly licensing to investments some many positioned that the growing confident like financial short accounts to I'm many help with inflation, to closing, my the retail us In our a a the sales fluctuations, business leading a and entire express retail deliver and have in to with for efforts for our thanks country. years to I'd Colony as cutover chain profitable challenges brands, of and future, for overcome go customers back, in we inventory. goods their inventory may patterns

Our focus prepared for may of vital and our our supply today, health, to answer role concludes remains you in be our continuing we'd play the business for preparing and food safety, on welfare future. and any employees, questions This remarks happy country's have. the chain, our to the

Operator

first question The Instructions] from Thank you. Brooks Our Todd Benchmark with [Operator comes Company.

your with question. You proceed may

Todd Brooks

morning, everybody. Hey, good

David Ciesinski

morning, Todd. Good

Thomas Pigott

Todd. morning, Good

Todd Brooks

if A couple of quick questions, can. I

to that If you are pressures kind you contracted the quarter, is XXXX, to protected the as that inflation look what course just outlook you're fluid intra-quarter at facing the March the where be repricings extent. it's over of magnitude head inflation carry look -- a forward as what talk developed at marry fiscal we about then with of situation? of going and this you Can that currently could knowing some up how we or towards

David Ciesinski

margin Tom, bridge we've lay a recent about Todd, that most terms think seen platform that then in is in a to you through to way that? easiest the want maybe So quarter this, and the to sort place, out use to go a the of walk do pressure forward. as of a

Thomas Pigott

Yeah. Sure.

So, the get costs, wheat more in we position, we quarter. PNOC -- being had quite neutral the and run-up didn't as we rapid set anticipated we with but a Todd, weren't quarter, certainly other there costs, up this freight commodities, in

let of and So outlook. I'll more then some the margin talk the you take through about the of overall the on Dave pieces

that basis inflation cost had, $XX you aspects about the the and dilution program and bit pricing amount kind quarter. just the and impacts, to you points take supply Dave terms stop and line. behind a XXX then Then revenue margin the let the XXX account that management the about make experienced was that So of about that about it. factors, revenue of the experienced. million challenges we we and points dilution. some of of million freight [indiscernible] balance conversion I'll of was to add and recovery of look the at $XX commodity points talk you of line we're then the and the basis the And the XXX up piece in you dilution little basis when That of of margin other about into gives effectively we inflation, chain some where there some in the of

David Ciesinski

Yeah.

just to saying. was maybe what and So, Tom on build

spot from seeing If we look available at news, at number edible there that what is And rates expect seeing you about we're the here. and our and really on into look it we're coming the reasons for future the lots the in out current are two-thirds of total more look sort is we're that we items, look those the pressure broadly, wheat, pressure of to that we as and of that talking rate we at oils Todd, of inflation on continue. aggregate forward in

business. outlined and those as press as environment, So, go tools to a our I And we're dressing remain going a as management another in then along increase about tools business you expect increase think consumers Foodservice to to long can withstand that going number on inflationary revenue business, use prepping as That in growth we what we our pass think on this we're weapon Retail we're inflation. dough that go the are our into another to the our important most we able to going effect remain single on in are every And like long be and our price will forward really taking sustained we of pricing them. basis continue the feel we increases to a And it, and see be our we as place first pricing. year combat to business. multiple quarter to script, price times to in manage have price one will as needs actions

that were even the the given one value we're beyond to is far to pricing, becoming be more seeing, is going around all up, a automation product Now, like look bottles? intrinsic of We're compelling. ways it's and a factories. pipeline, ways the are important look formulas looking lot of we're the there're lightweight being we a and are worked to look that going activated. But that can transportation wage our are the are Number we're that product. point. work our to in can oils, plastic ourself. value the of there as to this our let's beyond actually considered And Those I'll give in that won't as gauge going seeing to be rates nature we're that be we're engineering queue to that we're our of at, of continue mom But of be also the diminution looking use use we are management say, going hey, to in the products, doing of the increasingly in inside corrugate are we're boxes? at manufacturing there experiences formulas other there the the just do our to we finding our revenue grains nature that inflation tools down well. and Are way into up, growth that And things going go say, case and what to consumer, particularly things in etc., etc., a sudden can for at to projects you rates way

with We those reviewing switch. canola have experiencing actually more in is consumers for a canola, products soy. them those that pressure of process formulas, with are than testing We're and a made today preparing and

where to And figure out factories strip products. So to our automation if then value to be be beyond out going going commodities. view to we're is we non-value-added at engineering product the seen with to tool happens be then for pressure can in re-engineering remains foreseeable the like it going pricing. things on our our to what But future number and in -- through see that. it's raw labor that, costs it, one is the you'll look continue It's and

Thomas Pigott

-- -- And relates Q to as it Yeah. Todd

Todd Brooks

Yeah, ahead that's very go sorry. -- Tom,

Thomas Pigott

versus QX, follow-through we the step-up pricing. in relates Retail pricing with action Yeah, do pricing, to a significant QX the as see and Foodservice the contractual it in

Todd Brooks

maybe into we Maybe that it's what QX that each you're pricing can worth was, reviewing dimensionalize at what for and then looking QX so QX, segment?

Thomas Pigott

Yeah.

by So yeah, to segment. I'll you it give

XX.X%, So QX, we're had mid-XXs. X%. similar XX% in And and we then up little QX, to step X% about a the in close in QX. over we QX, into Foodservice in level then pricing, QX, Retail, then in QX for And

Todd Brooks

price in queue. Dave, as price these as more of increases you Are One signs the talked -- the then on branded can environment? I'll the end effect? the gone Retail label taking still come price great. and have additional it. private any quick one bear as elasticity the about products? market consumers' Is back business Okay, against take go customer in this growing you long seeing Just bear increases in share willingness any into to

David Ciesinski

are our consumers, on elasticities exceeded a First in the so actions way in being elasticity pricing far the assumptions. base that's accepted

more plays how out product product. Now, bit varies to little it from a

so But to pleased us. with in we either. at label. more, into some others. And up categories, private than we a more subsequent bit far, is share versus susceptible we of with off drop at percentage we're business, is even as to within though, though, a I question, have the pressure the big if more. We consumers What as little I'm get much private a are, What which Foodservice seen increase, those a can label percentage going are bit in that gap that maybe because would categories private there share in if Retail it's consumer label business, hanging not you, watching, little our yet basis, haven't are least our you price a on on look

Todd Brooks

I'll great. Thanks, go back Okay, in the guys. queue.

Thomas Pigott

Thanks, Todd.

Operator

you. Thank

Edge comes with Ryan question Bell next from Research. Our Consumer

with proceed You may your question.

Ryan Bell

there look at from you any sort throughout if as the the how out fourth the of [indiscernible] COVID cadence you And impacts maybe quarter, the were volume Foodservice surges and of business that, the trends then in started and Morning. cases about quarter? within talk that's

David Ciesinski

Yeah.

morning, Ryan. all, of First good

a on beginning you seemed seemed the into basis at actually Omicron say very look quite Foodservice we pre-Omicron, the January, of healthy. was of saw it quarter, transaction and an December say, and If let's expanding into half middle quarter. It latter event January of really January took the was let's part through in the the the in of spike, to off February. back

course of carried sort kind we of run March, its the got into As impact of and see of forward. the kind could business Omicron you

Omicron on ability changed about what think our my staff don't to observation Foodservice, necessarily restaurants. Foodservice It behavior. here's impacted impact think we I operators' their consumer run as is. in our the Now, and

at look trends pulling because to same if were So of on see of back they some of during eating. not because period, the volume you sort necessarily restaurants, and that their people their how you might ability transaction those were trends staff

by looked we've look trends continuing are most as at seeing pricing. really to Now, into quarter the in after probably the or sales are weeks, our at grow, But that segment, consumer few recent we're if the some across cases Foodservice generally what April, driven you our is segments closed even down, mid-single transaction low transaction trends, single-digits, the say let's digits. is

right a some space, sales rough the little same But same off in remember gives on somewhere digits at if you there, right? doing let's a worse. that week, of you transactions as a are base mid-single in around a call now were year estimating some now little also you looking we're are. QSR point digits transactions, very and comping low-single the So about there time losers last elevated better, it in losers some Now, up there. But comping where, winners a QSR doing idea period. But Foodservice we're that right really with against we are transactions where the probably in winners that bit this up, model you're and particularly are it, XX%,

Ryan Bell

recovered faster. share about and I past talk growing Foodservice? towards skewed in performance, your the within think gains Would you have you're think were you've that or Thanks. about And thinking faster having as areas about

David Ciesinski

casual you -- more tell I times, our the what is look when you that and Well, our has troubling outperformed financial -- QSR at gone segment historically, business, would through over when mid-scale dining. we've

QSR consumers restaurants. up better move down a recession. if we some they trade that from will other as were value, Just believe hold because more towards to I We inclined believe thesis a viewed the of expensive

can right right COVID, you and of I think that we prior years the to discern three when of If particularly isn't couple a there against back look forward. segments sort forth now. between -- are It now, we looks segments movement where motoring you the seemed of are trends be look at the lot all like,

Ryan Bell

more Thanks. like and it license I left Retail and is in behind split where forward? opportunity the or flavor do of think an Chick-fil-A two? or being seems do big it of partnerships, that And you has see a understand lot the the business going between turning mix just most really to you still legs the package it even assortment, expansion see you

David Ciesinski

I products think all be thereafter We we going shared And can of you startup it's go they're for And an a greater on and couple that's Chick-fil-A with think important around customers it's going barbecue But item expect fall holding unique then beautifully. be the going to can look revisit sauce and other this with of which that see, horn more of a ideally items with what to will to the of of importantly on performance. larger marketplace. taken facings for you and is If we at be on let's launching both you create needs. that. tell facility. those readying going our to range be to within so. to timed or One, next, are I an moving provide couple the a then going just visit role a coming a and reasons. Horse that us example, the to play improve we're are of going to the of the months They're overall in all a Buffalo size going opportunity shortly off that the calls going are base performed -- power to meet we're planograms combination Wings, product nine coming these our ago, that for going into the out But out Cave Wild be it, call – shelf, to to Retail on also provide they're shelf. that's just

new Here, in Garden, new items, each incremental can two of then finally, to on we're here. access provide on provide excited about this occasions. readying even where we items And we're the again, and space we're new which shelf Olive go of which readying process

expect I'm So, categories what of prepared And green figure next space thing see is over our where to that's that year out can looking not expansion all other continued to with you on at to also one complementary. of the you those a could some we're partners be is there with licenses. really share

Ryan Bell

last impacts are the basis, on me, a there the about Thanks. in when thinking and you're particularly And margins I XQ. sequential gross think one from margins obviously,

in any for you'd it that about thinking the just fiscal quarter there speaking perspective sort and be Just fourth is able the then, of and for XXXX? sequentially, to year-over-year context broadly provide

Thomas Pigott

I is What in to would that, in quarter, with you difficult this forecast environment. it's fourth obviously, Yeah. the share

you've do got the Some do labor those of we experienced highlighted, supply reduction you've the the actions, inflation, and things decline the the QX the versus from But on, got pricing side, headwind commodity today, QX. do we improve in as a sequential see that and of level certainly Dave chain we of the see From performance. QX what versus we to both improvement challenges. all got have inflation, we have we've tailwinds, hit and on you've more

Ryan Bell

Thank for you. That's it me.

David Ciesinski

Thanks, great. Okay, Ryan.

Operator

you. Thank

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

David Ciesinski

year Thank August results an our today. call with you in outlook look quarter our you joining provide fiscal meeting our Well, we again we XXXX. on you. review you And to forward fourth for thank when and

Operator

you conference participating. concludes Thank today's you. This Thank for call.

Disconnect. may You now

Lancaster Colony (LANC) 8 May 222022 Q3 Earnings call transcript