MGPI - Earnings call transcript Q1 2018

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

Operator

Good day and welcome to The MGP Ingredients Inc., First quarter 2018 Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Houston, Investor Relations. Please go ahead.

Mike Houston

Debbie. you, Thank and conference everyone finance for The joining for Good and thank webcast Ingredients XXXX. call first company's to MGP the morning quarter you discuss results the investor Mike relations I'm Lambert with Edwards, firm. Houston MGP's And joining management Gus of Tom President Griffin, Finance and of and Chief Officer Officer. Vice team Executive including and Pigott, are me members their President Chief Financial

call with We prepared remarks the the open call management's up begin questions. will then to and

inform like Commission. Securities quarterly and made call. over site Officer today, release to earnings to annual that the recent not turn objectives materially factors any including If call Web a results the such of forward-looking as it copy the press anyone structure described The to business. already is may before access certain with during this as the could However, Exchange begin report the assumes involve statements the of and time, does responsibility with call risk from the we no company's the today's statements Gus? obligation www.mgp.ingredients.com. Griffin. a as to my update Gus MGP's call differ forward-looking have and I'd The factors filed company's it At MGP can projections and most well actual the due number plans you President company's any forward-looking statements on in of statements and of company's this Executive revenue, at today issued you by company made capital Chief

Gus Griffin

take an quarter metrics progress questions. a on this results us. the key financial call, will strategy. you of your thank and overview Thank updates you, Mike, joining for discussion our we for On we our provide Then of against performance and will all

income and to quarter growth first net about for X% increased the our results, showed the sales for quarter up driving over segments turning year almost the net X%. of business both prior consolidated Now

see in to of very macro change our trends no consumer progress with all plan pleased be powering continued our against the growth. parts are We and our strategic that

year volatility results our for quarter. Based this beverage period in a prior sales to dry do sales of continue for distillery the quarterly strong rye We highest alcohol and was X.X%, our first sales alcohol. grains not note, implementation any of our period order in third the product of Despite versus early strong business. quarter Since However, we the to this of and we segment food profit from the segment new each with are beverage full due up XX.X% growing distillery alcohol premium very timing quarterly reflects reconfirming reflect guidance premium year-over-year the down changes our a had while impact our alcohol quarter on Total customer continue a existing core this new customers. quarter sales our in or to in X.X%, segment. sales Despite in alcohol the orders premium results. premium we XXXX, distillers' either for resulting quarter DDG strategic in this plan year bourbon as recent beverage decline quarter that first on quarter initial history. improved for segment this do beverage decline net of quarter sales and net affected grow distillery Also timing positive feel beverage pricing. slowdown experience with from X.X% we've and our in finished is gross of this sales time prior sales distillery or X.X% declined sequential looking alcohol in the customer experienced still premium individually of results our that, whiskeys the beverage declined grade alcohol, premium segment, decline, at year, the product for quarterly demand

welcome we not unchanged as pricing whiskey. to to inventory results macro these improved XXXX. quarter quarter, continue for that of strategy, with lower environment our do of we build sales Consistent in trend a the results view the While led we the DDG first long-term our aged began to

continued attract whiskey In development addition it the own Due to position to by to continued consumer inventory to see using driven to also helping seek support whiskey new higher to strong our customers customers. for is gaps than used distillery brands, in our us this of expected and we robust whiskey, the fill demand. as American market retain strengthen aged demand growth aged

the whiskey leverage and to lightly aged partnerships to we distillery new continue products. our with able to premium beverage during to these first inventory customers for volatility increase and limited despite the sales on whiskey for Overall, on growth this quarter. sales, existing of sustainable Even in support quarter. aged we our remains are new alcohol of focused attract our plan We experienced the we track remain long-term

X.X% improved Net margins specialty the Solutions. by XXX wheat protein wheat points basis net expanded sales to sales $X.X profit Gross Ingredient grew while starch quarter. by driven in to specialty and gross our for XX% both businesses. Turning higher million

grew Fibersym wheat substantially doubled. TruTex products of year prior wheat our sales protein starch specialty quarter and than more of our versus quarter product This specialty sales

about our with trends trends both demand seeing business consumer pleased continues In summary, continued consumer this are key remain sales excited and are we segments supporting growth be confident strong there in affecting products. the strong this the for macro growth potential. and We to the

take to by invest my afforded strategy. long-term to initial remarks. these opportunities continue our significant by the This full trends provided and concludes potential the advantage of We

Tom and me now Pigott over for key things to review of turn Let metrics Tom? a the numbers.

Tom Pigott

Gus. Thanks

general and $XX Solutions promotion. decreased in segment Ingredients $XX quarter. MGP's were the product and distillery first for the ingredients decreased in the to Gross administrative up million result quarter modest net decreased million For and a by due net increased sales approximately of offset the basis to platform reflecting million and profit costs compared in in prior by of million partially Corporate from Operating decline $XXX,XXX million XX.X% the the primarily in consolidated investments XX the in quarter income XX.X% the $XX.X prior X.X% growth profit for and in X.X% quarter points increase to $X.X products margin gross distillery reflecting quarter advertising brands to the segment. sales in segments. SG&A. both both to in expenses investments selling, the $XX.X gross during to the as personnel Gross an profit decrease Solutions

cash was Tax effective our in tax X.X% to the to for current share compared key per $X.X driven and to quarter the the in share decrease $X.XX sheet rate. invest was us year the favorable we based grow provide XX.X% are to and rate which of reasons share to as MGP's whiskey. an $X.XX rate tax last allows continue XX.X% The of year quarter, effective XX.X our earnings corporate of grow quarterly primary full as allowing funds Cut increased fundamental strong increased return first year to our is well us Jobs flows generating our the million strong the quarter share the the balance capability factored remains ageing business shareholders. even to impact in to continue of in driver from tax low a our compensation increase point enacted Our for into guidance. percentage as per prior by and cash rate Net tax compensation quarter's income deduction. We've the Act December XXXX discussed library based strong in and deduction to first the

improvement quarter quarter. This investment the prior $X.X inventory ageing. of result by provided flow million distillery net growing was For the $XXX,XXX our includes the first year for or a cash $X.X operations barreled towards versus million company's

very view cash balance per have way as quarter success show $XXX Board to XX, of the sheet. company $XXX good million on access available Board dividends authorized was the the million $X.XX important an in facility are Recently second We of amount The to credit March million shareholders. continued and the continues share. XXXX, of with to the capital $X.X the dividend of as under made revolving to the

effective factor. morning release the and As fiscal XX% grow fiscal income growth year significant The XXXX. is is tax expected conservative to some XX% MGP sales in to versus shift beverage approximately expected expected end. beyond. range is more to high operating outlined is premium growth a and to is the XX% the confirming XXXX XXXX forecasted XXXX year as aged XXXX grow Operating from to company outstanding following become to at volatility in versus company's $XX.X guidance single-digit are projected sales of industrial alcohol. are XX% to continue of subject XXXX for income to percentage this whiskey shares continues the modestly estimate and XXXX margins net between for sales press to be be rate XX% the as XXXX in million and

concluding me over for to Now back remarks. Gus let things turn

Gus Griffin

Thanks Tom.

our like touch additional strategic I'd to initiatives Now plan. on some long-term support to

We our segment. in continue to distillery invest to grow

to expansion We program. is million have $XX.X appropriation in our scheduled This now spent $XX the be capital approved for million of completed warehouse XXXX.

and the investment currently further continue with to customers resources warranted. have working are trends We to to assessing needed. if certainly as We industry is determine expand

has million whiskey ageing cost. $XX.X of inventory our addition, In now reached of

deploying on in this the growth and to strategies work to continuing to inventory are drive stronger optimal XXXX. income approach refining our operating We

always brand our premium While distillery product core segment distilled supplying in owners other be with focus the spirits. will

be to continue pleased our brands progress of with the initiative. We

Colorado current quarter, Illinois, first launched portfolio brands spirit the our Arizona. we and of During in premium

a and Bourbon be MGP for to whiskey and Rye until that the a Remus and Bourbon honored the a Straight Remus rye for Trophy [Raw whiskey whiskies vodka Reserve were barrel the we a legendary it character rating Crafted Spill a four over this earned a proof the Straight XX over provide at brand announce of years. and now long-term been Spirits smooth us spirits flavor XX into at sustainability same retailers and Lawrenceburg proof were premium addition, entry [ph] an for proud brands quality superb further whiskey significant a and our earned components a crafted the plan. our will the wheat Union] rating proof key soon two expertise Whiskey straight which month. George fastest rye bottled cocktails five XXX.X XX Expanding initiative. momentum with shipping key distillery at established and introducing whiskey with to our new Ultimate was and [Raw master segment Challenge. competition. Both distillery. In border our begin two markets. results These has existing validate straight am Repeal provide American of aged further is growth. as rating proof aged rye Rossville introductions and I originally and produced receive our Rye in growing we'll is These American Union] our Chairman's whiskey experience leverage Barrel producer with is strategy of and XX portfolio crafted Spill our master XXXX for highest both a Safety at strategic position named category are whiskey us to years.

driven safety enhanced initiative This level a our safety up practices make next employee more comprehensive and culture. quarter, we part integral begin safety to of raise implementing our to an the entitled safety

We two our launch of with initiatives. the demonstrated to also sustainability commitment new

represents This is three initiative to direct energy and power. benefits both XXX% sourcing renewable to of significant whereby the year electricity technologies. needs from a our program our first renewable major we energy step overarching in renewable certified of efforts realize wind committed a The

facilities. recently been replaced items The with elimination second initiative single alternatives. was These all use These and Styrofoam sustainability initiatives employees, communities undertook at the plastics and will planet. compostable our benefit have biodegradable our and company our our of we two

water additional reduce We continuing emissions our waste in usage, facilities. and invest explore are in to also and initiatives to

our on begin by our we focused question-and-answer of we market that to superior are demonstrated initiatives, will we Despite remarks. remain volatility, As prepared positioned remain call. these focusing strategies the long-term these shareholder now ready key concludes long-term. and in That are Operator, confident quarter-to-quarter the drive the returns. strategies on well the over portion

Operator

We session. question-and-answer will [Operator SunTrust. question comes with now begin Our Instructions] first from the Chappell Bill

Bill Chappell

morning. Good Thanks.

Gus Griffin

Bill. morning, Good

Bill Chappell

to really the the I regards how quarter? been have would've move without then the what Gus, question pushed to really that, increasingly orders the the timing in to just year? customers obviously on aged sales trying one And from that lately in quarter is next but quarter XX% just are quarter, to X%, back the things, Yes. on really this then, two timing, been to is was that and understand down also, just would seeing one a something the guess selling the with big half you is of

Gus Griffin

question. Great

helpful I of nature to think base. really it's our the understand customer

big and have we So customers have customers. we small

have can who and other who then, cash And financing. want flow may We they customers to have have once we work their customers strong buy when put to. together

take that were routinely finally, have have and then we then who sporadic. who have are we make ones And and taking scheduled regularly are every We that product we orders ordering. have more customers we have doing special standard then, customers who customers quarter

so their first to And basis. it basis, get November quarter all On financing for might have they uncommon cause or say year they back not those in had. full other would be they it in on trying issues not customer logistical -- and quarterly together are smoothes be working their eventually may cause of still out. to us with because the combined replace lumpy a a a lumpiness a order But to

quarterly despite clear have basis, feel So view full a bumpiness a the we year achieving on guidance. we our to

Bill Chappell

And was that meaningful then, terms quarter? of aged lightly the this in sales part a the of

Gus Griffin

break prepared us to tied it out again, and attracting retaining it's to varies. We're customers. it's because that tied still usually And -- not

who So customer different be month new might which we same the a another there we with prices. old six old, customer come be at sell old there time year or might XX-month a sell

aged no in price a the new say for distillate in demand is, have strong what that product, volume both our seen decrease I no for it's the product. our we and demand a and So pricing can we will But variable. aged our both and change

Bill Chappell

to asking any in just product of be -- won't then, right And two customer drinkable losses actually kind saying of this Okay. any customers in I'm change years. are count, is for there anything most that your because four ordering

terms mean the of So I in timing…

Gus Griffin

are you customers because -- That consumer. is point so a end four have away great the years we really from

year customers. based to routinely bought that that future. might are terms number rate last are customers we track added on in substantial track to turn substantial quarter year And and want and waiting customers then you who one quarter old and this see We're year-to-date we new adding year add added buy this have may more plays on of gap fill to so in on did other customers, our brand But of we our customers new to and distillate the out customers. than first last we year of around

Bill Chappell

expansion last then, to think or And into the we running are where here stand/ from me, do for you going of bottlenecks, Great. to one expand just on thoughts do you're any warehouse kind materially and the you there need

Gus Griffin

Yes.

have implement. the more that the more earn we still a you through as go better have past, dollars said better We industry. and in get we'll you as view. along we As you view of go approximately get a to X million And

long-term views time. call customers we're that are and the that their a ready what situation we're to are. on as our we're assessing So I'll this make trends with assessing talking say

Bill Chappell

so it. Got Thanks much.

Operator

Fuhrman Group. The comes Alex Capital from with next question Craig-Hallum

Alex Fuhrman

Food I Solutions there what I another what for the core you take off. mean particular to for get taking Is for quarter being could margin question. sustainable And that we lines I then, a much was something larger to Thank larger ingredient in it products. specialty for revenue time a gross that gross innings those ask the in my really runway of early sounds and like Fibersym two there first perhaps to that long or particular the share the the for wanted results little perhaps of a taking Ingredients start sense above been solutions. segments in the as of XX% really in growth products is margin you? quarter strong segment time onetime and love up of gave a for guess these would the have business those line in a bit of the TruTex about are boost? be

Gus Griffin

particularly the of for First, plant consumer on interest being proteins. based the really Fibersym, really macro diet. runway. course, And consumer the strong then, TruTex, This in powered talk by strong trends of in for let's about fiber trend their more demand is

Fibersym, on So course, May. expired last patent the of

have growth. consider TruTex, -- been more product, some on We've a together a or competition. and we just what accelerate, there price is substantial address or we continue have And more but so product waiting trend better do texture. think continues runway we We based wheat -- and Despite neutral on that superior these benefits plans expect we product again and to color this putting a strategic eventually for to the we all feel flavor are has neutral how superior how there. our to that that and a

In the terms margins, of as we…

Tom Pigott

which in chime us and able contributed products. cost our that's about seeing very feel in the products commodity underpinned the margin overall trend on quarter both moving volume beyond increase the We Again in ingredient higher margins, the growth by growth in can the overall to were be higher very just solutions. in the choppy margins, margin that the will is to where we quarter. margin good it's business I terms our strategy good is contribution for pricing which in growth we're into but in a of higher

Alex Fuhrman

that good -- the over of your now Thanks. to your other now other going we for Great. about rye or a new small launching. where follow of launches about a throughout couple last And cadence that launching similar that just and brands in all it we the might states you then you're to that be those you've new helpful. I'm question launched expect of this rye the That's Should brands, route markets product number then products thinking a in for initially. Midwest see pretty have the the distribution expands there your now years.

Gus Griffin

I the we The will currently have that currently both go and into when rye develop product clarified. it then -- in. the in footprint for Thanks all be we into question, Yes. a that products are the will introduce will forward should we're going the markets pattern rye go and that brand

are, George footprint. into five go only will -- brands we that's go entire approximately where all So Remus our existing into because states Union Rye products could

the will next We will probably take weeks. over -- six happen probably that

Alex Fuhrman

Gus. Excellent. Thanks

Operator

The Instructions] Sidoti. comes [Operator Pellegrino next Francesco with question from

Francesco Pellegrino

morning Good guys.

Gus Griffin

Francesco. morning, Good

Francesco Pellegrino

Thanks taking the for question.

know question in about DDG was remarks, than margins have discussed fall would briefly segment a prepared on pricing more as the I off pricing distillery in DDG I margins strength segment, the less Just really volume? contributed it anticipated increasing it some I I volume your within in looks a to, if just the know with significantly the guess than more of revenue segment. than

Gus Griffin

the drop impact was alcohol Yes. DDG -- gave distillery you is the in margin. so sales a negative to drivers on pricing that We that industrial off did the us and of a which but that a on had positive premium And we favorable negative. pressure key was the margin continue was and beverage have our distillery

Francesco Pellegrino

it think a Got don't pretty about talking way I'm or going third a think guidance. this a want know timing just not regard it Is just know headwind premium itself it's about And the XXX beverage I to looks quarter. can the distillery corrects sustainable increase, Not little whenever pop really it. correct second something profile alcohol but question, your When talk to business different you sizable. guess whether not the sales, talking see forward. is, margins was have, it's line like that think segments that, the strong we a in to get that bit guys your about about in about to base basis ask point you the big XXX with it? to I'm it more beverage probably I if But as premium timing really really what issue said in you product margin issue. was the and was way for to going I I lower I probably

Gus Griffin

we've you that we've supply question, macro overall Well, I of were think is our headwinds. were headwinds. the no the brands going trends, I And say all along would you we asked projected everything as when of what started that's the your business. -- trends, as the there basis market The health

a lumpiness So our was and this against particular average us XX%. slowdown wasn't orders industry, in slowdown alcohol our customers. was It any a in in going up the

we going difficult So against extremely were an comp.

we I because -- the guidance So of again, the headwinds any I you the we over quarters. we year as that's just in think here. out and give lumpiness -- play don't why yearly there's no see And

As you'll see we -- as that comes improvement. back that

Francesco Pellegrino

customer economics. there's I By meant the macro with fundamental no order know issues headwinds, I headwinds

Tom Pigott

Yes.

DDG. not I benefit is -- think We've the DDG really that's one thing got the to consider sustainable. stressed margin we've on

give remains the spirits and there be be visibility deploy And we pricing very we maintained where to play the that -- margin we're margins whiskey premium visibility. continue longer see a expect to able both particularly timing grow order as the the our believe we'll will DDG and future strong. you'll in continue will certainly DDG more Gus modestly it make, how demand that we we brown aged as that as goods And more we So get why we at point year to commodities better in that's favorable, maintain. gets could as to do doesn't the more as this for the with mentioned, is be to -- beverage term scenario continue out necessarily to guidance that more But our growth.

Francesco Pellegrino

Got it.

Just ingredient switching the business. over to solutions

off your line? protein commodity get know First, of product a did wasn't I it wheat but… you much contributor, rid

Gus Griffin

No. That's a question. great

value the production. of of strategies key our One maximizing our is

constantly the value the is into is wheat most that value what's means wheat we out TruTex, wheat protein we -- it. commodity ingredient our in value white lower key this -- so white we wheat so that the called white all the TruTex, extracted up products, of just used gluten gluten we And So could to trying gluten. quarter,

Francesco Pellegrino

quarter that you the commodity sales. had is this haven't protein second wheat consecutive But

slapping really be on might commodity that you seems you brand it protein a lower highly label brand on So margin? private and just -- commodity it are products wheat a a strong it producing a a wheat, actually at not

Gus Griffin

turn expertise a had product. We technical correct. value into That's it to higher

a So product. we of gluten white are much commodity -- not wheat is very

are of the that into commodity into we're not going product, So of using value, feedstock higher it that all selling added word turning technical a have has products. lack we value -- something better for technical it's and we

Francesco Pellegrino

Got think platform. volumes it. When of about to branded the product nice off lift just I business down line this though margin was brand actually for that got due that were just taking you probably this to brand shift a product and something

my price? the this all down, wrap just was any was any manufacturing mind if to operating With leverage I'm there around, leverage volumes trying or

Tom Pigott

are well price the certainly facility the standpoint a down, products, really down -- on to margin commodities And the we from the what volumes But segment. margin. were at to the margins X.X%. the that's where which able overall grow ahead ran So, and we're lower commodity in of drag down were volumes and

Francesco Pellegrino

two questions Just for me. more

profit break rest solutions of of don't So ingredients through each this year, what segment. sustainable for run your sort know you operating I but segment, rate sort the is for down is the of the growth

Tom Pigott

specific want the give Gus. We ahead, guidance We to about the ingredients. any don't Go full in felt of year. very for terms good quarter

Gus Griffin

I mean again the -- I'll reiterate volatility. volatility quarter-to-quarter

in comp year maybe picked We comp a seen comp. year. up tough we where so going you've we may segments we new this quarter lumpiness a or easy picked quarters, and pick -- at specific new may look up our both last up customers customers be -- You against past

and belief trends back strength I we proteins. then, think in and our of overall based products particularly products. macro ingredients our high the fiber superior of And So the have positioning our to refer plant we

Francesco Pellegrino

for done lot product everything. the you almost of line. of I read I've ingredients the the cover that past solutions that on guys magazines year know marketing All your ingredient in like you're back have a solutions

it's I gone the a into now. has of effort see know getting that I guess nice you're lot just and it pretty probably So return right to

Gus Griffin

nice. of years work the Yes. We've on of -- last over TruTex. It very lot is a this put on couple in

this we recovering trend had it that So ago lot several a potential. and years from consumer had macro of identified growth a we misstep believe

made really to the the now investment -- investment -- out time we money think the it got it and is see so pay it's to and so time and from the gratifying to position and And it the we great very -- benefit -- it's ourselves capital potential.

Francesco Pellegrino

investment I you're XXXX to know going capital significant having be constantly at into be we're the in question about to And branded about trailing you're your M&A, X.Xx look financials, to products, I expenditures XXXX. then the calculate you least just me really adjusted you looking this EBITDA sheet, looking you're month -- the balance at have XX coming at conservative, last going that leveraged it, guys going during off that's how fall for doubled dividend,

use that the for better positioned so to future. inventory cash your higher flow margin continue You'll in build up you're to sales

sort of we're you're and nothing saying incrementally a to all brands really the currently it or some because you potentially what there's little get cash. really growing reach our that There's guys really was forward. balance I you're out going them. tossed acquisitions, of priorities have the would behind point doing what about small to consistently going $XX, more done guys be at just stock XXs when what now cash -- $XX $XX generating do build of right just think sheet that I will under out significantly things jumping increasing However, going you it's of going I'm inventory are authorization of or conversation things today. sort those to and a what's could There's see of going it mid just we're forward you but even point, was of a at a I in that sort level share you to leverage, a leverage potential within wondering that at are increase that you. at lot don't there leverage some sort whether maybe lot build in At or grow sustainable repurchase as invest

Gus Griffin

ageing we're expect so we balance from for to and continue overall that up That aged We'll those going Great brands over we then, growth said, And as build that Sure. return sheet. to very We one, year. about feel we some whiskey appropriate -- warehouses add for future not we balance question, lever to a strong good strong having sake. have -- leverages to build investment priorities, continue invest are great will continue see that's to the the funds shareholders. investments. see consider has and it great we we return as fit certainly year shareholders platform acquisition that criteria. we did after well approach cut a And you see that for we a to last long-term certainly investment in dividends. will an dividend And into special the meets last, our us and to because form our you platform it of sold our if that been We and view then, existing mentioned ICP. feel

opportunities, about up to we we're going to have And the overall we sheet leverage balance lever over have great today, again, should to sake, growth that's we capital the for flexibility good not to continue invest. So time, strategy. the feel but

Francesco Pellegrino

thought. I everything said Gus guys. Thanks right. All again

Gus Griffin

Thank you.

Operator

for session. would I Griffin question-and-answer our Gus remarks. back any the to over conference like to turn closing concludes This

Gus Griffin

you and for company our for our in Thank first your quarter call. us today joining interest for

you momentum continued again talking the We to the after and experienced with and second look forward are certainly strength pleased we quarter. have with

Operator

attending conference presentation. you concluded. for has today's now The Thank

now may disconnect. You

MGP Ingredients (MGPI) 2 May 182018 Q1 Earnings call transcript