MGPI - Earnings call transcript Q3 2019

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Operator

Good day, and welcome to the MGP Ingredients Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mike Houston, Investor Relations. ahead. go Please

Mike Houston

I’m Good the Shantel. discuss and you Investor and joining me Relations quarter Chief thank President company’s Lambert Thank Ingredients Finance Brandon morning, their Gall, members today and President Financial And conference joining XXXX. Gus and third including Vice the MGP results to team, Houston call Griffin, for firm. with financial Officer. Chief and MGP’s you, for are everyone, Mike and the of Company, management Executive Officer, of webcast

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

factors, and most quarterly the update recent forward-looking with in reports as company we the a and call is and of my may filed the annual today, statements forward-looking effective Securities business. it rate, differ before the operating as company’s responsibility this forward-looking well today’s – certain any sales, not company’s anybody If have the risk a results company’s to plans that website, such by any materially statements, you already the at of copy company’s during from does you Commission. made of due the no statements issued However, obligation call, call. release and access number involve projections begin margin The to the The today assumes to gross on it of inform objectives actual factors statements made Exchange described could press as have MGP can including tax income, www.mgpingredients.com.

Chief Executive over call turn and time, Officer, President At Gus? to this I’d MGP’s the like Gus Griffin. to

Gus Griffin

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

to turn for the the will I Now results third quarter.

very strong, within our customers’ of timing a whiskey orders still market remains and be robust, continue that American is overall the year. and to volatility market position While this challenge

saw customer quarters delayed as this of purchasing the whiskey and previous have to as orders and forecasted their year, due issues distillate As throughout new These aged issues sales in affected possible. we year. inventory both desire to long delay funding

strong we customer did both of whiskey, holes for have sales support this, need Despite brand customers We a our more fill very ongoing. inventory new whiskey, launch continue quarter and needs selling to aged in believe to will as older brands, these inventory their acquisitions. and whiskey be

this like we to deliver our in in sight start where the we point and we are to against sales to guidance. year, of line off at fourth be behind While to are confident we to full-year are strong would the quarter, our required a

the million. our Looking down $XX.X quarter to for segment, segment X.X% each individually. sales Products at Distillery In were

While distillate for very sales quarter quarter, to aged the whiskey timing of strong declined as were this sales funding delays. of addition and issues new in

are customers temporary of We any work in short-term of the indication prior or situations. overall reduced orders believe to customers’ do patterns these the weakness existing businesses. versus health our excess through order year Some the of our in not changes industry inventory

years science are Projecting and sometimes uncertain future needed. an whiskey the four into needs out is more corrections

aged expectations realize distillate down in brown sales the pricing for and the to we new quarter, new for whiskey. While continue line drove both in decline distillate of total our goods with

whiskey $XX.X mix. improved segment more in while high-margin of declined million, gross aged impact sales Segment to sales, gross slightly profit XX.X% the the reflecting segment to of margin

their aged holes to The and whiskey The bring desire aged existing aspirations our our strength fill to inventory market support new quarter demand both by and highlights this aged driven ability acquire. to demand. they brands for meet for for their sooner, of the is sales customers’ our for brands brands whiskey demand that growth in unique their

positioned us we when building has are in the those and type aged of now we to seeing of while some initiated year, large investment demand library whiskey broad Our a needs. we this meet anticipated earlier the experienced investment. And delays well in we

Our in away a of XXXX in was long-term key for whiskey decision aging to part investing begin our strategy. putting

While terms ramp of success date we piece important of sales financial now starting strategy customer to it’s understand are this recruitment to strategy in the see of the this and up, to return.

whiskey and model sales instrumental as we strategic diverse significant this been the And years make to executed we’ve of have past in our strategy. willingness the base. our achieved aged pricing with line customer large the over over of believe has We white in few Xx development our

future Our us vintage inventory is remaining demand. meet than brands, have the now well We future what will of has our XXXX inventory other very that aged the to own to year. reserved growth positioned of minimal we the support end believe whiskey at

from value. in inventory continue also are remaining the to We will that confident year any increase

to year, the of all whiskey said key will have guidance continues our we determinant deliver be case. the and sales to ability be our that of As full-year aged against

sales, confident transacted specific or either for are customers in line sales we our of We are in inventories advanced specific discussions for as sight to those those required with have sales.

in expanding long-term, customers constantly geographic to relationships our and the on by new focus our to continue strengthening market coverage. sales improve recruiting position working the also customers, existing with We our

this job whiskey new both outstanding and the aged customers period quarter. adding customers an new year-ago offerings, doing for our new last We’re quarter in more than recruiting distillate

aged new our over to all segments distillate we’re now key is to and Recruitment of exposed we And growth, ensuring market. support the we customers. long-term XXX believe

We and multi-year one with largest our distillate supply new also of we our new relationships existing develop agreement a hard customers customers. signed with long-term recently to work

expand sales see beginning also to are We results from investment to earlier sales coverage. our our international

key sales added continue now that dedicated to long-term for second area We view a support and effort. growth to as a this manager have

the quarter, Continuing with margins for segment, period. X.X% of beverage the on the to with other even increased of white holding premium areas about prior year sales goods

quarter, exist. the markets for decreased these compressing the the slightly. alcohol X.X%, still margins market chronic in of with to dynamic Both industrial down oversupply industrial continue hypercompetitive and be of Sales

future. to for continue the foreseeable situation the expect We

of dry reflecting XX.X%, Sales micro short-term grains, or factors. DDG, increased distillery

outlook continues based lower for that DDG pricing quarter be first macro unchanged of environment to XXXX. in to pricing led on Our the the

in services from part in number the other XX%, increased warehouse services barrels whiskey Revenue and reflecting growth warehouses our of in we customer provide. aging

$X.X Sales or declined Turning grew Solutions. to sales. million, Ingredient profit to while of gross million, X.X% $XX.X XX.X% segment to

with the progress specialty We growth this segment, achieved as proteins. double-digit are both in pleased very starches and in sales we overall wheat

growth. end product the confident customers customer to cycle driver large last of will While our specialty at Trutex we continue new of this year, product it that a the continuing and of for textured for recruit to a wheat loss protein be long-term remain

growth consumers add pasta also bakery We who wheat protein This to items, Arise in product to this strong specialty want quarter. and line product targeting is saw more our protein in increase used protein to trend, This their shelf manufacturers allowing their chemical diets, the food also life clean texture carb without while to is product adding and label intake. line improve preservatives. reducing aligned with

of suited while wheat consumer its offerings, growth to keto food The healthier our the in barrier potential. carbs, interest in we product diet. content also to now a and high this delivering removed with are These major seeing increased starches approval FDA ideally for products fiber the FiberRite brands lowering are line help in specialty develop Fibersym line

segments trends. business favorable our of both to continue benefit consumer from Overall,

see in products long-term to for very outlook. our We demand encouraged continue confident, strong about remain pricing and the

This my concludes remarks. initial

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

Brandon Gall

Gus. Thanks,

segments. Ingredient gross approximately reflecting XX of $XX.X gross to quarter, margin For Distillery million to improvement sales, in basis both in Distillery consolidated million, our offset declines in profit from sales prior Ingredient $XX.X a result decreased Solutions a year points partially to gross X.X% the Products decreased as segment. of increased and up profit Solutions Consolidated segment, XX.X% the decline quarter. by the Consolidated an X.X% in Products XX.X%

Corporate and including saving to year-to-date versus lower based decrease costs, initiatives. expenses general the $X.X year. performance The for incentive was and prior down personnel accrual selling, on for reduced cost due other million, X.X% quarter were administrative compensation

offset the partially of release in costs This fine Atchison, pay million administrative XXXX. October of increased in Kansas civil to penalty to related agreement chemical the and $XXX,XXX incident an with connection was by company’s $X in

resolution matters, the on focused these to investing remain grow. still those while effectively we costs, managing Excluding of legal

during Consolidated partially previously Ingredient the operating income prior year million, decrease expenses. million primarily compared SG&A the described the in quarter, both segments, decreased the in due decrease to a X.X% Distillery $XX to to Products offset by in $XX.X profit Solutions gross and

legal matters. impact Our corporate period year-ago prior the the period. discrete compared the was described tax the of increased compared effective quarter previously with XX.X%, as year to XX.X% tax was certain to The of in resolution a rate due rate primarily for

to Net decreased from operations to earnings income share as change income per earlier $X.XX. and for decreases tax in due in the million decrease primarily prior results quarter were expense year $X.X These the to X.X% described. and the decreased

In of outstanding. by invest million. we days inventory which our provided the of We in positive aging during fundamental our strong discussed in driver cash-generating as quarter, One business, reduction cash ratio allows third the by operations cash us provided quarter, of even to $X.X operating was our cash the flows the sales provide receivable of operations capability accounts whiskey. reducing was

business through with Gus we expect and the customers, our and relationships one the and year-to-date sales particularly with and we While longer long-term supply such gradual our outstanding, have a customers ebb agreements seen develop reduction we sales export of mentioned. new of customers, days flow craft will just histories new growth as as evolution this

for ever-growing inventory key support customers. aging remains a spending net the diverse the During business Capital mix of $X.X to meet growing invested million our distillate of needs we we also way our our period, a barrel plans. and growth for

million, expect capital reduced the expansion projects certain warehouse to our continue expected warehouse million $XX.X the completed $XX.X expansion Despite XXXX. approximately be change expenditures timing, we timing program. this have within in to due to XXXX during to in of We this

balance allowing drive our MGP’s to strong, remains and shareholder in investing continue value. us long-term growth sheet

to capital. access very good have to We continue

$XXX XX, credit available line. As of under September XXXX, million remained the revolving $XXX.X million

allocation with strategy quarters build as Our opportunities warehouse long-term remains whiskey expand our contemplate with possible M&A to years are inventory, prior aged and capabilities that strategy. we capital consistent our continue consistent and

important way third authorized continues of Recently, in dividends the to per success company share as of be $X.XX a an Board The shareholders. dividend with share. the Board the the to amount quarter

the the inclusive of guidance the previously confirming legal projected XXXX increase XXXX. XXXX described matters. modestly, is range in sales growth operating XXXX. growth company’s for are The to expected percentage margins mid estimate XX%, to versus gross certain to following single-digit of XXXX of in XX% fiscal is is income in compared resolution XXXX. MGP as

Earnings year-end. per be tax expected are of be are forecasted XXXX range approximately to is to forecasted outstanding effective to be share shares the $X.XX at rate to and $X.XX. XX approximately in to XX% million

Let remarks. things me now turn concluding back to for Gus over

Gus Griffin

Thanks, Brandon.

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

and Our with has in well aligned macro positioned consumer long-term us the strategy trends. market strong

We continue growth. necessary long-term to the to investments deliver make

our the project continued on budgeted the project. We our spend to capacity $XX.X the of approximately to during date the for quarter, total million expand warehouse million to bringing $XX.X

As of to Brandon inventory its diverse our we meet to of million our mentioned, of mix whiskey needs at ability an customers. brings and million in $X.X ever-growing additional and our of value invested We inventory in the $XX.X also aging remain aging long-term confident whiskey cost. the inventory. this This

at the economic whiskey confident be value for well of aged grow While both long-term aged pricing demand through from library for XXXX. as cost extensive we maximizing this We inventory remain the in to our and our plan value. selling as the we whiskey, inventory, of this will plan

pleased the We continued progress initiative made and markets. in gains we’ve our are to with strong current our brands

with now Maryland a we Connecticut, beginning this result, markets Washington, of additional D.C. expand As month. and the into addition are to

great our and of released We offerings limited edition for our next anticipation seeing will acceptance consumer month. that are strong be core portfolio

to strong well our for While terms to guidance. where us we ability like positioned to are and be operating in year-to-date long-term full-year in longer-term achieve drive with business of superior macro growth not value. our strategy has we shareholder consumer continue our will of our trends we’d confident are be segments Both that growth, aligned income

call. the Operator, we’re portion now ready to of begin the question-and-answer

Operator

Thank you.

We session. question-and-answer Instructions] will begin [Operator now the

Alex Your Group. comes first Capital question from Craig-Hallum please. ahead, Go Fuhrman,

Alex Fuhrman

here I question, is increase guys. imply taking in a My full-year for the sales pretty I really Thanks increase along Great. guidance. a reiterating would nice fourth guess, quarter, nice the question, first with of mean, that double-digit in margin. gross the in my

transacted mean, wondering like you’ve sales some us, in in you Gus, your Just what already here can about confidence October. that? tell it sounds I

how you of a of see sense a another more just you for be us you the you’ve gives relationship transacted much can give of you sense or the can year? the give tell and you your to the anticipate has that, Are going us that customers Can anything confidence larger two? what out would sales Again, rest been already pushed for anticipated sales we’re of maybe this QX longstanding not quarter had these with? customers or a about helpful? that Just us

Gus Griffin

Sure.

targeted to by we how you after quarter, how and we’re when discussions quite percentages progressed we’ve the second opposed been how that bit. with, much As much gave had with much the had been transacted in a and

dealing customers so we’re dozen And now with. a that about we’re to really down

specific those inventory ongoing We’re to deliver an active discussions customers sales. specific them, with for

feel through, existing feel why we’re outlook. we don’t come and customers. majority good our them about the that’s ability them of to vast so in The we reconfirm are of them to our so all guidance. need very that confident – And We – majority

Alex Fuhrman

that such will year. believe important that, Is just a from in mean, Okay, continue, the about the three purchasing just nature continue mean, to XX% year shift, looking least the customer QX percentage probably that, something And that’s would about or about that, years, – more most than to be given XX% annual that, of those numbers, that as XXXX assuming is trend hit there helpful. this a have that’s to I then quarter? at to last that XX% gone of us of is kind QX revenue will sales at you lead last I big

Gus Griffin

– inventory something this done. – it’s an said taking to with a to think ever whiskey is I we – the this level nobody we aged Well, – adding us market that were market structure inventory new and of unstructured

little sure third out people slower making So of a weren’t And we than we would. it in the terms when investment. how some how thought basis. would would saw go now we off reflective this to more this sales certainly, of quarterly we got We fall in start started a – our once quarter, we thought

customers mix brands their because to want similar it their They need need holes growth to and aspirations So to we need because they needs. in because they launch diverse it a acquired. see inventory they they fill brands, with need very support they’ve for it of they want

customers’ back-half. I just been to very the to always So the it timing similar those to we’re year fill be have seeing needs to year know any continue demand indication that At back-half – simply after there. year, this after time It needs. the our of if that year. the will is don’t is this that seems be skewing of

sensitivity our to is certainly the this customers very to I inventory. of happens I all more picked think, sales valuable needs diverse as it think that has – up, customers of now. be customers’ it our aged the that it And a are just – similar with heightened need had feeling coincidence that also scarcity

Alex Fuhrman

five ask years the on investment just it that’s hoping that. how inventory third sheet Thanks the if you the much down the four, here be lastly, Okay, three, didn’t in and your versus And some selling in I maybe of just just kind new of road any to quarter, really sense you’ve in balance of barrel materialize, they’re targeted I sales that like of away that’s to could ever in a quarter get just is get technically so, company. in were then the distillate September? looks the increase single put big distillate about with for since helpful, been the I you’ve quarter. really mean, mean, most Gus.

Gus Griffin

sit think the we to year down away. beginning about quarterly much put the lot of away put how strategically, and a want actual Alex, the of we impact at things

about past core running. You’ve of heard us our We put bills talk mash away the we’re mash sort in standard what bills.

seeing then what certainly, on depending we’re impact is that can number. it. net what And a you’re So we’re running

XXXX. So we’ve to very good feel away to the the away We you’re net it going we of future number inventory seeing. put support growth. barrels said again, depending level impacts we’re on putting number that of we’re versus grow through about sales We, actual

I into anything it So read I read number, our into would long-term wouldn’t our intentions. quarterly

Alex Fuhrman

that Okay, very Thanks much. makes sense.

Operator

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

Gus Griffin

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

and fourth make resources talking with need remain provide confident it look will to continue We the you quarter. strategic forward us plan the our towards implementing beyond. long-term XXXX deliver to growth again we to after progress and in We that

Operator

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

disconnect. may You now

MGP Ingredients (MGPI) 31 Oct 192019 Q3 Earnings call transcript