Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Lancaster Colony Corporation (NASDAQ:LANC)

F3Q13 Earnings Call

April 25, 2013 10:00 AM ET

Executives

Earle Brown – IR

Jay Gerlach – Chairman, CEO and President

John Boylan – VP, CFO, Treasurer and Assistant Secretary

Analysts

Alton Stump – Longbow Research

Greg Halter – Great Lakes Review

Operator

Good morning. My name is Susan and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation’s Third Quarter Fiscal 2013 Conference Call. Conducting today’s call will be Jay Gerlach, Lancaster Colony’s Chairman and CEO and John Boylan, Vice President, Treasurer and CFO. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. Thank you. And now to begin your conference here is Earle Brown, Lancaster Colony’s Investor Relations.

Earle Brown

Good morning. Let me also say thank you for joining us today for the Lancaster Colony third quarter fiscal 2013 conference call. Now please bear with me while we take care of a few details. As with other presentation of this slide, today’s discussion by Jay Gerlach, Chairman and CEO and John Boylan, Vice President, Treasurer and CFO will contain any forward looking statements of what may happen in the future, including statements relating to Lancaster Colony’s sales prospects, growth rates, expected future levels of profitability as well as the extent of share repurchases and business acquisitions to be made by the company.

The forward-looking statements are based on numerous assumptions and are subject to uncertainties and risks. Accordingly, investors are cautioned not to place undue reliance on such statements. Factors that might cause Lancaster’s results to differ materially from forward-looking statements including, but are not limited to, risk relating to the economy, competitive challenges, changes in raw materials’ costs, the success of the new product introductions, the effect of any restructuring and other factors as are discussed from time-to-time in more detail in the Company’s filings with the SEC, including Lancaster Colony’s report on the Form 10-K.

Please note that the cautionary statements contained in the Safe Harbor paragraph of today’s new release also acquired to this conference call. Now here is Jay Gerlach. Jay?

Jay Gerlach

Good morning and thank you for being with us. Our third quarter results, our total sales growth is 3% driven by 4% Food Segment growth and a slight decline in Candle and Glass sales. Earnings per share reached $0.80 versus $0.67 last year, an increase of 19% with both segments improving our earnings from last year’s third quarter.

While no shares were repurchased during the quarter we did invest approximately $9 million dollars in capital projects with the major investment being to expand our crouton capacity which was completed late in March.

Our Specialty Foods segment had a strong quarter particularly considering it is our seasonally weakest quarter and the overall environment continues to reflect an unpredictable consumer. Segment sales of $247 million dollar were our third quarter record. The sales growth rate of 4% was largely volume-driven as pricing contributed less than one-half of 1%. With Easter timing being somewhere last year we feel the holiday had no material impact on the quarter.

Our newer product lines of Simply Dressed refrigerated salad dressings and New York Garlic Knots continued to be good contributors. We also saw a good growth from our overall New York Garlic – garlic bread line and a good Easter season for Sister Schubert’s dinner rolls. Veggie Dip sales were impacted by our repackage – by our packaging restage which created a gap in demand as we switched over to the new – new container at retail. Croutons were affected as well since we had backed off our promotional activity in advance of some downtime around our expansion project.

Looking at 12-week IRI data through March 24, you see the following for our key categories and brands. Refrigerated salad dressing that category was up 4%, Marzetti is up 5.9% we were tied dead even with (inaudible) for the category leadership position. Crouton category was down 1.4% our brands were down 5% we maintained our number one position. Veggie Dip side the category down 4% the Marzetti brand is down 3.5% again maintained our number one position. The Frozen Garlic Bread category down 2.5% our New York brand down 4.5% we maintained our number one position. Dinner rolls are – the category was up 3.3% our Sister Schubert brand up 3.7% we maintained our number position.

Operating margins in this segment reached 13.6% up from 12.5% last year in addition to sales volume growth, earnings were also helped by lower coupon redemption costs and a more favorable sales mix as retail channel sales outperformed good service channel sales which were relatively flat. Material costs were favorable by almost $2 million dollars we did have some modest figures start-up related costs for our new crouton capacity project and a bit higher freight costs in the quarter. Overall, a strong third quarter for the Food Segment.

Well, the Glassware and Candles segment had a modest sales decline, earnings improved a bit and we saw an operating margin of almost 5% up from 2.9% last year a stronger sales mix and somewhat lower product placement costs were the primary contributors to the earnings gain.

Let me turn to John now for some comments.

John Boylan

Thank you Jay and good morning. First and briefly reviewing several notable aspects of our balance sheet, accounts receivable at March 31, 2013 totaled $91,705 million somewhat similar to last year the March level was significantly above that of the prior June total mostly reflecting the relative strength of sales toward the end of this year’s March quarter compared to the quarter ending last June.

Stronger year-over-year March sales led to receivables increasing about $5 million over the year ago March total. Turning to inventories, the consolidated March 31, 2013 totaled about $92 million declined about $18 million dollars or 17% from last June, primarily due to the timing of seasonal builds of candle inventories.

We were also pleased that a 9% reduction in consolidated inventories was attained since last March reflecting improvement in both operating segments.

Our overall balance sheet posture remains strong with just over a $100 million of cash and equivalents on hand and we continue to have no debt outstanding. While our cash balances are off from the June 30th total that exceeded $191 million, do keep in mind that we distributed a $5 per share special dividend this past December. Regardless our financial condition remains well positioned to support our future growth opportunities.

With respect to cash flows, Lancaster’s consolidated cash flows provided by operating activities for the nine months ended March 31, 2013 totaled approximately $95 million compared to about $85 million a year ago. This increase was largely attributable to the improved net income.

Depreciation and amortization for the first nine months of the current fiscal year totaled $15.124 million and we have returned cash to shareholders totaling $167.134 million in dividends inclusive of the special dividend that exceeded $136 million.

One final matter is to touch on is our effective income tax rate for the quarter, which totaled approximately 32.3% of our pre-tax income as compared to 34.9% in last year’s third quarter.

We do expect a lower full year effective tax rate and influencing this reduction as noted last quarter is the impact of the special dividend interacting with our now frozen employee stock ownership plan. I appreciate your attention this morning, and I’ll now turn the call back to Jay for our concluding remarks.

Jay Gerlach

Thanks John. Turning to the final quarter of the fiscal year we anticipate our toughest comparison to last year which was a very good quarter. Our toughest headwinds are growing sales volumes as we anniversary some new product rollout last year and lack of favorable input cost comparisons.

We also planned to up our promotional spend including back to promoting croutons now with our new capacity is in place. We’d also anticipate providing more support for our New York garlic bread products.

We hope to see some benefit from our repackage Marzetti Veggie dips and Simply Dressed vinaigrette, which just started shipping in March. Our foodservice channel volume is challenging to predict in this economy and we have limited new programs to offset any weak macro demand.

On the cost side, we expect higher egg, dairy and flour cost in the quarter, which could even take our overall input cost up slightly. Soybean oil cost should be off a bit as they have been in the last couple of quarters, which may trigger a little price deflation in our foodservice channel.

We do not anticipate implementing any meaningful price increases in the fourth quarter. Our search for good-fitting food acquisitions continues and while actual deal flow is slow, we continue to develop ideas and relationships that we would hope to leave to opportunities down the road.

Capital expenditures for the year were likely total around $25 million. We began the final quarter of the year knowingly we have a tough comparison, but focused on delivering the best possible finish for the year.

Susan, we’re ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Alton Stump with Longbow Research.

Alton Stump – Longbow Research

Yes, thank you. Good morning Jay.

Jay Gerlach

Good morning Alton.

Alton Stump – Longbow Research

You know actually if I don’t want to talk about full year 2014, just you had too much, but on the input cost, you mentioned that cost might be up slightly, in the June quarter here, any early reading on how things look particularly for the first half of full year 2014 on the cost front?

Jay Gerlach

You know Alton we’ve got at least were we make forward buys we do have a little greater visibility there. But in general, I would say we expect overall input cost to more than likely be relatively flat going through the first half of the year.

Alton Stump – Longbow Research

Okay and then as I would follow-up, sorry go ahead.

Jay Gerlach

(inaudible) down, but its generally flat.

Alton Stump – Longbow Research

Got you, okay. And then just on the product mix front, is there any meaningful benefit there interview in coming quarters?

Jay Gerlach

I’m sure; did you say that product mix?

Alton Stump – Longbow Research

Right, right, so I mean if you are not going to take anymore (inaudible) price which makes sense, if the cost being stable is there any mix benefit potential in your deal?

Jay Gerlach

You know that’s a little hard to predict, we did see a little bit greater retail mix in this current quarter, as we’ve seen in the last couple of quarters of this fiscal year as well, you know I would like to hope we would continue to move that mix a little bit more to the retail side so if we’re successful at that yes we might make a little progress there.

Alton Stump – Longbow Research

Okay. That’s all I have. Thanks guys.

Jay Gerlach

Well thank you.

Operator

Your next question comes from the line of Greg Halter.

Greg Halter – Great Lakes Review

Yes good morning.

Jay Gerlach

Hi Greg.

John Boylan

Good morning Greg.

Greg Halter – Great Lakes Review

Relative to the startup cost that you delineated I think in the six figure area, are those over with now going forward in the current quarter?

Jay Gerlach

Yeah we generally think that’s behind us at this point Greg.

Greg Halter – Great Lakes Review

Alright. And on the candle side just wondering if you could comment on what’s going on relative to wax costs?

Jay Gerlach

Wax cost appear to be relatively stable and that’s kind of what we anticipate looking forward at this point.

Greg Halter – Great Lakes Review

And I think you briefly touched on this on the last question but can you comment on where you may be bought out or covered on the flour side and soybean oil?

Jay Gerlach

On soybean oil we have our typical, we’re out as far as a year but most of our coverage is in the next six months and we’re pretty well covered for that six months period of time on flour we only bought out through September at this point but will probably look to be adding coverage there in the not too distant future.

Greg Halter – Great Lakes Review

It looks like both of those areas are down at least based on the futures prices so assumingly it would be good time to lock in although you’re the expert not me?

Jay Gerlach

But I don’t know we’re experts but yeah you’re generally correct there. So now as you recall our soybean oil buying process is one where we don’t really try to time the market but continue to add coverage month in and month out. Flour we do, do a little bit more opportunistically so there is some opportunity to take advantage a little more aggressively on the timing side there.

Greg Halter – Great Lakes Review

Alright and if you could touch on the competitive environment that you’ve obviously noted that you’re number one in the five categories but you mentioned but is anyone dropping by the way side that you can tell or coming on strong in any of those areas?

Jay Gerlach

Greg, I don’t think we’ve seen anybody moving materially in either direction in those various categories definitely nobody going away. So no I couldn’t single somebody out as being unusually aggressive either.

Greg Halter – Great Lakes Review

Alright and they certainly can’t blame you for not purchasing shares at the price that your stocks been at recently which is obviously doing very well. And you’ve raised the dividend I think for a 50 consecutive years, what are the chances with the cash that’s building that obviously we presume that you will increase the dividend again but that there may be another special cash dividend for 2013?

Jay Gerlach

Greg, I really don’t want to speculate on that although as you know we’ve not done that very often. So, I doubt we would go there as quickly as again this year but we talk about various potential opportunities at every Board Meeting so that’s an active discussion quarterly.

Greg Halter – Great Lakes Review

And I would presume that your 100 million or so in cash is yielding 1.2% something like that?

John Boylan

Hey Greg this is John. You are essentially correct it is very low yielding.

Greg Halter – Great Lakes Review

Alright. Thank you.

John Boylan

You’re welcome.

Jay Gerlach

You’re welcome.

Operator

And now no further questions at this time. I would now like to turn the call back over to Mr. Gerlach for any closing remarks.

Jay Gerlach

Well, thank you for joining us this morning and we’ll look forward to talking to you when we report our year end results in late August.

Operator

Thank you for participating in today’s conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Lancaster Colony's CEO Discusses F3Q13 Results - Earnings Call Transcript
This Transcript
All Transcripts