Lancaster Colony Corp. (LANC) Tops Q4 EPS by 14c, Revenues Beat

Lancaster Colony Corp. (NASDAQ: LANC) reported Q4 EPS of $1.10, $0.14 better than the analyst estimate of $0.96. Revenue for the quarter came in at $320.9 million versus the consensus estimate of $298.63 million.

Fourth Quarter Results

• Consolidated net sales declined 0.9% to $320.9 million versus $323.7 million last year. Excluding all sales attributed to a temporary supply agreement resulting from the November 16, 2018 acquisition of Omni Baking Company, consolidated net sales increased 0.7%.
• Retail net sales surged 24.5% to a record $192.4 million as the impacts of the COVID-19 outbreak drove higher demand for at-home food consumption. The increase in Retail net sales was led by frozen garlic bread, Olive Garden® dressings sold under a license agreement and frozen dinner rolls. The segment\'s results also benefited from recent introductions of new products sold under license agreements, including an expanded offering of single-bottle Buffalo Wild Wings® sauces and a regional pilot test for Chick-fil-A® sauces.
• Foodservice net sales declined 24.1% to $128.4 million as foodservice channel demand was unfavorably influenced by the impacts of COVID-19. After a very slow start in April, consumer demand at quick-service restaurants made a strong recovery in May and June, and sales for other restaurants also improved notably throughout the quarter.
• Consolidated gross profit improved $10.9 million, or 13.9%, to $89.1 million driven by the favorable sales mix shift to Retail, our cost savings programs and improved net price realization in Retail. The gross profit results were unfavorably impacted by costs related to COVID-19, including increased hourly wage rates for our front-line employees along with the effect of lower Foodservice volumes and reduced operating efficiencies as our factories and distribution centers adopted guidelines and implemented protocols provided by government health authorities to promote safe operations.
• SG&A expenses rose $8.9 million, principally driven by a $3.8 million increase in expenditures for Project Ascent in support of our ERP project and related initiatives in addition to costs attributed to the impacts of COVID-19, including a write-off of engineering expenses for a dressing plant expansion project. Shifts in demand between our Retail and Foodservice segments led us to cancel the expansion project, and we are now evaluating alternative investments that best align with the future needs and growth opportunities for our dressing and sauce products.
• The prior year\'s change in contingent consideration included the favorable impact of a non-cash reduction to the contingent consideration for Angelic Bakehouse, Inc. (\"AB Adjustment\") in the amount of $7.4 million.
• Consolidated operating income declined $3.1 million to $40.2 million as influenced by the favorable AB adjustment in the prior-year quarter, costs related to the COVID-19 outbreak and increased expenses for Project Ascent, partially offset by the improved top-line performance of the Retail segment and benefits from our cost savings programs.
• Retail segment operating income increased $6.5 million, or 20.1%, to $38.8 million driven by the significantly higher sales volumes. The Retail segment operating income in the prior-year quarter included the favorable impact of the $7.4 million AB Adjustment.
• Foodservice segment operating income declined $8.3 million, or 45.3%, to $10.1 million primarily due to the notable decline in Foodservice sales, the write-off of engineering expenses resulting from the cancelation of the dressing plant expansion project, lower factory overhead absorption and higher operating costs resulting from the impacts of COVID-19.
• Net income declined $2.6 million to $30.4 million. Expenditures for Project Ascent reduced net income by $4.2 million this year compared to $1.4 million last year. The favorable AB Adjustment increased net income in the prior-year quarter by $5.7 million.
• Net income per diluted share decreased $0.10 to $1.10. Expenditures for Project Ascent reduced net income per diluted share by $0.15 this year versus $0.05 last year. In the prior-year quarter, the favorable AB Adjustment increased net income per diluted share by $0.21.
• The regular quarterly cash dividend paid on June 30, 2020 was maintained at the higher amount of $0.70 per share set in November 2019.

Fiscal 2020 Commentary

CEO David A. Ciesinski stated, "I would first of all like to thank the entire Lancaster Colony team for the tremendous effort they have put forth and the resilience they have shown through this most challenging and unprecedented time as we confront the impacts of the COVID-19 pandemic. From the front-line workers at our plants and distribution centers to the leaders throughout our business, I am extremely proud of the way we have collectively pulled together to meet the shifting demands of our Retail and Foodservice customers while staying true to our top priority, the health, safety and welfare of our team members."

"We were very pleased to finish the fiscal year with record sales in the Retail segment, positive momentum in the Foodservice segment and record gross profit. Despite all the challenges imposed by the impacts of COVID-19, our supply chain team navigated through the shifts in demand with safe operations and continued to deliver cost savings as we completed the fiscal year."

Fiscal 2021 Outlook

Mr. Ciesinski continued, "Looking ahead to fiscal 2021, Retail sales will continue to benefit from the growth in shelf-stable dressings and sauces sold under license agreements, including sales gains for Chick-fil-A® sauces beyond the successful pilot test, expanded distribution of Buffalo Wild Wings® sauces in single bottles and added growth in the dollar and value channels for Olive Garden® dressings. We also anticipate sales for both our Retail and Foodservice segments will continue to be impacted by the shifts in consumer demand resulting from the COVID-19 pandemic, the extent to which is unpredictable and contingent upon the future spread or control of COVID-19 and the resulting effects on consumer behavior."

"Based on our current assessment, following a year in which overall commodity costs were notably favorable, we anticipate a rise in commodity costs for fiscal 2021. The cost savings programs currently underway or planned for implementation by our supply chain team, in addition to favorable net price realization, will help to offset increased commodity costs in the coming year. We will also continue to make the necessary investments to help protect the health and safety of all our team members and follow the guidelines of government health authorities in response to the COVID-19 pandemic."

For earnings history and earnings-related data on Lancaster Colony Corp. (LANC) click here.

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