10 Aug 2012 --- MGP Ingredients, Inc. has reported results for the second quarter ended June 30, 2012. The net loss of $850,000, or $0.05 per diluted share, compared favorably with a net loss of $10.3 million, or $0.61 per diluted share, in the prior year.

Net sales for the second quarter increased 24 percent compared to the same quarter a year ago. The increase was primarily attributable to higher volume and improved pricing in high quality food grade alcohol. The recently acquired Lawrenceburg, Indiana distillery contributed to higher sales of beverage alcohol, along with sales of distillers feed and warehousing revenues. The ingredients segment reported lower sales for the period due to decreased volume partially offset by improved pricing.

Net income for the second quarter improved from a year ago, with a net loss of $850,000 compared with a net loss of $10.3 million. The net loss for the second quarter was driven by the continuing high costs of raw materials and the temporary effects of a planned 1-week shut-down of the Atchison, Kansas, plant for maintenance and capital upgrades. The company also experienced higher personnel costs related to the acquisition of the Lawrenceburg, Indiana distillery in late 2011. The loss during the prior-year period included significant unfavorable changes to cost of sales from open hedge contracts.

“We’re making continued progress on growing the top-line,” said Tim Newkirk, president and chief executive officer. “Our profitability, on the other hand, continues to lag behind our targets. High corn prices are certainly having an impact in terms of margin compression. However this is mainly a function of some of our existing supply contracts, most of which are expected to roll off in the second half of the year. That’s why we haven’t yet been able to fully take advantage of our new sourcing agreements. Fortunately, our supply partner has an extensive global corn origination network and is not solely dependent on local origination for our facilities’ corn supply. We also benefit from their much greater buying power. By the fourth quarter, we expect to be back to flat pricing for most of our grain needs, thereby reducing our corn basis risk and its negative impact on distillery margins.

“Performance at our Lawrenceburg, Indiana distillery is coming up to speed now that the facility has been integrated with our SAP platform. Process changes at the plant are expected to result in increased quality and efficiency. We’re also seeing greater interest in a broader range of premium beverages as we spend more time with LDI’s customer base. Demand remains strong for premium aged bourbon and whiskeys; therefore, we added to our MGP-owned barrel inventory in the second quarter at an investment of approximately $5 million.”

Net income for the first six months of 2012 improved to $1,026,000, or $0.06 per diluted share, compared with a net loss of $9.6 million, or $0.57 per diluted share a year ago. Net sales for the 2012 six month period were $171.8 million, an increase of 29 percent on the prior-year period.

Distillery products sales for the second quarter were $71.1 million, an increase of 34 percent compared to the prior year quarter. The majority of this increase was mainly due to a 37 percent increase in sales of high quality food grade alcohol, driven by approximately equal gains in pricing and unit volume. The Lawrenceburg, Indiana, facility added significant new sales of beverage alcohol compared to the prior year. The Lawrenceburg distillery also generates sales of distillers feed and fees for warehousing services related to the storage of barrels used in the aging of whiskey and bourbon. Non-food grade alcohol sales declined by 32 percent compared with the prior-year period.

The distillery products segment reported second quarter pre-tax operating income of $3.7 million compared to a pre-tax loss of $3.7 million during the same quarter a year ago. Quarter over quarter, pricing for distillery products out-paced the increased costs for corn, excluding the impact of accounting for open commodity contracts. Current quarter cost of sales had a $2.0 million favorable impact related to open commodity contracts compared with an unfavorable impact of $5.5 million in the prior year. For the second quarter, the per-bushel cost of corn averaged 4.8 percent lower than a year ago, with natural gas declining by an average of 13 percent over the same period.

Distillery products sales for the first six months of 2012 were $143.6 million, an increase of 39 percent over the prior year period. Pre-tax segment operating income for the six months was $6.4 million, an increase of 50 percent over the same period a year ago.

Ingredient segment sales for the second quarter were $14 million, a decrease of approximately 10 percent from the prior year’s quarter. Higher average pricing was offset by declines in unit volume.

The ingredients segment reported a second quarter pre-tax operating income of $987,000 compared with a pre-tax operating loss of $136,000 for the quarter a year ago. This was principally due to improved average selling prices, a higher value product mix and lower natural gas prices. Flour costs averaged approximately 8 percent lower per pound compared with the prior-year period.

Ingredients segment sales for the first six months of 2012 were $27.6 million, a decrease of 5 percent over the prior year period. Pre-tax segment operating income for the six months was $2.6 million compared with a loss of $35,000 over the same period a year ago.
 
Sales of the Company’s plant-based biopolymers in the second quarter were $248,000, which was modestly higher than prior year levels. The Company reported a pre-tax operating loss of $150,000 compared to a pre-tax loss of $209,000 in the prior year’s quarter. For the first six months segment sales were $529,000 compared with $515,000. The pre-tax operating loss for the first six months was $246,000 compared with a prior-year loss of $385,000. MGP is participating in an externally funded project to find innovative ways to produce cost-competitive bio-based foams, plastics, and other materials from distillers dried grains and soluables. 
 
Newkirk concluded, “We like our long-term positioning. While our quarterly results have yet to show consistency, we’re more confident in our ability to compete in an environment of stubbornly high commodity prices. The turnaround in profitability of our ingredients segment is one example of our progress over the past year. The addition of brown goods to our beverage portfolio has enhanced our distillery margins. Other positive factors for the second half of this year include the resetting of our raw material sourcing contracts and the recently-implemented price increases for distillery products. In the meantime, we’re focused on keeping customers satisfied and generating more cash from every gallon or pound we process.”