MGP Ingredients Announces 1Q Loss
The loss for the quarter included a $6.3 million income tax benefit. This compares with a net loss of $353,000, or $0.02 in diluted earnings per share, for the first quarter of fiscal 2008.
11/11/08 MGP Ingredients, Inc. reported a net loss of $17,243,000, or $1.04 in diluted earnings per share, for the first quarter of fiscal 2009, which ended September 30, 2008. The loss for the quarter included a $6.3 million income tax benefit. This compares with a net loss of $353,000, or $0.02 in diluted earnings per share, for the first quarter of fiscal 2008. Total sales in the first quarter of fiscal 2009 were $99,020,000, an increase of 13 percent above first quarter sales a year ago.
"Our first quarter looked very similar to our recent fourth quarter, excluding special items," said Tim Newkirk, president and chief executive officer. "The main culprit again was continuing high prices for our principal raw materials, wheat and corn. However, a closer review of our results shows that we achieved significant sales growth in food grade alcohol products, as well as in some key categories in specialty ingredients. These opportunities represent the future of MGPI. To realize our true long-term profit potential, we continue to take additional steps to strengthen the organization. The latest of these include lowering our operating costs through the restructuring of our business with greater focus on those areas which can generate the highest returns while also further reducing risk across the enterprise."
Newkirk elaborated, saying, "We are implementing a business transformation program that is expected to bring measurable rewards over the long-term. We are doing this by exiting underperforming areas of the business and concentrating our attention and resources on our core strengths and growth strategies. These strategies are centered on the production and commercialization of our higher margin products. As a result, we are working to improve the value of what we do by retaining those parts of our business in which we are competitively advantaged. We are among the best at applying grain science to create customer-oriented formulations for our specialty ingredients, specifically value-added wheat proteins and starches, while also strengthening our role as a leading provider of high quality, world class alcohol products."
Newkirk added that, "In striving to meet our objective of creating greater value for our customers and stockholders, we recognize that we can no longer continue to operate status quo. It has become paramount for us to make some significant changes and incorporate new initiatives that will enable us to break free of operational activities and external factors that constrain our abilities to strengthen our financial performance going forward."
Total ingredient solutions sales for the first quarter increased by $3.6 million, or 16 percent, compared to the same quarter a year ago. Sales of specialty ingredients, consisting of specialty proteins and specialty starches, increased by $3.7 million, or 27 percent. Sales of specialty starches benefited from improved pricing and unit sales. Sales of specialty proteins were driven by an increase in per-unit prices partially offset by lower unit sales. Sales of vital wheat gluten decreased by $1.0 million, or 13 percent, primarily as a result of reduced sales volume compared to a year ago. Revenues for commodity starch increased $914,000, or 126 percent, as a result of increased sales volume as well as improved pricing. While revenues for the ingredient solutions segment improved overall, profitability continued to be significantly impacted by increased cost of sales related to exorbitantly high wheat prices. The per-bushel cost of wheat for the first quarter averaged 41 percent higher compared to the same period a year ago.
Newkirk explained that as the result of certain recently announced actions related to the company's business transformation initiatives, the company expects to show continued sizeable decreases in the production and sales of commodity gluten. Decreases in commodity starch and other lower margin starch volumes are expected to begin occurring in the final two quarters of the current fiscal year. Likewise, a recently reported decision to further decrease fuel grade alcohol production volumes will result in additional declines in sales of this product and distillers feed beginning in the current quarter.
A 16 percent decline in sales of fuel grade alcohol compared to last year's first quarter resulted from reduced production levels, which were partially offset by improved pricing. Despite this decline, total distillery products sales for the first quarter increased $7.0 million, or 11 percent, compared to the previous year's quarter. Sales of food grade alcohol increased $9.4 million, or 36 percent, over a year ago, driven by higher volume and per-unit pricing for both beverage and industrial alcohol. Sales of distillers feed also reported a significant increase due mainly to improved pricing. While total revenues for distillery products improved for the first quarter, profit margins continued to be impacted by increased cost of sales related to higher corn prices compared with year ago levels. For the first quarter, the per-bushel cost of corn, before adjustments related to hedging practices, averaged approximately 49 percent higher than one year ago.
Total first quarter sales of other products, consisting primarily of plant-based biopolymers and pet products, increased $410,000, or 31 percent, compared to the prior year period. Higher unit sales and pricing of biopolymer products were the main factors. The sales increase was partially offset by lower revenues of pet products in accordance with the company's previously announced plans to phase out this portion of its business.
"The other segment reported a slight operating profit compared with a year-ago loss," Newkirk reported. "This was achieved," he added, "as the result of our previously stated commitment to remove the earnings drain on this segment caused by operations associated with the pet-related portion of the business. We are making this same kind of commitment to improve our performance in our ingredient solutions and distillery products segments by substantially reducing or eliminating products that adversely impact profit potential in those areas."
For the quarter ended Sept. 30, 2008, the company refined its methodology for assessing identifiable earnings (losses) before income taxes for all segments whereby only direct sales, general and administrative costs are included in the operating segments. Previously, the company had allocated substantially all selling, general and administrative expenses to each operating segment based upon numerous factors and attributes. All selling, general and administrative expenses not directly attributable to operating segments have been restated within corporate income (loss) before taxes for the quarter ended Sept. 30, 2007. Accordingly, amounts previously disclosed as earnings (loss) before income taxes for the quarter ended September 30, 2007 have been adjusted to reflect these changes. The increase in corporate expense in the first quarter of fiscal 2009 compared to the same period in fiscal 2008 was primarily due to a $452,000 increase in interest expense.
Income Taxes
For the first quarter, the company recorded an income tax benefit of $6.3 million for an effective rate of 26.7 percent compared to a benefit of $152,000 for the same quarter a year ago for an effective rate of 30.0 percent. As a result of losses incurred during the year ended June 30, 2008, the company anticipates receiving tax refunds aggregating approximately $9.2 million during the second quarter of fiscal 2009.
Restructuring Actions to Restore Profitability
As previously announced, the company continues to move forward with strategic initiatives to transform the company into a leading provider of value-added ingredients and world class alcohol p
