MGP Ingredients Boosted by Growth in Beverage Alcohol and Lower Costs
14 Nov 2014 --- MGP Ingredients, Inc. has reported results for the third quarter ended September 30, 2014. Net sales were $77.5 million for the third quarter. The Company's gross profit for the third quarter was $7.3 million, or 9.4 percent of net sales, compared to $0.8 million, or 1.0 percent of net sales in the prior year period. Third quarter income from operations was $3.6 million compared to a loss of $5.9 million a year ago. Net income was $6.2 million, or $0.34 per diluted share, compared to a net loss of $6.3 million, or $0.37 per diluted share, in the third quarter of the prior year.
"Our profit growth this quarter is a result of continued improvement in our distillery products segment, and reflects a favorable shift towards premium spirits," said President and CEO, Gus Griffin. "Ingredient solutions, while profitable, is not growing the way we would like. We are confident that we have identified opportunities and the appropriate strategies to drive growth for this business. Our quarterly results also benefited from a strong contribution from the ICP joint venture."
For the first nine months of 2014 net sales were $237.1 million. Gross profit improved by $9.1 million, to 9.5 percent of net sales, compared to a year ago. Income from operations for year-to-date was $8.4 million compared to a loss of $4.1 million the same period a year ago. Net income of $16.1 million for the year-to-date period compared to a net loss of $4.6 million for the prior year-to-date period.
Total distillery net sales for the third quarter were $63.7 million. Compared to a year ago, sales volumes for alcohol, excluding by-product volumes, increased 11.50 percent. While overall pricing was lower, price declines were less than the decrease in cost of goods sold, due to strong product pricing and a lessening of the historic correlation between product pricing and commodity prices. As a result, overall pre-tax operating income increased to $6.5 million from a loss of $1.6 million in the prior year.
Total distillery net sales for the nine months were $194.0 million. Compared to one year ago, sales volumes for alcohol, excluding by-product volumes, increased 20.2 percent. Overall pricing was lower, but the change was less than decreases in cost of goods led by decreases in the cost of corn, increasing pre-tax operating income margin to 9.3 percent from 2.9 percent. As a result, distillery segment pre-tax operating income for the year-to-date period was $18.0 million compared to pre-tax operating income of $5.8 million for the same period a year ago.
Total ingredient net sales for the third quarter were $13.8 million. Compared to one year ago, total sales volume grew 3.6 percent, with average selling price declining by 5.5 percent, in a market that saw our flour price decline 9.1 percent. Third quarter pre-tax operating income was $1.1 million compared to income of $1.3 million for the same quarter a year ago.
Total ingredient net sales for the first nine months were $43.0 million. Compared to one year ago, total sales volume grew 2.2 percent, with average selling price declining by 6.4 percent, during a period when our flour prices declined 11.3 percent. Pre-tax operating income for the year-to-date period was $2.8 million compared to income of $3.9 million for the same period a year ago.
Corporate selling, general and administrative expenses were $5.0 million for the quarter ended September 30, 2014, compared to $6.8 million for the quarter ended September 30, 2013. Corporate selling, general and administrative expenses were $15.2 million for the year-to-date period ended September 30, 2014 compared to $17.4 million in the year ago period. The decreases were primarily due to $1.8 million of proxy costs accrued in the quarter and year-to-date periods ended September 30, 2013.
Joint venture (including ICP) equity method investment earnings were $1.6 million for the quarter ended September 30, 2014, compared to a loss of $0.1 million for the quarter ended September 30, 2013. Joint venture (including ICP) equity method investment earnings were $7.3 million for the year-to-date period ended September 30, 2014, versus a loss of $1.0 million in the prior year-to-date period. The significant quarter-versus-quarter and period-versus-period increases in earnings were due to much improved margins in the production of chemical intermediates, fuel grade alcohol, and high quality food grade alcohol.
Third quarter income from operations included $1.9 million from an insurance recovery, net of losses and out-of-pocket expenses totaling $0.1 million, related to a claim for a fire at the Company's Indiana distillery in early 2014. In addition, the Company evaluated the potential realization of its deferred income tax assets and concluded that $1.2 million of the existing valuation allowance on its deferred income tax assets was no longer required. Accordingly, an income tax benefit of $1.2 million was recorded for the quarter ended September 30, 2014. The impact for the year-to-date period ended September 30, 2014, was an income tax benefit of $1.0 million, net of $0.2 million of tax expense recorded prior to the third quarter.
