MGP Ingredients: Higher Volume and Pricing in White Goods Drive Gains in Operating Income
12 May 2014 --- MGP Ingredients, Inc. has reported results for the first quarter ended March 31, 2014. Net income was $4.7 million, or $0.26 per diluted share, compared to net income of $1.4 million, or $0.08 per diluted share, in the first quarter of the prior year.
Results from the prior year quarter included a profit of $1.4 million, net of tax, from discontinued operations and zero earnings per share from continuing operations. Net sales for the first quarter declined by approximately 9 percent from the year-ago quarter. Beverage alcohol sales improved significantly on higher shipments from the Indiana distillery. Sales of industrial alcohol and by-products both declined compared to the same period a year ago. Ingredient segment sales in the first quarter declined from a year ago.
The Company's gross profit during the first quarter was $6.8 million, or 8.6 percent of net sales, compared to $7.2 million, or 8.3 percent of net sales in the prior year period. Premium Spirits and Industrial Alcohol The distillery products segment reported first quarter pre-tax operating income of $5.4 million, or 8.4 percent of distillery products sales, compared to pre-tax operating income of $4.3 million, or 6.1 percent of distillery products sales, during the same quarter a year ago. Lower corn costs were mainly responsible for the improvement in return on sales over the prior year. The average per-bushel cost of corn decreased 39.5 percent from first quarter 2013, while the per-million cubic foot cost of natural gas increased 8 percent.
Distillery products sales for the first quarter were $64.9 million, a decrease of 8.3 percent compared to the prior year quarter. Prices were lower in both distillers feed and lower-grade industrial alcohol products. Sales of fuel-grade alcohol more than doubled from the prior year period as production increased to take advantage of historically high margins. Food Ingredients The ingredients segment reported first quarter pre-tax operating income of $0.2 million, or approximately 2.1 percent of sales, compared to income of $1.5 million, or approximately 10.2 percent of sales, for the same quarter a year ago. Segment profitability in the first quarter was driven primarily by a lower margin mix of products sold. Ingredient segment sales for the first quarter declined by 8.7 percent to $14 million from the prior year's quarter following a decline in flour prices of 10.9 percent compared to the previous year.
Regarding the outlook, the Company expects strong profitability in white goods again in the second quarter, but is cautiously planning for more normalized pricing in the second half of 2014. While orders for premium spirits remain strong, the Company is facing a tight supply of oak barrels, which could impact the timing of shipments later in the year. Selling, general and administrative expenses are running at reduced levels when compared with 2013, after adjusting for severance and proxy-related costs incurred in the prior year period.
On balance, current trends indicate improved annual operating performance over the prior year driven by increased gross margin and lower SG&A costs.
