MGP Ingredients Reports Loss In Q4
Ingredient solutions sales for the 12 months of fiscal 2011 were $57.8 million, a decrease of 3 percent from the prior year period. Total starch sales were lower, with significant gains in specialty starches offset by a 20 percent decline in sales of commodity starches.
Sep 5 2011 --- MGP Ingredients, Inc. has reported a net loss of $10,258,000, or $0.58 in dilutedloss per share, for the fiscal 2011 fourth quarter, which ended June 30, 2011. This compares with net income of $2,476,000, or $0.14 in diluted earnings per share, for the fourth quarter of fiscal 2010. Loss from operations for the fourth quarter of fiscal 2011 was $8,093,000 compared with income from operations of $2,736,000 a year ago. This year's fourth quarter results reflected an unfavorable mark-to-market valuation of approximately $5.5 million due to extreme corn price volatility. Total sales in the fourth quarter of fiscal 2011 were $68,798,000, a 27 percent increase above sales of $54,359,000 for the same period one year ago. The increase was principally due to higher sales of food grade alcohol.
"At the same time that we experienced unrealized non-cash hedging losses, there was a lag in the adjustment of our alcohol selling prices with higher corn costs, pressuring our gross margins," said Tim Newkirk, president and chief executive officer. "To address margin issues, we have adjusted pricing to be more aligned with current input costs. As our new pricing becomes effective and production levels at both our Atchison plant and our distillery joint venture, Illinois Corn Processing, LLC (ICP), revert toward their rated capacities, we expect improved results in the first quarter of our new fiscal period. We have also adjusted our hedging program in an effort to address volatility in corn prices. In addition, we have been working for the past several months to complete the process for adopting hedge accounting. The change to hedge accounting was initiated July 1, and the impact of unrealized gains and losses from our open derivative contracts on our profit and loss statement is expected to wind down during our new fiscal period."
For the 12 months of fiscal 2011, the company had a net loss of $1,313,000, or $0.07 in diluted loss per share. This compares with net income of $8,738,000, or $0.51 in diluted earnings per share, for all 12 months of the prior year, which included a $2.3 million loss on the formation of the company's distillery joint venture, ICP, and a $4.8 million tax refund benefit. Income from operations for the 12 months of fiscal 2011 decreased to $645,000 from $7,255,000 for fiscal 2010. Total sales for all 12 months of fiscal 2011 were $247,915,000, a 23 percent increase above sales of $201,971,000 in the prior fiscal year.
"In alignment with our strategic plans, we are making real progress in improving the execution of our day-to-day operations," Newkirk said. "Examples include new outsourcing agreements for truck and railcar transportation. Internally, we have expanded our management team with industry veterans in key areas of product development and customer account management. These people have hit the ground running. Additionally, we are seeing growing successes with our ingredient solutions being formulated into key customers' new or enhanced consumer packaged products. As a result, and also due to our strategic focus on high quality food grade alcohol, we are continuing to grow a higher value sales mix of products."
Newkirk added, "The distillery products segment continues to see strong demand for high quality food grade alcohol. Production rates at ICP have returned to higher levels since experiencing a two-week shutdown for major mechanical and maintenance work in the fourth quarter. As a result, and combined with new contract pricing that is in place, we anticipate a growing contribution from our distillery segment in the coming quarters."
Newkirk said, "Our number one focus is on driving sales growth and sustaining higher profitability. For instance, we installed new sales leadership this past year in our operating segments and the early results are promising. More aggressive efforts in each of our specialty ingredients platforms have produced significant new and follow-on orders. On the distillery side, we are pursuing new business in premium beverage alcohol, both in terms of market share and new product categories. Our highest priority is to build out and strengthen our business foundation. To take a more strategic 'seat at the table' MGPI is dedicated to providing a seamless fit with our packaged goods customers in the areas of innovation, quality, value and reliability.
"The early evidence shows that we are on the right track. Along with a stronger management team, we continue to put in place systems to improve customer interaction, manage our margins on materials, and reduce commodity volatility with hedging programs and flexible contracting agreements. At the same time, our balance sheet remains strong. In conclusion, we're anticipating a solid start to the new fiscal period."
Total ingredient segment sales for the fourth quarter were $15.6 million, a decrease of 7 percent compared to the prior year's fourth quarter. As planned, sales of commodity protein and commodity starch were lower, decreasing 46.8 percent and 4.3 percent, respectively, for the quarter compared to a year ago. Sales of specialty ingredients accounted for 87 percent of all revenue in this segment, with gains in sales of both specialty starches and proteins.
The ingredient solutions segment experienced a pre-tax loss of $136,000 in the fourth quarter of fiscal 2011 compared with pre-tax income of $2.5 million in the prior year's fourth quarter. Segment profit margins declined during the quarter. This was principally due to increased flour costs, which averaged approximately 54.7 percent higher on a per unit basis compared to the same period a year ago. Higher manufacturing costs resulting from lower volume output related to temporary production slowdowns also contributed to this decrease.
Ingredient solutions sales for the 12 months of fiscal 2011 were $57.8 million, a decrease of 3 percent from the prior year period. Total starch sales were lower, with significant gains in specialty starches offset by a 20 percent decline in sales of commodity starches. Total protein sales declined by 7 percent mainly due to a planned reduction in sales of commodity proteins, which decreased by 91 percent compared to a year ago. Sales of specialty proteins, on the other hand, experienced a slight increase. Protein and starch production for the 12 months was adversely affected by slowdowns at various times of the year to accommodate a series of planned facility upgrades and process improvements. Ingredient segment profit margins for the year declined principally from higher production costs caused by lower volume output, increased energy costs related to a rise in natural gas prices, and higher flour costs. Flour prices and natural gas prices for all 12 months of fiscal 2011 averaged approximately 17.0 percent and 8.0 percent higher, respectively, compared to a year ago.
