MGP Ingredients Reports Strong Rise in 2014 Gross Profit
13 Mar 2015 --- MGP Ingredients has reported that full year, gross profit for the Distillery Products segment rose to $22.3 million, or 8.7% of net sales, compared with $14.3 million, or 5.4% of net sales in 2013. The primary driver of the improvement in gross profit was a 15.3% increase in volume of food grade alcohol.
The gross margin for the overall segment improved 3.3 points, as a result of improved product mix and product pricing declining less than the drop in commodity prices.
"We are very pleased with our 2014 results, both from a financial standpoint and in setting a solid foundation for our long term growth," said Gus Griffin, president and CEO of MGP. "We have turned the corner and are seeing steady improvement in all areas of our business."
Griffin noted, "We are focused on maximizing the value of our production, and this is evidenced by the positive mix shift in food grade alcohol sales towards higher margin vodkas, gins, and whiskeys. This shift lessens the historical correlation between product pricing and input costs, and we expect will offer additional insulation from outside factors such as swings in commodity pricing."
For the full year, gross profit and gross margin for the Ingredients Solutions segment declined to $6.1 million and 10.7% of net sales, compared with $7.0 million and 11.8% of net sales in 2013.
The segment's strategic focus remains on the production and commercialization of specialty ingredients, which is reflected in the year-over-year increase in specialty products to 82.4% of total segment net sales from 81.2% in 2013. For 2014, volumes of specialty starches rose 7.6% and their share of total segment volume increased 3.4 points to 56.7%. Specialty protein volumes declined 8.9%, however average pricing increased 1.7%.
Griffin added, "The favorable mix shift towards specialty products is further evidence of our focus on maximizing the value of our production. While we are disappointed with the decline in specialty protein sales, we are confident in our plans to realize the long-term potential of this market."
The company's 2014 results include $8.3 million in insurance recoveries for settlement of a claim related to a fire at the company's Indiana facility early in the year that damaged a feed dryer house and caused a temporary loss of production. Replacement is scheduled for completion by the end of 2015. Net out-of-pocket cash for the project after insurance recoveries is expected to be approximately $1.5 million.
Corporate selling, general and administrative expenses were $20.1 million for 2014 compared to $26.2 million in 2013. The decrease was primarily due to a $5.5 million year-over-year decline in costs associated with the 2013 proxy contest.
The company's ICP joint venture, which produces high quality food grade alcohol, chemical intermediates and fuel, generated a significantly improved contribution to MGP's net income in 2014. ICP was able to realize improved margins by taking advantage of the low supply and strong demand for those products, whose pricing is generally tied to fuel alcohol. As a result of ICP's 2014 profit performance, ICP's advisory board made a $4.8 million cash distribution to MGP in late 2014. The company expects that ICP's recent levels of profitability may not be sustained and, as a consequence, that ICP's contributions to future net income may be reduced.
The company's new 5 year strategic plan was announced publicly on February 5 and features 5 key strategies. "First, we intend to maximize the value of our current production volumes," explained Griffin. "In particular, we want to take full advantage of favorable macro trends, such as the growth of the American whiskey category and the high fiber, high protein and non-GMO trends."
"Second, as we focus our production on higher value products, we will work to develop partnerships that support brand creation and long-term growth. In that way, we believe we will be able to realize the full long-term value of our operational capacity, quality and commitment," he added.
The third strategy encompasses investing to support growth. "We expect capital expenditures in 2015 of approximately $13 million, net of 2014 insurance recoveries. These will largely focus on supporting our commitment to the rapidly growing whiskey category, including the working capital needed to increase our stock of aged whiskey inventory, as well as some investments behind improved operational reliability. In addition, as needed to support our plans, we will add staff and capabilities in sales and marketing, as well as research and development," said Griffin.
Griffin noted that the company is well positioned financially. "In late February, we entered into a new five-year, $80 million revolving loan with Wells Fargo Bank and U.S. Bank. We believe this will provide us all the financial resources we should need to support the five-year plan."
Other strategies include continuing disciplined risk management practices, and growing the MGP "brand" with all stakeholders.
