MGP Ingredients sustains loss of $7.5 million in Q3

by Josh Sosland
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ATCHISON, KAS. — MGP Ingredients, Inc., in the third quarter ended March 31, sustained a loss of $6,729,000, versus net profit of $2,148,000, equal to 13c per share on the common stock, in the third quarter last year. Sales were $106,694,000, up 14% from the third quarter last year.

Results during the quarter included impairment charges of $8,100,000, involving the write-down of plant and equipment associated with the manufacturing of pet-related products and certain Wheatex textured wheat proteins. MGPI said the Wheatex proteins would be produced by third parties in the future.

MGPI sustained a quarterly operating loss of $10,892,000, or a loss of $2,792,000, excluding the impairment charges.

Because of difficulties in the protein-based resins business, MGPI is pursuing strategic alternatives for the pet resin manufacturing business and the company’s facility in Kansas City, Kas.

Tim Newkirk, president and chief executive officer, said MGPI has made considerable progress in its strategic focus on building its value-added product sales but said earnings were adversely affected by record wheat prices. He was optimistic about the outlook.

"In our view, there is less crop risk in global wheat supplies than with corn," Mr. Newkirk said. "Should wheat prices decline to levels experienced during our second quarter, we would anticipate moving toward a stronger sustainable earnings contribution from ingredient solutions going forward. Meanwhile, our distillery operations have remained profitable due principally to higher unit sales and pricing for our food grade alcohol, combined with strengthened pricing for our fuel grade alcohol. Further progress in the distillery segment was hampered by increased prices for corn, the principal raw material used in our alcohol production process."

In its Ingredient Solution segment, MGPI sustained an operating loss of $4,554,000 in the third quarter, versus a loss of $655,000 during the same period last year. Net sales were $25,960,000, up 49%.

Only a portion of the sales increase was from specialty products.

"The company also experienced higher sales of vital wheat gluten resulting from increased volumes and pricing compared to a year ago," MGPI said. "Sales of specialty ingredients improved by 25% compared with the previous year's third quarter. The growing contribution from specialty ingredients was offset by higher wheat costs, which increased more than 86% over a year ago. The higher wheat costs contributed substantially to the pre-tax loss."

Distillery Products pre-tax income was $3,426,000, down 18%. Net sales were $79,064,000, up 6%.

Looking forward, Mr. Newkirk said food grade alcohol and specialty ingredient solutions represent the "two basic levers" for growth at MGPI.

"On the distillery side of our business, we are beginning to explore new markets and applications for our food grade alcohol, which we believe to be among the highest quality, highest purity alcohol in the world," he said. "In the meantime we are focused on driving peak operating performance through our state-of-the-art production processes and the maximization of our capacities."

Mr. Newkirk described Ingredient Solutions as the segment "commanding most of our time and management resources."

"We are squarely focused on identifying new growth opportunities," he continued. "With our new configuration we are better able to commit the full power of sales and marketing, research and development, applications technology support and manufacturing know-how to devise new customer solutions. During the third quarter, our ingredient solutions segment made further progress, as measured by improved volume, product mix and average sales price. We achieved our highest average sales price ever for this segment of our business driven by continued sequential growth of our unique Fibersym RW resistant wheat starch, Wheatex textured proteins and Arise wheat protein isolates."

Consumer trends toward health and wellness continue to favor this strategy, Mr. Newkirk said.

In the nine months ended March 31, MGP Ingredients sustained a loss of $1,753,000, versus net income of $15,898,000, or 97c per share, in the first three quarters of fiscal 2007. Net sales were $288,666,000, up 8%.

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