Lancaster optimistic behind 'good and expanding' new product pipeline

by Eric Schroeder
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Lancaster is optimistic about recent launches, including new varieties of Simply Dressed dressing and New York Brand baked snack sticks.

COLUMBUS, OHIO — A strong second half of the year has set the stage for a successful start to fiscal 2016, Jay Gerlach, chairman, president and chief executive officer of Lancaster Colony Corp., said during an Aug. 20 conference call with analysts. Mr. Gerlach said the company is facing headwinds in higher egg costs and competition within the frozen dinner roll category, but he expects improved operational efficiency and cost controls, as well as the addition of Flatout, to provide momentum heading into the new fiscal year.

Net income at Lancaster in the year ended June 30 was $101,686,000, equal to $3.72 per share on the common stock, up 36% from $74,986,000, or $2.75 per share, in fiscal 2014. Net sales increased 6% to $1,104,514,000 from $1,041,075,000.

Jay Gerlach, chairman, president and c.e.o. of Lancaster Colony

“We feel we have developed a comprehensive plan for this year to support our Sister Schubert frozen dinner-roll line, which includes expanded consumer and trade promotion activities, both traditional and digital,” Mr. Gerlach said. “We see strong competition across our channels and categories, so successful product innovation will be an important competitive tool.

“We feel we have a good and expanding pipeline of new products for the coming two to three years. Recent introductions off to a good start include our New York Brand soft pull-apart rolls, and Simply Dressed avocado ranch dressing and sriracha ranch dressing and veggie dips. We are optimistic about our New York Brand snack sticks and salad kickers just recently introduced. Upcoming product introductions will include Marzetti Vineyard dressings, which are our wine-based salad dressings, and for flavor-cooked vegetables, Marzetti Veggie Drizzles.”

Mr. Gerlach acknowledged the competition in the refrigerated dressings category has ramped up in recent years.

“It’s (refrigerated dressing) got more players in it than it would have had just two or three years ago, including some relatively new entrants,” he said. “Just the arrival of those can nick a little bit at shelf space and growth potential.”

He said the company lost a modest amount of share in the refrigerated dressings category in the fourth quarter, but still maintained a leading position. The Marzetti Vineyard dressings will have a select roll-out, but are an example of some of the innovation the company has planned to reconnect with consumers, he said.

Two new varieties of Flatout flatbreads, ProteinUp and Gluten-Free, have had mixed results.

Lancaster experienced strong initial success from Flatout, the flatbread maker that was acquired in March. Two new varieties of the products, ProteinUp and Gluten-Free, have had mixed results.

“They’re both relatively recent in the marketplace at this time,” Mr. Gerlach said. “They were both being introduced at the time of the acquisition and that transition, so I don’t know whether any of those activities distracted a little bit from getting those fully introduced, but I think we’re optimistic about both of them. At this point, I think the ProteinUp looks like the stronger of the two.”

One product that did not reach its potential was Reames Presto Pasta, which was introduced last year. The line of frozen pasta in convenient microwavable packaging has been pulled from the market, Mr. Gerlach said.

New Reames Presto Pasta has not performed to expectations.

“It did not reach the expectations that we anticipated,” he said. “You might still see a little bit of it on the store shelf today, but we are not moving forward with that.”

Another focus in fiscal 2016 will be on simplifying ingredients in existing products. Mr. Gerlach said this effort is ongoing in both channels of Lancaster’s business to address today’s consumer preference for foods with a shorter and simpler list of ingredients.

“This can be a challenging and time-consuming work, as key factors like existing taste profiles and shelf lives need to be considered,” he said.

Finally, Mr. Gerlach said Lancaster has no major capital projects on tap for fiscal 2016, but does have a variety of cost-reduction and capability and/or capacity projects planned.

“At this point, we would estimate the year’s capital investment to be in the range of $15 million to $20 million,” he said. “Acquisitions continue to be of interest, and our focus is for branded retail channel businesses with product that is broadly on trend. With our presence in the deli department, we would be interested in expanding there, but could find potential in any part of the store.”
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