After year of change, Lancaster focused on growth strategy

by Eric Schroeder
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Lancaster Colony products
Lancaster Colony posted a small year-over-year sales gain but experienced a decline in earnings.
 

COLUMBUS, OHIO — Fiscal 2017 was “a year of significant change” for Lancaster Colony Corp., as the manufacturer and marketer of specialty food products for the retail and food service channels posted a small year-over-year sales gain but experienced a decline in earnings.

Net income in the year ended June 30 was $115,314,000, equal to $4.21 per share on the common stock, down 5% from $121,764,000, or $4.45 per share, in fiscal 2016. Net sales were $1,201,842,000, up narrowly from $1,191,109,000 in fiscal 2016.

David Ciesinski, Lancaster Colony Corp.
David A. Ciesinski, president and c.e.o. of Lancaster Colony

“For the full year, net sales increased 90 basis points to a record $1.2 billion,” David A. Ciesinski, president and chief executive officer, said during an Aug. 17 conference call with analysts. “Retail net sales grew 3.6%, led by Olive Garden dressings, Sister Schubert’s Dinner Rolls, New York Bakery garlic bread and the addition of Angelic Bakehouse. During the same period, food service net sales declined 2%, driven by our targeted customer rationalization effort, deflationary pricing and the overall restaurant industry trends.

“Operating income for the full year declined from $184.6 million to $174.7 million. Excluding the third quarter pre-tax charge of $17.6 million resulting from the withdrawal of an underfunded multi-employer pension plan, fiscal year 2017 operating income increased 4.2%.”

Mr. Ciesinski described fiscal 2017 as “a year of significant change” for Lancaster Colony. During the past 12 months the company negotiated two union agreements, exited one significantly underfunded multiemployer pension plan, acquired and integrated Angelic Bakehouse and consolidated 250 employees from three different locations into one. The company also launched a new growth strategy.

Angelic Bakehouse products
Lancaster Colony acquired Angelic Bakehouse in November.
 

“We’re big enough to have focused scale in our niche categories but small enough to be nimble and move fast,” he said. “We have a solid retail presence in both the perimeter and the center of the store and a strong position in food service, excellent R.&D. capabilities and a track record of successful innovation.”

When it comes to how the company intends to win in the marketplace, Mr. Ciesinski said Lancaster Colony is laser-focused on three strategic imperatives: accelerating base business growth; simplifying and optimizing supply chain and improving margins; and expanding the company’s core through focused and disciplined mergers and acquisitions.

“In order to accelerate our base business growth, we’re focusing around three priorities: launching new innovation platforms; renovating our existing brands to ensure they maintain their relevance; and finally, ensuring that we have the right tools and capabilities that are necessary to win at the shelf, whether that’s a real shelf or a virtual shelf,” he explained. “Our second imperative is to optimize and simplify our supply chain and improve our margins throughout our entire operations. In order to accomplish this, we’re focusing on the following: launching Lean/Six Sigma, implementing integrated business planning and enhancing our supply chain capabilities as we simplify it.

Lancaster Colony food service salad dressing
Food service net sales declined 2% for Lancaster Colony.
 

“Our third imperative is to expand our core with focused M.&A. This work is nothing new at Lancaster Colony. In fact, we have a strong track record of buying businesses and growing them. It’s in our DNA. During the last two quarters, we’ve made a number of additions in refining a strong leadership team in order to implement our new growth strategy.”

Capital expenditures in fiscal 2018 are expected to be around $30 million, said Douglas A. Fell, vice-president, chief financial officer and treasurer. Mr. Fell said the expenditures are expected to be focused on projects to increase capacity and productivity, including a project to increase warehouse and production capacity at Angelic Bakehouse. 
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