Production disruption bogs down sales at Lancaster Colony

by Eric Schroeder
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Lancaster Colony products
Lancaster Colony's net income in the second quarter was up 18% from the same period a year ago.
 

WESTERVILLE, OHIO — A fire at a co-manufacturer’s facility played a significant role in lower sales at Lancaster Colony Corp. in the second quarter of fiscal 2018. Now, the company is working to get supply back on track ahead of heavy seasonal demand.

Net income in the second quarter ended Dec. 31, 2017, totaled $45,920,000, equal to $1.67 per share on the common stock, up 18% from $38,956,000, or $1.42 per share, in the same period a year ago.

Net sales, meanwhile, decreased 2.2% to $319,665,000 from $326,773,000.

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

“Retail net sales declined 1.9% to $179.3 million as continued growth for full quarter of sales contribution from Angelic Bakehouse, reduced trade spending and lower coupon expenses were more than offset by the impact of disruptions and supply of our New York Bakery frozen garlic bread due to production interruptions at a manufacturing facility and a slowdown in late December outbound shipments due to insufficient freight capacity,” David A. Ciesinski, president and chief executive officer, said during a Jan. 25 conference call with analysts. “Excluding the negative effects from the supply disruption in garlic bread and reduced in the quarter shipments, we estimate that retail net sales would have increased about 1% versus prior year quarter.”

The supply disruption was the result of a fire at a co-manufacturer. Mr. Ciesinski said Lancaster has put corrective actions in place, including sending its maintenance people and engineers to the plant to help get things back on line, but because of the seasonal nature of frozen garlic bread the company has taken a sales hit.

New York garlic bread, Lancaster Colony
Because of the seasonal nature of frozen garlic bread Lancaster Colony has taken a sales hit.
 

“The disruption took place at the very time we want to be building inventory going into a peak season, which in turn depleted the inventory, and it’s made it challenging because even though we have the factories up and online, it’s difficult just to keep up the demand because of the seasonal nature of the spiking when it takes place,” he said. “Rest assured, we have everything up against this, and we expect it to begin to be resolved, but it did have a measurable impact in the quarter.”

While much of the attention during the second quarter was on the New York Bakery brand and the supply disruption, Lancaster turned in positive results in other areas of the business, including dressings and rolls.

“Our Olive Garden business in the pourable salad dressing continues to perform exceptionally well,” Mr. Ciesinski said. “We launched a 32-oz item that we expected to net cannibalize the 24-oz and the 16-oz. What we’re finding is that it’s not, and the velocity in that business remains very, very high. And the brand continues to grow. So we’re extremely excited about that. It remains a great growth story inside of the retail segment.”

Sister Schubert's rolls, Lancaster Colony
Sister Schubert’s had a good holiday season during the second quarter.
 

Sister Schubert’s, the company’s dinner roll brand, also had a good holiday season during the second quarter, Mr. Ciesinski said.

“We continue to expand distribution behind a 20-count size,” he explained. “Again, we aren’t exactly sure how it’s going to perform in the marketplace, what we were looking for was this idea of expandable consumption that if we could get more into the freezer that consumers would consume it more often and that, in fact, is proving out. So that business continues to perform very, very well.” 
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