MGP Ingredients income slips in quarter

by Josh Sosland
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ATCHISON, KAS. — Net income of MGP Ingredients, Inc. in the third quarter ended April 1 was $2,178,000, equal to 13c per share on the common stock, up 5% from $2,083,000, or 13c per share, in the third quarter last year. Sales were $93,807,000, up 18%.

MGPI attributed its net income gain to improved results in the company’s Ingredients segment.

"This primarily was due to increased sales of specialty ingredients for food applications, which rose by approximately 12% over the same period a year ago and by nearly 23% over the second quarter of fiscal 2007," the company said.

Still, profitability overall was driven by the company’s Distillery division and the Ingredients segment continued operating at a loss.

In the third quarter, the Ingredients segment sustained a $1,926,000 operating loss, versus a loss of $2,175,000 during the third quarter last year. Sales were $19,143,000, down 14%.

"Performance in the Ingredients segment continued to be negatively impacted primarily by lower unit sales of specialty ingredients for non-food applications combined with increased wheat prices, which averaged 20% higher compared to a year ago," the company said. "Significantly lower sales of Chewtex pet resins compared to a year ago were partially offset by gains in sales of specialty proteins and starched for food applications."

The 12% gain in food sales of specialty ingredients reflected higher prices for both proteins and starches. Commodity ingredient sales rose by 11% due to higher selling prices for commodity wheat gluten.

In response to changing market conditions associated with the contamination of wheat flour mislabeled as wheat gluten, MGPI said it is ramping up its commodity wheat gluten production.

"The recent recall of contaminated pet food containing imported Chinese wheat flour misrepresented as wheat gluten has caused heightened demand for MGPI's vital wheat gluten," the company said. "In response, MGPI is taking action to increase gluten production at both the Atchison, Kas., and Pekin, Ill., plant locations. This increase, along with improved pricing, is expected to begin impacting the results of ingredients operations during the current quarter. If demand remains high and the company is able to timely increase production, MGPI anticipates that its recent wheat gluten production rate could increase threefold by the start of fiscal 2008."

Tim Newkirk, president of MGPI, emphasized that the decision to expand commodity gluten production should not be perceived as a shift from the company’s strategic focus on specialty food ingredients.

"While this crisis involving a foreign produced ingredient that was not only tainted, but also misrepresented, mandates our short-run focus on rapidly increasing our vital wheat gluten production efforts, we must not lose sight of our long-term goal of the continued development and commercialization of our value-added wheat protein products," Mr. Newkirk said.

In the MGPI Distillery segment, operating income in the third quarter was $5,687,000, down 2% from $5,831,000 during the third quarter last year. Sales were $74,664,000, up 31% from last year. Profitability was adversely affected by rising corn costs, up 65% from last year.

Year to date, MGPI net income was $15,989,000, or 97c per share, up 141% from $7,220,000, or 41c. Sales were $266,447,000, up 15%.

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