ATCHISON, KAS. — Higher unit sales and increased prices for both food grade and fuel grade alcohol contributed to record earnings at MGP Ingredients, Inc. in the just ended fiscal year. Net income in the year ended July 1 was $17,698,000, equal to $1.08 per share on the common stock, up 26% from $13,995,000, or 87c per share, in fiscal 2006. Sales were $367,994,000, up 14%.
The improved earnings occurred against a backdrop of less-than-stellar performance in the company’s Ingredients business. MGPI again sustained a pre-tax loss in its Ingredients business, at $9,456,000. This compared with a loss of $11,764,000 in fiscal 2006. Total Ingredients sales fell by $11.9 million, or 13.9%, in fiscal 2007, primarily due to a 59.3% decline in sales of non-food specialty ingredients mainly related to pet products, MGPI said. Sales of commodity starches and specialty food ingredients fell by 12.9% and 5.4%, respectively, during 2007. Wheat gluten sales, meanwhile, rose by 51.9% compared with a year ago.
"The company’s profit performance in this segment (ingredients) was severely hampered by the decline in sales of non-food specialty ingredients combined with a 23.9% increase in the 12-month average price of wheat compared to the prior year," MGPI said. "Ingredients segment results were also adversely affected by higher expenses related to current patent litigation."
The company’s Distillery business, meanwhile, performed better in fiscal 2007, as operating income for the full year rose to $38,765,000, up 5% from $36,954,000. Sales in the unit climbed 24% to $294,393,000.
"There was a recurring theme throughout this past fiscal year where revenue growth in our distillery segment was supported by higher alcohol pricing in all categories," said Ladd Seaberg, chairman and chief executive officer. "However, whereas pricing in the food grade alcohol area has remained on a steady course, fuel grade alcohol pricing has been volatile over the past 12 months, with spot prices in the fourth quarter declining 12% from their fiscal 2007 first-quarter average. Our distillery profitability continued to be impacted by rising corn prices, which averaged 75.9% higher compared to the prior year’s fourth quarter.
"On a positive note, corn prices have recently undergone a substantial decline from 10-year highs and we therefore anticipate some cost relief in the current fiscal year. Fortunately, our distillery operations continue to generate strong profits and cash flows due to the diverse nature of our alcohol products, incremental capacity increases and production efficiency improvements."
Mr. Seaberg also pointed to several other notable achievements at MGPI during the year, including the restructuring of the company’s ingredients segment with a return to profitability, and greatly enhanced research and development capabilities. On the distillery side, he said MGPI’s overall production capabilities continue to increase as the result of previously announced capacity improvement projects.
Despite the company’s strong fiscal 2007 results, profit during the fourth quarter ended July 1 were not as strong, as earnings fell 77% due to higher corn costs that hurt earnings in the company’s Distillery segment.
Net income in the fourth quarter was $1,709,000, or 10c per share, down sharply from $7,363,000, or 45c per share, in the fourth quarter of fiscal 2006. Net sales totaled $101,547,000, up from $90,338,000.
In the MGPI Ingredients segment, operating income totaled $607,000, up from a pre-tax loss of $7,196,000 in the fourth quarter a year ago. Sales in the fourth quarter rose approximately $3.6 million, or 19.3%. The company pointed to a significant increase in sales of vital wheat gluten, which resulted from higher unit volumes and substantially improved prices compared with year-ago levels. MGPI said sales of specialty proteins and starches for food applications declined compared with a year ago, but improved modestly over the third quarter of fiscal 2007.
In the MGPI Distillery segment, operating income fell to $1,858,000 from $20,318,000 in the same year-ago period. Sales during the fourth quarter rose by approximately $7.6 million, or 10.6%. The gain reflected a 14.6% increase in sales of food grade alcohol and an 8.3% increase in sales of fuel grade alcohol.