MGP Ingredients returns to profitability
August 23, 2010
by Eric Schroeder
ATCHISON, KAS. — A year after sustaining a large loss, MGP Ingredients, Inc. posted positive earnings in fiscal 2010 in what company executives called “a significant and remarkably quick return to profitability.”
Net income in the year ended June 30 totaled $8,738,000, equal to 52c per share on the common stock, up from a loss of $69,123,000 in fiscal 2009 and compared with a loss of $11,742,000 in fiscal 2008. Fiscal 2009 results included $26.4 million in charges related to the restructuring program comprised of asset impairments, the settlement of natural gas contract and the termination of rail car leases, as well as severance and early retirement costs associated with a workforce reduction of approximately 55%.
Sales in fiscal 2010 were $201,971,000, down 31% from $291,812,000 in fiscal 2009.
Helping spur the turnaround for the full year was a strong fourth quarter, said Tim Newkirk, president and chief executive officer.
Net income in the fourth quarter ended June 30 totaled $2,476,000, or 15c per share, up from a loss of $2,916,000 in the same period a year ago. Net sales in the fourth quarter rose to $54,359,000 from $52,233,000.
“This past fiscal year represents a significant and remarkably quick return to profitability,” Mr. Newkirk said. “We ended the year on a strong note paced by higher sales of food grade alcohol and an improved sales mix of higher value specialty ingredients. At our ICP joint venture, we moved closer to full capacity volumes in the fourth quarter. The reduction in costs associated with the start-up of operations there, along with volume gains, produced a substantial upturn from the immediately preceding third quarter.
“In the fourth quarter, we also saw continued progress in sales of our specialty resistant wheat starch, which provides the nutritional benefits of fiber while also possessing a desirable flavor profile. With a growing focus on health and wellness, food companies are searching for new ways to make their products more nutritious and more convenient without sacrificing taste. MGPI’s fiber platform is especially well-suited for a wide variety of prepared packaged foods. Our newly configured sales and customer service teams are having a positive impact as measured by a growing development pipeline and, more importantly, an increasing number of customer products being formulated with our specialty ingredients.”
In its Ingredient Solutions segment, MGPI posted a pre-tax income of $9.7 million, which compared with a pre-tax loss of $6.7 million in fiscal 2009. Net sales, meanwhile, fell to $59.7 million from $82.1 million.
MGPI said the majority of the sales decline was due to strategic decreases in the production and commercialization of commodity starches and wheat gluten. Decreases in certain specialty starch sales and, to a much lesser extend, specialty protein sales were also factors contributing to the decline. MGPI said sales of its fiber-enhancing resistant wheat starch and the company’s textured wheat proteins showed year-over-year increases.
Distillery Products posted a pre-tax profit of $16.7 million in fiscal 2010, which compared with a loss of $24.4 million in fiscal 2009.
Net sales in the Distillery Products segment were $140.7 million, down from $204.7 million. MGPI attributed the decline to the planned reduction of fuel grade alcohol sales. Food grade alcohol sales decreased to a significantly lesser extent due primarily because of a reduction in average selling prices, which followed a decrease in corn prices.
“We’ve made significant progress in restoring our profit margins and strengthening our financial foundation,” Mr. Newkirk said. “Along with creating a higher-value product mix in our ingredients solutions and distillery products segments, we had a company-wide drive to lower costs. Our supply chain has been re-tooled to help us execute with greater consistency and capital efficiency. Other highlights over the past year included better raw material sourcing, lower rail transportation and plant maintenance expenses, and higher starch and protein recovery rates.
As a result, we generated higher profits and cash flows on a substantially smaller base of revenues compared to the prior year.
“Going forward, the primary focus for MGPI is on revenue growth and consistency in value creation. The way to accomplish this is to help our customers grow their businesses, specifically in the development of new and enhanced products. We serve large, multi-national companies that manufacture packaged consumer goods, most of which are sold under major brand names. While continuing to apply our ingredient technologies to enhance the nutritional and functional benefits of flour-based foods, such as bread, pizza dough, bagels, breakfast cereals, crackers and other snack products, we are also stepping up efforts to develop new applications for a wide array of processed foods, including sauces, dressings and frozen dairy treats.
“We additionally are pursuing a higher market share in food grade alcohol. Our immediate opportunity lies in the area of branded spirits, particularly vodka. Sales of flavored vodkas by our customers are growing almost twice as fast as unflavored varieties. This is another area where we have recently increased our sales and marketing efforts to grow our existing relationships. Regarding industrial applications, we currently are seeing new opportunities to compete in high value niches, such as health-related and cooking products.”
Mr. Newkirk said fiscal 2011 will be “all about executing our growth plans, which include additional investments in the areas of innovation and business development.”
“We are seeing the early benefits of our strategic actions and will continue to build on these to further demonstrate the long-term earnings power of MGPI,” he said. “To reiterate, our vision for MGPI is one in which our company is viewed as a more valuable enterprise by all stakeholders. Our sights are set on sustainable profit growth. As such, it is essential that we fortify our value to the customer and our ability to execute consistently at a high level across all areas of the company.”