MGPI sustains $5.5 million loss in first quarter

by Eric Schroeder
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ATCHISON, KAS. — High raw material costs, unrealized losses from hedging activities and temporary increases in flood-related transportation expenses contributed to a $5,509,000 loss at MGP Ingredients, Inc. in the first quarter ended Sept. 30. This compared with net income of $5,002,000, equal to 28c per share on the common stock, in the first quarter of fiscal 2011.

Sales were $76,138,000, up 34% from $56,978,000, driven in large part by higher sales of food grade alcohol.
Tim Newkirk, president and chief executive officer, said MGPI continued to experience some of the same issues it faced in its fourth quarter of fiscal 2011, including higher raw material costs and non-cash losses on some open derivative commodity contracts used in the company’s margin management process. But he said the company also recorded significant improvement in its Distillery Products and Ingredient Solutions segments, with combined income before taxes at $1.97 million, up from a loss before taxes of $3.8 million in the fourth quarter of fiscal 2011.

“We recognize that this is well below our potential, especially in the distillery segment,” Mr. Newkirk said. “Profitability in this segment is very much volume sensitive. While our quarterly distillery sales are reaching new levels since the company virtually exited the fuel grade alcohol business over two years ago, the way to bring more dollars to the bottom line is with higher throughput at both our Atchison facility and our ICP joint venture. The incremental volumes we are targeting in the months ahead should have a positive impact on gross profits.

“Our primary goal for the ingredients segment has been to improve profit margins. Following three quarters of sub-par performance, we succeeded in getting pre-tax margins back on a sound footing in the first quarter. However, this is only a starting point for this segment as we continue working to accelerate the sales and optimize the manufacturing of our specialty starches and proteins. We also expect to benefit from new pricing on certain products that will take effect on Jan. 1, 2012.”

Mr. Newkirk said MGPI’s No. 1 priority is to grow the company’s sales into the consumer packaged goods market, and the company is on the verge of greatly increasing its presence in distilled beverages, specifically bourbon and rye whiskey, with the pending acquisition of Lawrenceburg Distillers Indiana.

“Our integration teams are making significant progress in planning to transition the existing production facilities and their customers as we target completion of this exciting acquisition sometime early in 2012,” he said.
In its Ingredient Solutions segment, MGPI posted pre-tax income of $1.6 million, up from $1.4 million in the first quarter of fiscal 2011. Segment profit margins saw a slight increase over year-ago results due mainly to improvement in the average sales price, improved sales mix and lower natural gas prices, but higher flour costs, which increased approximately 41% per bu year-over-year, offset some of the gains, MGPI said.

Net sales were $15.4 million, up 9% from the same period a year ago. MGPI said sales of specialty starches, including Fibersym RW resistant wheat starch, improved by about 22% on higher unit volume and per unit pricing. Sales of specialty proteins, meanwhile, declined by about 6% during the quarter.

Distillery Products posted pre-tax income of $379,000, down sharply from $8.1 million in the same period a year ago. Despite higher unit volumes and per unit pricing of food grade alcohol, MGPI said pre-tax margins were hurt by an 81.7% increase in the per-bu cost of corn versus a year ago. Also affecting results were loss on derivative commodity contracts and higher transportation costs related to temporary flooding in Atchison, Kas.
Net sales in the Distillery Products segment were $60.5 million, up 42% from $42.5 million. MGPI attributed the majority of the increase to a 36% gain in food grade alcohol.

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