MGP Ingredients rebounds in third quarter
May 10, 2011
by Jeff Gelski
ATCHISON, KAS. — MGP Ingredients, Inc. achieved net income of $701,000, equal to 4c per share on the common stock, for the third quarter ended March 31, which compared with a loss of $2,254,000 in the previous year’s third quarter. Third-quarter income from operations was $829,000, which compared with a loss from operations of $629,000 in the previous year’s third quarter. Third-quarter sales rose 30% to $64,188,000 from $49,269,000 principally because of higher sales of food grade alcohol.
“We’re showing positive results this year in terms of higher operating profits, even though we realize that much more progress lies ahead,” said Tim Newkirk, president and chief executive officer of MGPI. “Our base business is not quite there yet in terms of targeted revenue and income levels.
“On the ingredients side, we have worked to get the right people and positions in place as part of a concerted effort to cover key customers with more new product ideas. We’re structuring our ingredients segment to operate at significantly improved levels — not just in the area of production volume, but also in the critical areas of product development, customer support and processing technologies.”
Third-quarter ingredient segment sales dipped 6% to $13.6 million. Sales of specialty starches increased 9%, but sales of specialty proteins declined. As planned, sales of commodity starch and commodity protein fell. Commodity starch sales decreased 16%, and commodity protein sales decreased 90%.
Third-quarter ingredient segment pre-tax income declined to $100,000 from $2.2 million in the previous year’s third quarter. Segment profit margins declined. This was principally due to higher production costs and lower volume output.
Flour costs on a per-unit basis averaged about 44% higher compared with the costs of the previous year’s third quarter. Natural gas prices averaged about 16% lower.
Distillery products sales for the third quarter were $50.3 million, a 47% increase. Distillery products pre-tax income was $5.5 million, up 177% from $2 million in the previous year’s third quarter.
“The distillery products segment has ramped up nicely from a year ago, and we’re enjoying strong demand for food grade alcohol across several end markets,” Mr. Newkirk said when third-quarter results were given May 10. “Our production volumes have increased more than 30% compared to a year ago due to the successful collaboration with our joint venture partner at ICP (Illinois Corn Processing, L.L.C.). While we continue to face challenges, principally in the form of higher input costs for corn, we’ve done well this year to raise alcohol gross margin above year-ago levels.”
Third-quarter sales in the other products segment decreased 53% to $287,000. A third-quarter pre-tax loss of $175,000 in other products compared with a profit of $29,000 in the previous year’s third quarter. The decline in sales and pre-tax profits primarily were due to lower unit sales of the company’s plant-based biopolymers and resins. The divestiture of the pet products business also contributed to the decreases.
For the fiscal year’s first nine months, MGPI overall had net income of $8,945,000, or 50c per share, which compared with net income of $6,262,000, or 38c per share, in the same time period of the previous year. The prior year’s time period included a $3 million loss on the formation of the company’s distillery joint venture, Illinois Corn Processing, and a $4.7 million tax refund benefit.
Total sales for the first nine months increased 21% to $179,117,000 from $147,612,000. Ingredient segment sales over the first nine months declined 7% to $42.2 million.
“Our ingredients business is poised to show improving results going forward due to the substantial changes put in place the last 18 to 24 months,” Mr. Newkirk said. “We’re anticipating a solid finish to the current fiscal year in the distillery segment as well, and our company’s results should include a strong balance sheet with very little debt and improved financial flexibility to carry out our plans.”