WESTERVILLE, OHIO — Management at Lancaster Colony Corp. was pleased with second-quarter progress as the Westerville-based company grew its base business, reduced costs through supply chain initiatives and invested to support continued growth.
Net income at Lancaster in the second quarter ended Dec. 31, 2019, totaled $43,424,000, equal to $1.58 per share on the common stock, down 9% from $47,907,000, or $1.74 per share, in the same period a year ago.
Net sales increased 1.5% to $355,117,000 from $349,581,000.
For the six months ended Dec. 31, net income totaled $84,169,000, or $3.06 per share, down 3% from $86,935,000, or $3.16 per share, in the same period a year ago. Net sales rose nearly 4% to $692,171,000.
“Retail net sales benefited from favorable net price realization, increased sales of frozen garlic bread and continued gains for shelf-stable dressings and sauces sold under license agreements,” David A. Ciesinski, president and chief executive officer, said during a Feb. 4 conference call with analysts. “Our New York Bakery frozen bread products delivered another quarter of sales growth as we took share from other branded players. New York Bakery also benefited from the successful launch of 3-Cheese Cheese Sticks and targeted consumer support. In addition, our licensing business continues to grow nicely as our Olive Garden line increased share and remains the top-selling Italian dressing in the shelf-stable dressing category.
“Offsets to retail growth in the quarter were primarily timing-related. First, we saw seasonal orders of our Marzetti Caramel Apple Dip skew more toward Q1. In produce dressing, our bottle conversion project, which is providing a nice net price realization benefit, resulted in a higher level of shipments in Q1 versus Q2. Overall, we are making good progress in this segment and have a strong pipeline of new products planned for launch during Q3.”
Mr. Ciesinski said Lancaster made significant progress on its strategy of simplifying its supply chain to reduce cost and grow margins. During the second quarter, consolidated gross profit increased $8.5 million, or 9%, to $99.9 million, and gross margin improved 200 basis points to 28.1%, he said. He attributed the improvement to several key initiatives, including strategic procurement, transportation management and favorability in commodity costs such as eggs and soybean oil.
He also said the company continues to invest in its supply chain to support growth and reduce costs.
“I’m happy to report that construction for the expansion of our Sister Schubert’s frozen dinner roll plant in Horse Cave, Ky., was completed on schedule last month,” Mr. Ciesinski said. “And the new production line there is expected to be up and running as planned later this month. We’re also in the midst of a capital project for our Bantam Bagel business to expand production capacity and increase automation that we expect to be complete and operational early in fiscal year ’21.”
Douglas A. Fell, chief financial officer, said capital expenditures for property additions totaled $57.7 million in the first half of fiscal 2020. Lancaster expects full-year capital expenditures to be in the range of $80 million to $100 million as the company focuses on projects to increase capacity and productivity.
Looking ahead to the back half of fiscal 2020, Mr. Ciesinski said Lancaster is excited about several initiatives on the licensing front. First, the company in January began shipping Olive Garden Italian dressing into the retail drug channel, with plans to expand into the dollar channel later this month.
“Both the drug and dollar channels are new to Lancaster Colony’s distribution network and represent a significant growth opportunity for our business,” he said. “We look forward to bringing additional products, including some from our own family of brands, to these channels in the future.”
Also this month, Lancaster will introduce and begin shipping Asian sauces under a license agreement with Bibibop Asian Grill. In March, Lancaster will extend its license agreement with Buffalo Wild Wings and begin selling individual bottles of sauces in six flavors: traditional Buffalo, Asian Zing, honey barbecue, Parmesan garlic, mango habanero and Caribbean jerk.