ATCHISON, KAS. — MGP Ingredients, Inc. returned to profitability in the third quarter of fiscal 2012, as the company recorded net income of $418,000, equal to 2c per share on the common stock. This compared with a loss of $5,509,000 in the same period a year ago. MGPI said earnings were driven by unrealized hedging gains as recorded in the cost of sales, which more than offset a record-high corn basis.
Sales were $76,107,000, down narrowly from $76,138,000. Significantly higher beverage alcohol sales were offset by a reduction in sales for certain industrial alcohol applications, MGPI said.
“This was the most challenging quarter of the year in our alcohol markets, characterized by record-high corn prices and increased competition from fuel alcohol producers who are facing negative margins,” said Tim Newkirk, president and chief executive officer. “We most likely lost some market share at the lower end of the value spectrum, which tends to be more price-sensitive. Other products performed well, which is more reflective of our unique formulations and value-added services. The decline in industrial sales for the quarter was substantially offset by growth in our premium spirits. So, while our third-quarter alcohol sales were relatively flat, our profit profile actually improved due to a stronger contribution from beverages.”
In its Ingredient Solutions segment, MGPI posted pre-tax income of $2,184,000, up from a loss of $1,592,000 in the third quarter of fiscal 2011. MGPI attributed the return to profitability to improved average selling prices and lower costs for natural gas and raw materials, principally flour.
Net sales in the Ingredient Solutions segment were $14,184,000, down 8% from $15,414,000 in the same period a year ago.
Distillery Products posted pre-tax income of $3,513,000, which compared with $379,000 in the same period a year ago. MGPI said pricing for distillery products out-paced the higher costs for corn, excluding the impact of accounting for open commodity contracts. The per-bushel cost of corn for the three months averaged 9.2% higher than the same period a year ago, with natural gas declining by an average of 19.6% over the same period, the company said.
Net sales in the Distillery Products segment were $61,513,000 million, up 2% from $60,537,000 a year ago. MGPI said the gain in sales of premium spirits and distillers feed were offset by declines in lower-grade industrial products.
For the nine months ended Sept. 30, overall net income was $1,596,000, equal to 8c per share on the common stock, which compared with a loss of $15,066,000 in the same period a year ago. Net sales were $247,985,000, up 19% from $209,124,000.
“MGP has been running on a dual track this year,” Mr. Newkirk said. “We reconfigured our resources to focus on the most promising opportunities in premium spirits. At the same time, we needed to remove more impediments to generating consistent profits and returns on capital. To that end we attacked the cost side of our business through manufacturing and supply chain improvements. This will be an ongoing commitment, with targeted savings of 2% to 4% per year to combat cost inflation and free up capital for growth.
“Another critical goal was to reduce the volatility of cash flows resulting from commodity price swings. Our new sourcing agreement not only gives us a constant grain supply in tight markets, but also minimizes the financial impacts below the operating line, as could be seen in the most recent quarter.”