May 4, 2017

MGP Ingredients Reports First Quarter 2017 Results

Premium Beverage Alcohol Drives 13% Revenue Increase; Net Income Increases 23%

ATCHISON, Kan., May 04, 2017 (GLOBE NEWSWIRE) -- MGP Ingredients, Inc. (Nasdaq:MGPI), a leading supplier of premium distilled spirits and specialty wheat proteins and starches, today reported results for the first quarter ended March 31, 2017.

2017 results compared to 2016

  • First quarter consolidated net sales increased 13.4% to $87.2 million as net sales of premium beverage alcohol significantly increased while net sales of industrial alcohol were flat.
  • First quarter consolidated gross profit increased 11.7% to $19.0 million, reflecting stronger gross profit results in both the Distillery Products and Ingredient Solutions segments.
  • Consolidated gross margin decreased 40 basis points to 21.8% for the first quarter, reflecting an 80 basis point decline in Distillery Products margins, partially offset by a 150 basis point expansion in Ingredient Solutions.
  • First quarter operating income increased 6.2% to $11.4 million.
  • Equity in joint venture earnings decreased from $517,000 to $471,000 in the first quarter.
  • Net income increased 22.9% to $8.7 million for the first quarter.
  • First quarter earnings per share, calculated on the two-tier method, increased 22.0% to $0.50 per share.

"Our first quarter results mark continued progress against our long term strategic plan," said Gus Griffin, president and CEO of MGP. "Revenues grew as volumes in premium beverage alcohol increased and gross profit improved in both our Distillery Products and Ingredient Solutions segments. We are off to a good start and are optimistic about the outlook for 2017."

Distillery Products Segment - Beverage Alcohol Drives 12% Gross Profit Growth

For the first quarter of 2017, net sales for the Distillery Products segment increased 15.8% to $74.0 million.  Gross profit improved to $16.6 million, or 22.5% of net segment sales, compared with $14.9 million, or 23.3% of net segment sales in the first quarter 2016.  Results for the quarter reflect continued strong demand for the Company's high quality premium beverage alcohol products. 

Griffin said, "Revenue growth in premium beverage alcohol reflects increased demand for both our American whiskey products and our vodka and gin offerings.  While growth remains strong for premium beverage alcohol products, segment margins were unfavorably impacted by softness in the pricing of the distillers feed co-product (Dried Distillers Grain, or "DDG") as market prices dropped significantly."

Food Grade AlcoholNet Sales Quarter
Ended March 31,
 Quarter vs. Quarter
Net Sales Change
Increase/(Decrease)
 
 2017 2016 $ Change % Change 
Premium Beverage Alcohol$45,640   $34,993  $10,647  30.4% 
Industrial Alcohol19,123  19,213  (90) (0.5)% 
  Food Grade Alcohol$64,763  $54,206  $10,557  19.5% 
 

Ingredient Solutions - Segment Gross Profit Grew 11%

For the 2017 first quarter, net sales for the Ingredient Solutions segment increased 1.7% to $13.2 million.  Gross profit increased to $2.4 million, or 18.4% of net segment sales, compared with $2.2 million, or 16.9% of net segment sales in the first quarter 2016.

Griffin said, "Our Ingredient Solutions segment continued to grow in the first quarter on the strength of our overall starch portfolio.  The segment also benefited from lower input costs and increased plant efficiencies."

Other

Corporate selling, general and administrative expenses were $7.6 million for the first quarter 2017 compared to $6.3 million in the first quarter 2016, primarily due to an increase in personnel costs and advertising and promotion expenses.

MGP joint venture equity method investment earnings for the first quarter 2017 were comparable to the first quarter of 2016 at $0.5 million.

The corporate effective tax rate for the quarter was 24.7% compared with 35.4% a year ago, primarily due to the favorable impact of the required accounting change, ASU 2016-09, Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting.

Earnings per share was $0.50 for the first quarter 2017, compared with $0.41 for the first quarter 2016.

2017 and Long Term Guidance

MGP is confirming the following guidance for fiscal 2017 and beyond, with the exception of the corporate tax rate outlook, which declined to 30%.

  • Reconfirming previous guidance, operating income is expected to grow between 10% and 15% annually from 2016 through 2018. This guidance excludes a favorable litigation settlement and asset sale gain recorded in the third quarter of 2016.
  • Recognizing the difficulty of projecting three years in the future, our conservative estimate of growth in operating income in 2019 is 15% to 20% as sales of aged whiskey inventory becomes a more significant factor.
  • Modest growth is expected in net sales in 2017, subject to some volatility as the company continues to shift sales from industrial to premium beverage alcohol.
  • 2017 gross margins are expected to continue to grow versus 2016.
  • 2017 effective tax rate is forecast to be 30%, and shares outstanding are expected to be approximately 16.8 million at year end.
  • 2017 profitability for ICP remains exposed to the challenging and volatile conditions in the fuel ethanol industry.

Conclusion

"We continue to stay the course, building on the momentum of the past two years, and remaining tightly aligned with our long term strategic plan," Griffin added.  "We saw strong growth in our premium beverage alcohol business, and more progress in our migration away from industrial alcohol.  Investing to build our inventory of aged whiskey continues to be a focus, and the value of that inventory, at cost, now totals $53.2 million.  Our brands initiative continues to progress, as we begin to expand distribution of our brand portfolio, and the increase in SG&A this quarter reflects our commitment to this initiative.  While the decline in DDG prices is certainly a headwind, overall we believe we are well positioned for long term growth."

About MGP Ingredients, Inc.
MGP is a leading producer and supplier of premium distilled spirits and specialty wheat proteins and starches. Distilled spirits include premium bourbon and rye whiskeys, gins and vodkas, which are carefully crafted through a combination of art and science and backed by over 150 years of experience. The company's proteins and starches are created in the same manner and provide a host of functional, nutritional and sensory benefits for a wide range of food products. MGP additionally is a top producer of high quality industrial alcohol for use in both food and non-food applications. The company is headquartered in Atchison, Kansas, where distilled alcohol products and food ingredients are produced. Premium spirits are also distilled and matured at the company facility in Lawrenceburg, Indiana. For more information, visit mgpingredients.com.

Cautionary Note Regarding Forward-Looking Statements
This news release contains forward-looking statements as well as historical information. All statements, other than statements of historical facts, included in this news release regarding the prospects of our industry and our prospects, plans, financial position, business strategy, guidance on growth in operating income, revenue, gross margin, and future effective tax rate may constitute forward-looking statements. In addition, forward-looking statements are usually identified by or are associated with such words as "intend," "plan," "believe," "estimate," "expect," "anticipate," "hopeful," "should," "may," "will," "could," "encouraged," "opportunities," "potential" and/or the negatives or variations of these terms or similar terminology. They reflect management's current beliefs and estimates of future economic circumstances, industry conditions, company performance, and company financial results and are not guarantees of future performance. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: (i) disruptions in operations at our Atchison facility, Indiana facility, or at the Illinois Corn Processing, LLC ("ICP") facility, (ii) the availability and cost of grain and flour, and fluctuations in energy costs, (iii) the effectiveness of our grain purchasing program to mitigate our exposure to commodity price fluctuations, (iv) the effectiveness or execution of our strategic plan, (v) potential adverse effects to operations and our system of internal controls related to the loss of key management personnel, (vi) the competitive environment and related market conditions, (vii) the ability to effectively pass raw material price increases on to customers, (viii) the positive or adverse impact to our earnings as a result of the ownership of our equity method investment in ICP and the volatility of its operating results, (ix) our limited influence over the ICP joint venture operating decisions, strategies, financial or other decisions (including investments, capital spending and distributions), (x) our ability to source product from the ICP joint venture or unaffiliated third parties, (xi) our ability to maintain compliance with all applicable loan agreement covenants, (xii) our ability to realize operating efficiencies, (xiii) actions of governments, and (xiv) consumer tastes and preferences. For further information on these and other risks and uncertainties that may affect our business, including risks specific to our Distillery Products and Ingredient Solutions segments, see Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2016.


MGP INGREDIENTS, INC.
OPERATING INCOME ROLLFORWARD

Operating income quarter-versus-quarter Operating
Income
 Change 
      
      
Operating income for the quarter ended March 31, 2016 $10,725    
Increase in gross profit - distillery products segment 1,765  16.5 pp(a)
Increase in gross profit - ingredient solutions segment 230  2.1 pp
Increase in SG&A expenses  (1,328) (12.4)pp
Operating income for the quarter ended March 31, 2017 $11,392  6.2% 
         
(a)  Percentage points ("pp").        


MGP INGREDIENTS, INC.

EARNINGS PER SHARE ROLLFORWARD

Change in basic and diluted earnings per share quarter-versus-quarter Basic and
Diluted
EPS
 Change 
Basic and diluted earnings per share for the quarter ended March 31, 2016 $0.41    
Change in operations(a) 0.03  7.3 pp(b)
Tax: Current effect of ASU 2016-09 0.07  17.1 pp
Tax: Change in effective tax rate (excluding tax item above) (0.01) (2.4)pp
Basic and diluted earnings per share for the quarter ended March 31, 2017 $0.50  22.0% 
         
(a)   Changes are net of tax based on the effective tax rate for the base year (2016).
(b)   Percentage points ("pp").


MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

  Quarter Ended
  March 31,
 2017
 March 31,
 2016
Sales $91,345  $77,191 
Less: excise taxes  4,176  356 
Net sales 87,169  76,835 
Cost of sales 68,128  59,789 
Gross profit 19,041  17,046 
Selling, general and administrative expenses 7,649  6,321 
Operating income 11,392  10,725 
Equity method investment earnings 471  517 
Interest expense, net (331) (311)
Income before income taxes 11,532  10,931 
Income tax expense 2,854  3,872 
Net income $8,678  $7,059 
     
Income attributable to participating securities 250  270 
Net income attributable to common shareholders and used in EPS calculation $8,428  $6,789 
     
Share information:    
Diluted weighted average common shares 16,712,578  16,607,074 
     
Basic and diluted earnings per common share $ 0.50  $0.41 
Dividends and dividend equivalents per common share $0.04  $0.08 


MGP INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)

(Dollars in thousands)March 31,
 2017
 December 31,
 2016
 (Dollars in thousands)March 31,
 2017
 December 31,
 2016
ASSETS    LIABILITIES AND STOCKHOLDERS' EQUITY  
Current Assets:    Current Liabilities:   
Cash and cash equivalents$  $1,569  Current maturities of long-term debt$4,362  $4,359 
Receivables36,387  26,085  Accounts payable16,506  20,342 
Inventory79,988  78,858  Accounts payable to affiliate, net2,807  3,349 
Prepaid expenses2,426  1,684  Accrued expenses7,317  8,945 
Refundable income taxes  2,705  Income taxes payable534   
Total Current Assets118,801  110,901  Total Current Liabilities31,526  36,995 
     Other Liabilities:   
     Long-term debt, less current maturities15,126  16,218 
     Revolving credit facility24,205  15,424 
Property and equipment 249,780  246,219  Deferred credits2,777  2,978 
Less accumulated depreciation and amortization(156,083) (153,428) Accrued retirement, health and life insurance benefits3,460  3,604 
Net Property, Plant    Deferred income taxes2,942  3,432 
and Equipment93,697  92,791  Other non current liabilities399  393 
Equity method investments19,403  18,934  Total Liabilities80,435  79,044 
Other assets2,672  2,710  Stockholders' equity154,138   146,292 
TOTAL ASSETS$234,573  $225,336  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$234,573  $225,336 

 

For More Information

Investors & Analysts:

Bob Burton

616-233-0500 or Investor.Relations@mgpingredients.com



Media:

Greg Manis

913-360-5440 or greg.manis@mgpingredients.com

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Source: MGP Ingredients Inc.

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