MGP Ingredients Reports Fourth Quarter and Full Year 2019 Results
02/26/2020
2019 fourth quarter results compared to 2018 fourth quarter results
- Consolidated sales decreased 11.8% to
$92.5 million , as a result of a decline in Distillery Products segment sales, which was partially offset by an increase in Ingredient Solutions segment sales. - Consolidated gross profit decreased 15.8% to
$21.6 million , due to lower Distillery Products segment gross profits, partially offset by an increase in Ingredients Solutions segment gross profits. - Consolidated operating income decreased 2.2% to
$16.3 million , due to lower sales and gross profit, partially offset by lower incentive compensation expense. - Earnings per share ("EPS") increased to
$0.76 per share from$0.69 per share, due to lower income tax expense, partially offset by lower operating income.
2019 full year results compared to 2018 full year results
- Consolidated sales decreased 3.5% to
$362.7 million , as a result of a decline in Distillery Products segment sales, partially offset by Ingredient Solutions segment sales growth. - Consolidated gross profit decreased 8.5% to
$76.5 million , due to lower Distillery Products and Ingredients Solutions segment gross profits. - Consolidated operating income decreased 5.8% to
$47.2 million , due to lower sales and gross profit, partially offset by reductions in incentive compensation expense. - EPS was
$2.27 per share compared to$2.17 per share in 2018, due to lower income tax expense, partially offset by lower operating income.
“We are certainly disappointed in our results, both for the quarter and the year; however, we do not believe these results reflect significant changes in key consumer trends affecting the categories in which we compete, or significant changes in our competitive position within those categories,” said
Distillery Products Segment
For the fourth quarter of 2019, sales for the Distillery Products segment decreased 15.1% to
For the full year 2019, sales for the Distillery Products segment declined 5.4% to
Griffin said, "While the shortfall versus our 2019 guidance was the result of us ultimately being unsuccessful in transacting a large portion of the aged whiskey sales we had forecast for the fourth quarter, sales of both new distillate and aged whiskey were down for the full year.
“Over the past several years, our growth in sales of brown goods has outpaced the broader market. This was due in part to the subset of the market we serve growing faster than the overall market. While the consumer trend for overall American Whiskey remains robust, we now believe that, excluding the negative impact of certain of our customers working through excess inventory in 2019, the underlying growth rate for our target market is gradually slowing to come more in line with the long-term trend for the overall category," Griffin continued. "We also believe that the number of potential competitors for that volume has increased, primarily for sales of new distillate currently, but also for sales of aged whiskey going forward. We do not think we are losing existing customers to these competitors, but we are competing with them for the new business required for growth. We continue to have a significant share and scale advantage, and plan to increase our focus toward growing volume share in the global American Whiskey category. We do not believe this equates to significant changes to our overall pricing, but rather refinements to how we approach the selling process, the products we offer, the markets we focus on, and ways we overcome some of the other barriers to transacting sales, such as reducing funding delays. We have already begun implementing these refinements.
"Despite the lower than anticipated sales of aged whiskey in 2019, we still believe in the long-term value of our aged whiskey inventory. Sales of lightly aged whiskey in earlier years, and older aged whiskey in more recent years, have been both a strong customer recruitment tool and a key profit contributor. We believe sales of aged whiskey will continue to play both those roles going forward. However, due to the inherent volatility in predicting sales of aged whiskey, and lower projections for the volumetric growth of the aged whiskey market, particularly in the
Premium Beverage Alcohol (in thousands) | Sales Quarter Ended |
Quarter vs. Quarter Sales Change Increase/(Decrease) |
||||||||||
2019 | 2018 | $ Change | % Change | |||||||||
$ | 28,136 | $ | 37,784 | $ | (9,648 | ) | (25.5 | )% | ||||
White Goods | 15,630 | 17,512 | (1,882 | ) | (10.7 | ) | ||||||
Premium Beverage Alcohol | $ | 43,766 | $ | 55,296 | $ | (11,530 | ) | (20.9 | )% |
Premium Beverage Alcohol (in thousands) | Sales Year Ended |
Year vs. Year Sales Change Increase/(Decrease) |
||||||||||
2019 | 2018 | $ Change | % Change | |||||||||
$ | 107,190 | $ | 125,857 | $ | (18,667 | ) | (14.8 | )% | ||||
White Goods | 62,862 | 62,574 | 288 | 0.5 | ||||||||
Premium Beverage Alcohol | $ | 170,052 | $ | 188,431 | $ | (18,379 | ) | (9.8 | )% |
Ingredient Solutions Segment
For the fourth quarter of 2019, sales in the Ingredient Solutions segment increased 6.0% to
For the full year 2019, sales for the Ingredient Solutions segment increased 5.6% to
"Ingredient Solutions finished 2019 with great momentum, with the fourth quarter being one of our strongest ever," Griffin continued. "We faced two significant challenges this year. The first was the tough comparison created by the loss of a large specialty wheat protein customer at the end of 2018. We have now completed cycling that comparison and have added new customers with a variety of applications seeking to leverage our plant-based protein. The second was the uncertainty around FDA approval of our Fibersym® RW and FiberRite® RW product lines as a source of dietary fiber. This issue was resolved in the early part of 2019, and we are now seeing increased customer orders for these product lines. Our Ingredient Solutions product offerings continue to be aligned with strong consumer trends, and we continue to be very effective in recruiting new business."
Other
Corporate selling, general and administrative ("SG&A") expenses for the fourth quarter 2019 decreased
The corporate effective tax rate for the fourth quarter 2019 was 18.5% compared with 27.4% a year ago. The corporate effective tax rate for the full year 2019 was 15.6% compared with 23.9% in 2018.
EPS increased to
MGP is offering the following guidance for fiscal 2020:
- 2020 sales growth is projected in the low to mid-single-digit percentage range versus 2019.
- 2020 gross margins are expected to increase modestly as compared to 2019.
- The Company’s estimate of growth in operating income in 2020 is 2% to 7%, excluding CEO transition costs.
- 2020 effective tax rate is forecasted to be approximately 25%, and shares outstanding are expected to be approximately 17.1 million at year end.
- Earnings per share are forecasted to be in the range of
$2.03 to$2.13 .
Conclusion
"2019 marked the fifth year of implementing our long-term strategic plan, which has delivered substantial improvements to our financial results and built a strong foundation for future growth," Griffin stated. "A critical part of that foundation was positioning MGP to benefit from the robust growth of the American Whiskey category. Two key components of this effort have been our multiyear warehouse expansion program and our inventory of aging whiskey. As of
"Our strategic plan also defined successive phases of growth and the drivers of that growth. Each of those phases has occurred as anticipated, until this past year. We expected increased sales of aged whiskey to be both the key growth driver in 2019, and to provide incremental growth for the next few years. Due to its volatile sales cycle, and our reduced forecast for predictable annual volume growth in the
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About
Founded in 1941, MGP is a leading supplier of premium distilled spirits and specialty wheat proteins and starches. Distilled spirits include bourbon and rye whiskeys, gins and vodkas, which are expertly crafted through a combination of art and science and backed by a long history 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
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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 changes in operating income, sales, 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
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OPERATING INCOME ROLLFORWARD
Operating income | Operating Income |
Change Quarter- versus-Quarter |
|||||
Operating income for the quarter ended |
$ | 16,612 | |||||
Decrease in gross profit - Distillery Products segment | (4,669 | ) | (28.1 | ) | pp(a) | ||
Increase in gross profit - Ingredient Solutions segment | 621 | 3.7 | pp | ||||
Decrease in SG&A expenses | 3,687 | 22.2 | pp | ||||
Operating income for the quarter ended |
$ | 16,251 | (2.2 | )% |
Operating income | Operating Income |
Change Year- versus-Year |
|||||
Operating income for 2018 | $ | 50,148 | |||||
Decrease in gross profit - Distillery Products segment | (5,841 | ) | (11.6 | ) | pp(a) | ||
Decrease in gross profit - Ingredient Solutions segment | (1,226 | ) | (2.5 | ) | pp | ||
Decrease in SG&A expenses | 4,161 | 8.3 | pp | ||||
Operating income for 2019 | $ | 47,242 | (5.8 | )% |
(a) Percentage points ("pp").
EARNINGS PER SHARE ROLLFORWARD
Change in basic and diluted EPS | Basic and Diluted EPS |
versus-Quarter |
|||||
Basic and diluted EPS for the quarter ended |
$ | 0.69 | |||||
Change in operations(a) | (0.02 | ) | (2.9 | ) | pp(b) | ||
Change in income attributable to participating securities(c) | 0.01 | 1.5 | pp | ||||
Change in weighted average shares outstanding(c) | (0.01 | ) | (1.5 | ) | pp | ||
Tax: Change in share-based compensation | 0.01 | 1.5 | pp | ||||
Tax: Change in discrete items | 0.10 | 14.5 | pp | ||||
Tax: Change in effective tax rate | (0.02 | ) | (2.9 | ) | pp | ||
Basic and diluted EPS for the quarter ended |
$ | 0.76 | 10.2 | % |
Change in basic and diluted EPS | Basic and Diluted EPS |
Change Year- versus-Year |
|||||
Basic and diluted EPS for 2018 | $ | 2.17 | |||||
Change in operations(a) | (0.15 | ) | (6.9 | ) | pp(b) | ||
Change in income attributable to participating securities(c) | 0.02 | 0.9 | pp | ||||
Change in weighted average shares outstanding(c) | (0.03 | ) | (1.3 | ) | pp | ||
Tax: Change in share-based compensation | 0.12 | 5.5 | pp | ||||
Tax: Change in discrete items | 0.12 | 5.5 | pp | ||||
Tax: Change in effective tax rate | 0.02 | 0.9 | pp | ||||
Basic and diluted EPS for 2019 | $ | 2.27 | 4.6 | % |
(a) | Items are net of tax based on the effective tax rate for the base year (2018) |
(b) | Percentage points ("pp") |
(c) | Income attributable to participating securities changes primarily due to the awarding and vesting of the employee RSUs that receive dividend equivalent payments. Weighted average shares outstanding change primarily due to the vesting of employee RSUs, the granting of Common Stock to directors, our purchase of vested RSUs from employees to pay withholding taxes, and our repurchases of Common Stock. |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Quarter Ended | Year Ended | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Sales | $ | 92,463 | $ | 104,850 | $ | 362,745 | $ | 376,089 | |||||||
Cost of sales | 70,903 | 79,242 | 286,213 | 292,490 | |||||||||||
Gross profit | 21,560 | 25,608 | 76,532 | 83,599 | |||||||||||
Selling, general and administrative expenses | 5,309 | 8,996 | 29,290 | 33,451 | |||||||||||
Operating income | 16,251 | 16,612 | 47,242 | 50,148 | |||||||||||
Interest expense, net | (368 | ) | (338 | ) | (1,305 | ) | (1,168 | ) | |||||||
Income before income taxes | 15,883 | 16,274 | 45,937 | 48,980 | |||||||||||
Income tax expense | 2,936 | 4,452 | 7,144 | 11,696 | |||||||||||
Net income | 12,947 | 11,822 | 38,793 | 37,284 | |||||||||||
Income attributable to participating securities | 82 | 224 | 253 | 708 | |||||||||||
Net income attributable to common shareholders and used in EPS calculation | $ | 12,865 | $ | 11,598 | $ | 38,540 | $ | 36,576 | |||||||
Basic and diluted weighted average common shares | 17,030,274 | 16,879,503 | 17,012,288 | 16,866,176 | |||||||||||
Basic and diluted EPS | $ | 0.76 | $ | 0.69 | $ | 2.27 | $ | 2.17 |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands) | 2019 |
2018 |
(Dollars in thousands) | 2019 |
2018 |
|||||||||
ASSETS | LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||
Current Assets: | Current Liabilities: | |||||||||||||
Cash and cash equivalents | $ | 3,309 | $ | 5,025 | Current maturities of long-term debt | $ | 401 | $ | 386 | |||||
Receivables, net | 40,931 | 38,797 | Accounts payable | 29,511 | 25,363 | |||||||||
Inventory | 136,931 | 108,769 | Accrued expenses | 9,383 | 11,714 | |||||||||
Prepaid expenses | 2,048 | 1,320 | ||||||||||||
Refundable income taxes | 987 | 712 | ||||||||||||
Total Current Assets | 184,206 | 154,623 | Total Current Liabilities | 39,295 | 37,463 | |||||||||
Other Liabilities: | ||||||||||||||
Long-term debt, less current maturities | 40,658 | 21,040 | ||||||||||||
Credit agreement - revolver | 1 | 10,588 | ||||||||||||
Property and equipment | 313,958 | 295,893 | Long-term operating lease liabilities | 4,267 | — | |||||||||
Less accumulated depreciation and amortization | (185,539 | ) | (175,105 | ) | Deferred credits | 1,233 | 1,565 | |||||||
Other noncurrent liabilities | 4,170 | 4,118 | ||||||||||||
Net Property, Plant, and Equipment | 128,419 | 120,788 | Deferred income taxes | 1,929 | 1,677 | |||||||||
Operating lease right-of-use asset, net | 6,490 | — | Total Liabilities | 91,553 | 76,451 | |||||||||
Other assets | 3,482 | 2,481 | Stockholders’ equity | 231,044 | 201,441 | |||||||||
TOTAL ASSETS | $ | 322,597 | $ | 277,892 | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 322,597 | $ | 277,892 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Year to Date Ended | |||||||
2019 |
2018 |
||||||
Cash Flows from Operating Activities | |||||||
Net income | $ | 38,793 | $ | 37,284 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 11,572 | 11,362 | |||||
Share-based compensation | 3,304 | 3,099 | |||||
Deferred income taxes, including change in valuation allowance | 252 | 1,665 | |||||
Other, net | (116 | ) | — | ||||
Changes in operating assets and liabilities: | |||||||
Receivables, net | (2,134 | ) | (4,450 | ) | |||
Inventory | (28,162 | ) | (15,620 | ) | |||
Prepaid expenses | (728 | ) | 862 | ||||
Refundable income taxes | (275 | ) | 1,268 | ||||
Accounts payable | 2,107 | (2,542 | ) | ||||
Accrued expenses | (4,547 | ) | 551 | ||||
Deferred credits | (332 | ) | (586 | ) | |||
Other, net | (12 | ) | 588 | ||||
Net cash provided by operating activities | 19,722 | 33,481 | |||||
Cash Flows from Investing Activities | |||||||
Additions to property, plant, and equipment | (16,730 | ) | (31,046 | ) | |||
Deferred compensation plan investments | (1,201 | ) | — | ||||
Net cash used in investing activities | (17,931 | ) | (31,046 | ) | |||
Cash Flows from Financing Activities | |||||||
Payment of dividends and dividend equivalents | (6,856 | ) | (5,500 | ) | |||
Purchase of treasury stock for tax withholding on equity-based compensation | (5,489 | ) | (2,324 | ) | |||
Proceeds from long-term debt | 20,000 | — | |||||
Principal payments on long-term debt | (386 | ) | (372 | ) | |||
Proceeds from credit agreement - revolver | 17,440 | 28,966 | |||||
Payments on credit agreement - revolver | (28,140 | ) | (21,264 | ) | |||
Other, net | (76 | ) | — | ||||
Net cash used in financing activities | (3,507 | ) | (494 | ) | |||
Increase (decrease) in cash and cash equivalents | (1,716 | ) | 1,941 | ||||
Cash and cash equivalents, beginning of year | 5,025 | 3,084 | |||||
Cash and cash equivalents, end of year | $ | 3,309 | $ | 5,025 |
Source: MGP Ingredients, Inc.