News Release

MGP Ingredients Reports Third Quarter 2018 Results

11/01/2018

ATCHISON, Kan., Nov. 01, 2018 (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 third quarter ended September 30, 2018.

2018 third quarter results compared to 2017 third quarter results

  • Consolidated net sales increased 10.1% to $95.0 million, reflecting growth in both the Distillery Products and Ingredient Solutions segments.
  • Consolidated gross profit increased 5.2% to $19.6 million from $18.6 million, driven by gross profit growth in the Ingredient Solutions segment, partially offset by a decline in the Distillery Products segment.
  • Consolidated operating income increased 14.7% to $12.0 million, from $10.5 million in the prior-year quarter, primarily driven by an increase in gross profit in the Ingredient Solutions segment and a decrease in SG&A expenses.
  • Earnings per share decreased to $0.52 per share from $0.82 per share in the prior-year quarter, primarily due to the gain on sale of equity method investment recorded in the third quarter of 2017 from the successful sale of Illinois Corn Processing, LLC, partially offset by the decrease in the effective tax rate and an increase in operating income.

“Our third quarter results exhibit the top-line improvement we expected.  However, we did experience some short-term production challenges at our Lawrenceburg facility that impacted our margins.  We are confident that the issues have been resolved, and we are poised for further growth in the fourth quarter.  Based on the improved momentum of our business and the continued solid execution of our strategic plan, we are again reaffirming our operating income growth guidance for the year,” said Gus Griffin, president and CEO of MGP Ingredients.

Distillery Products Segment - Sales Increase 8.3%
For the third quarter of 2018, net sales for the Distillery Products segment increased 8.3% to $78.3 million.  Gross profit decreased to $16.3 million, or 20.8% of net segment sales, compared to $16.5 million, or 22.8% of net segment sales in the third quarter 2017.

“Our new distillate business grew nicely, benefiting from the continued strong demand for American Whiskey.  Despite this growth, short-term production issues at our Lawrenceburg distillery held back anticipated growth in gross profit.  Further erosion of pricing in the industrial alcohol market was an additional headwind,” said Griffin.

Food Grade Alcohol (in thousands)   Net Sales Quarter Ended
September 30,
  Quarter vs. Quarter
Net Sales Change
Increase/(Decrease)
    2018   2017   $ Change   % Change
Premium Beverage Alcohol   $ 46,864       $ 43,941       $ 2,923       6.7   %
Industrial Alcohol     20,661         19,310         1,351       7.0    
  Food Grade Alcohol   $ 67,525       $ 63,251       $ 4,274       6.8   %

Ingredient Solutions Segment - Sales Grow 19.3%
For the 2018 third quarter, net sales in the Ingredient Solutions segment increased 19.3% to $16.7 million.  Gross profit increased to $3.3 million, or 20.0% of net segment sales, compared to $2.1 million, or 15.2% of net segment sales in the third quarter 2017.

“We are very pleased with the continual strong sales growth in our ingredients business.  This marks our eighth consecutive quarter of sales growth, as we continue to leverage strong consumer trends,” Griffin said.

Other
Corporate selling, general and administrative expenses of $7.6 million for the third quarter 2018 decreased $0.6 million compared to third quarter 2017.  Lower personnel costs and a decrease in professional fees were partially offset by investments to support the brands platform.

The corporate effective tax rate for the quarter was 22.9%, down from an effective tax rate of 34.6% in the year ago period reflecting the favorable impact of the Tax Cut and Jobs Act.

Earnings per share decreased to $0.52 for the third quarter 2018, compared to $0.82 for the third quarter 2017.

2018 and Long-Term Guidance
MGP is offering the following guidance for fiscal 2018 and beyond:

  • Operating income is expected to grow between 10% and 15% for fiscal year 2018.
  • The Company’s conservative estimate of growth in operating income in 2019 is 15% to 20% as sales of aged whiskey inventory become a more significant factor.
  • 2018 net sales growth is projected in the high single-digit percentage range versus 2017, subject to some volatility as the Company continues to shift sales from industrial to premium beverage alcohol.
  • 2018 gross margins are expected to continue to be consistent with 2017.
  • 2018 effective tax rate is forecast to be 24%, and shares outstanding are expected to be approximately 16.9 million at year end.

Conclusion
“The improved top-line performance we achieved this quarter demonstrates our ability to take advantage of the key consumer trends that benefit both segments,” Griffin added.  “We continue to invest for the long term to insure we achieve the full benefit of our strong position in the distillery segment.  Our total investment in barreled whiskey inventory declined slightly this quarter due to the anticipated strong sales of new distillate.  We expect to see further growth in this inventory level.  Additionally, the $51.8 million warehouse expansion program continues on track to be completed in 2020.  Finally, our own portfolio of premium spirit brands continues to win top accolades and gain consumer interest,” concluded Griffin.

Conference Call and Webcast Information
MGP Ingredients will host a conference call for analysts and institutional investors at 10 a.m. ET today to discuss these results and current business trends.  The conference call and webcast will be available via:

Webcast: ir.mgpingredients.com on the Events & Presentations page
Conference Call:      844-308-6398 (domestic) or 412-717-9605 (international)

About MGP Ingredients, Inc.
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 Atchison, Kansas, where distilled alcohol products and food ingredients are produced. Premium spirits are also distilled and matured at the company's 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, net 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 Atchison facility or our Indiana 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) our ability to maintain compliance with all applicable loan agreement covenants, (ix) our ability to realize operating efficiencies, (x) actions of governments, and (xi) 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, 2017.

For More Information
Investors & Analysts:
Mike Houston
646-475-2998 or investor.relations@mgpingredients.com

Media:
Greg Manis
913-360-5440 or greg.manis@mgpingredients.com

 

MGP INGREDIENTS, INC.
OPERATING INCOME ROLLFORWARD
(Dollars in thousands)

Operating income, quarter versus quarter   Operating
Income
   Change  
Operating income for quarter ended September 30, 2017   $ 10,471        
Increase in gross profit - ingredient solutions segment   1,206     11.5   pp(a)
Decrease in gross profit - distillery products segment   (232 )   (2.2 ) pp
Decrease in SG&A expenses   570     5.4   pp
Operating income for quarter ended September 30, 2018   $ 12,015     14.7 %  

(a)  Percentage points ("pp").

           
Operating income, year to date versus year to date   Operating
Income
   Change  
Operating income for year to date ended September 30, 2017   $ 32,377        
Increase in gross profit - ingredient solutions segment   1,750     5.4   pp(a)
Decrease in gross profit - distillery products segment   (250 )   (0.8 ) pp
Increase in SG&A expenses   (341 )   (1.0 ) pp
Operating income for year to date ended September 30, 2018   $ 33,536     3.6 %  

(a)  Percentage points ("pp").

 

MGP INGREDIENTS, INC.
EARNINGS PER SHARE ("EPS") ROLLFORWARD

Change in basic and diluted EPS, quarter versus quarter   Basic and Diluted EPS   Change  
Basic and diluted EPS for quarter ended September 30, 2017   $ 0.82        
Increase in operations(a)   0.06     7.3   pp(b)
Decrease in gain on sale of equity method investment(a)   (0.44 )   (53.7 ) pp
Tax: Change in effective tax rate   0.07     8.6   pp
Decrease in income attributable to participating securities   0.01     1.2    
Basic and diluted EPS for quarter ended September 30, 2018   $ 0.52     (36.6 )%  

(a)         Items are net of tax based on the effective tax rate for the base year (2017).
(b)        Percentage points ("pp").

           
Change in basic and diluted EPS, year to date versus year to date   Basic and Diluted EPS   Change  
Basic and diluted EPS for year to date ended September 30, 2017   $ 1.70        
Increase in operations(a)   0.05     2.9   pp(b)
Decrease in equity method investment loss(a)   0.01     0.6   pp
Decrease in gain on sale of equity method investment(a)   (0.44 )   (25.9 ) pp
Tax: Change in effective tax rate   0.14     8.2   pp
Decrease in income attributable to participating securities   0.02     1.3   pp
Basic and diluted EPS for year to date ended September 30, 2018   $ 1.48     (12.9 )%  

(a)         Items are net of tax based on the effective tax rate for the base year (2017), excluding the effect of the tax benefit on vested share-based compensation on the 2017 rate.
(b)        Percentage points ("pp").

 

MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)

    Quarter Ended   Year to date Ended
    September 30,
 2018
  September 30,
 2017
  September 30,
 2018
  September 30,
 2017
Net sales   $ 95,031     $ 86,333     $ 271,239     $ 259,255  
Cost of sales   75,432     67,708     213,248     202,764  
Gross profit   19,599     18,625     57,991     56,491  
Selling, general and administrative expenses   7,584     8,154     24,455     24,114  
Operating income   12,015     10,471     33,536     32,377  
Gain on sale of equity method investment       11,381         11,381  
Equity method investment loss               (348 )
Interest expense, net   (334 )   (224 )   (830 )   (934 )
Income before income taxes   11,681     21,628     32,706     42,476  
Income tax expense   2,673     7,491     7,244     13,292  
Net income   $ 9,008     $ 14,137     $ 25,462     $ 29,184  
                 
Income attributable to participating securities   174     414     491     806  
Net income attributable to common shareholders and used in EPS calculation   $ 8,834     $ 13,723     $ 24,971     $ 28,378  
                 
Share information:                
Basic and Diluted weighted average common shares   16,872,091     16,751,346     16,861,700     16,735,378  
                 
Basic and diluted earnings per common share   $ 0.52     $ 0.82     $ 1.48     $ 1.70  
Dividends and dividend equivalents per common share   $ 0.08     $ 0.89     $ 0.24     $ 0.97  
                                 

 

MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

(Dollars in thousands) September 30,
 2018
  December 31,
 2017
  (Dollars in thousands) September 30,
 2018
  December 31,
 2017
ASSETS         LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current Assets:         Current Liabilities:      
Cash and cash equivalents $     $ 3,084     Current maturities of long-term debt $ 382     $ 372  
Receivables, net 49,991     34,347     Accounts payable 22,905     30,037  
Inventory 107,346     93,149     Accrued expenses 8,545     11,171  
Prepaid expenses 1,885     2,182            
Refundable income taxes 2,011     1,980     Total Current Liabilities 31,832     41,580  
Total Current Assets 161,233     134,742     Other Liabilities:      
          Long-term debt, less current maturities 21,133     21,407  
          Revolving credit facility 23,605     2,775  
          Deferred credits 1,687     2,151  
Property and equipment 282,271     267,288     Accrued retirement, health, and life insurance benefits 2,913     3,133  
Less accumulated depreciation and amortization (172,344 )   (164,237 )   Other noncurrent liabilities 1,112     540  
Net Property, Plant, and Equipment 109,927     103,051     Deferred income taxes 936     12  
          Total Liabilities 83,218     71,598  
Other assets 2,420     2,535     Stockholders’ equity 190,362     168,730  
TOTAL ASSETS $ 273,580     $ 240,328     TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 273,580     $ 240,328  
                                 


 

MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)

    Year to Date Ended
    September 30,
 2018
  September 30,
 2017
Cash Flows from Operating Activities        
Net income   $ 25,462     $ 29,184  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   8,529     8,441  
Distributions received from equity method investee       7,131  
Deferred income taxes   924     356  
Share-based compensation   2,464     2,130  
Gain on sale of equity method investment       (11,381 )
Equity method investment loss       348  
Changes in operating assets and liabilities:        
Receivables, net   (15,644 )   (11,366 )
Inventory   (14,197 )   (10,794 )
Prepaid expenses   297     (824 )
Accounts payable   (3,453 )   4,193  
Accounts payable to affiliate, net       (3,349 )
Accrued expenses   (2,623 )   790  
Income taxes payable/refundable   (31 )   2,472  
Deferred credit   (464 )   (617 )
Accrued retirement health and life insurance benefits   395     (267 )
          Net cash provided by operating activities   1,659     16,447  
Cash Flows from Investing Activities        
Additions to plant, property and equipment   (18,870 )   (13,630 )
Return of equity method investment       22,832  
Proceeds from property insurance recoveries       14  
         Net cash provided by (used in) investing activities   (18,870 )   9,216  
Cash Flows from Financing Activities        
Purchase of treasury stock for tax withholding on equity-based compensation   (2,215 )   (1,377 )
Payment of dividends and dividend equivalents   (4,125 )   (16,692 )
Proceeds on long-term debt       20,000  
Principal payments on long-term debt   (279 )   (268 )
Proceeds from credit agreement - revolver   22,766     20,580  
Payments on credit agreement - revolver   (2,020 )   (41,985 )
Loan fees incurred with borrowings       (377 )
         Net cash provided by (used in) financing activities   14,127     (20,119 )
Increase (decrease) in cash and cash equivalents   (3,084 )   5,544  
Cash and cash equivalents, beginning of period   3,084     1,569  
Cash and cash equivalents, end of period   $     $ 7,113  

 

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Source: MGP Ingredients, Inc.