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MGP INGREDIENTS REPORTS SECOND QUARTER 2017 RESULTS
Strong Performance Across Both Segments Drives 15% Increase in Operating Income

ATCHISON, Kan., August 3, 2017 - MGP Ingredients, Inc. (Nasdaq/MGPI), a leading supplier of premium distilled spirits and specialty wheat proteins and starches, today reported results for the second quarter ended June 30, 2017.

2017 results compared to 2016
Second quarter consolidated net sales increased 6.7% to $85.8 million as net sales growth of premium beverage alcohol and specialty ingredients more than offset declines in net sales of industrial alcohol.
Second quarter consolidated gross profit increased 21.2% to $18.8 million, reflecting stronger gross profit results in both the Distillery Products and Ingredient Solutions segments.
Consolidated gross margin increased 270 basis points to 22.0% for the second quarter, reflecting a 210 basis point improvement in Distillery Products and a 540 basis point margin expansion in Ingredient Solutions.
Second quarter operating income increased 15.2% to $10.5 million.
Equity in joint venture earnings decreased from $1.1 million to a loss of $0.8 million in the second quarter.
Net income increased 1.0% to $6.4 million for the second quarter.
Second quarter earnings per share, calculated on the two-tier method, remained consistent at $0.37 per share.

"Our second quarter results reflect continued progress from the aggressive implementation of our long term strategic plan," said Gus Griffin, president and CEO of MGP. "Results in both Distillery Products and Ingredient Solutions showed solid growth over the prior year. Through the first half of 2017, we have grown operating income 10.3% and we remain optimistic about the outlook for the full year."

Distillery Products Segment - Beverage Alcohol Drives 17% Gross Profit Growth

For the second quarter of 2017, net sales for the Distillery Products segment increased 5.9% to $70.7 million, as a 15.2% increase in net sales of premium beverage alcohol more than offset a 7.4% decline in sales of industrial alcohol. Gross profit improved to $16.0 million, or 22.6% of net segment sales, compared with $13.7 million, or 20.5% of net segment sales in the second quarter 2016.

Griffin said, "We continue to see strong demand for our premium beverage alcohol products. This demand reflects the strength of the underlying market trends and our ability to attract, retain and build strong partnerships with existing and new customers. While the demand for our products remains strong, our margins continue to reflect downward pressure from marketwide soft pricing conditions for our distillers feed co-product (Dried Distillers Grain, or DDG)."



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Food Grade Alcohol
Net Sales Quarter Ended June 30,
 
Quarter vs. Quarter Net Sales Change Increase/(Decrease)
 
 
2017
 
2016
 
$ Change
 
% Change
 
Premium Beverage Alcohol
$
42,287

 
$
36,710

 
$
5,577

 
15.2
 %
 
Industrial Alcohol
19,342

 
20,896

 
(1,554
)
 
(7.4
)
 
     Food Grade Alcohol
$
61,629

 
$
57,606

 
$
4,023

 
7.0

 


Ingredient Solutions - Segment Gross Profit Grows 54%

For the 2017 second quarter, net sales for the Ingredient Solutions segment increased 10.3% to $15.1 million. Gross profit increased to $2.9 million, or 19.1% of net segment sales, compared with $1.9 million, or 13.7% of net segment sales in the second quarter 2016.

Griffin said, "Consistent with our strategy of maximizing the value of our production, we saw strong growth from our higher margin specialty proteins and starches. We are particularly pleased with our progress in developing our TruTex textured protein business."

Other

Corporate selling, general and administrative expenses were $8.3 million for the second quarter 2017 compared to $6.4 million in the second quarter 2016, primarily due to an increase in professional fees, advertising and promotion, and personnel costs.

MGP equity method investment earnings for the second quarter 2017 decreased to a loss of $0.8 million compared to earnings of $1.1 million for the second quarter 2016. On July 3, MGP completed the previously announced sale of this equity investment in Illinois Corn Processing, LLC (ICP).

The corporate effective tax rate for the quarter was 31.6% compared with 36.1% a year ago, primarily due to the favorable impact of a valuation allowance release and state tax credits in Indiana and Kansas.

Earnings per share was $0.37 for the second quarter 2017, compared with $0.37 for the second quarter 2016, reflecting the continued improved performance from operations and lower tax rate offset by the decline in ICP results.

2017 and Long Term Guidance

MGP is offering the following guidance for fiscal 2017 and beyond.
Reconfirming previous guidance, operating income is expected to grow between 10% and 15% annually from 2016 through 2018. This guidance excludes the anticipated gain from the sale of equity interest in ICP and the gain from 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.
Moderate 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.

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Conclusion

"These results demonstrate both the strength and potential of our long term strategy. We are making great strides against that strategy, as evidenced by both our results and our progress implementing specific strategic initiatives,” Griffin added. “Expanding our premium beverage alcohol product offerings, capabilities and customer focus has enabled us to continue our migration away from industrial alcohol. We continue to invest in building our inventory of aged whiskey to support our longer term growth, and the value of that inventory, at cost, now totals $56.4 million. While still very early, we are pleased with the progress on our brands initiative. Ingredient Solutions is a core piece of our long term strategy and we are encouraged by developments within that segment. Divesting our non-core interest in ICP will allow us to further sharpen our focus on the drivers of our 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, 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, 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.


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For More Information
Investors & Analysts:

Mike Houston
313-309-9506 or Investor.Relations@mgpingredients.com

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




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MGP INGREDIENTS, INC.
OPERATING INCOME ROLLFORWARD

Operating income quarter-versus-quarter
 
Operating Income
 
 Change
 
Operating income for the quarter ended June 30, 2016
 
$
9,127

 
 
 
Increase in gross profit - distillery products segment
 
2,290

 
25.1

pp(a)
Increase in gross profit - ingredient solutions segment
 
1,004

 
11.0

pp
Increase in SG&A expenses
 
(1,907
)
 
(20.9
)
pp
Operating income for the quarter ended June 30, 2017
 
$
10,514

 
15.2
 %
 

(a) Percentage points ("pp").


Operating income year to date-versus-year to date
 
Operating Income
 
 Change
 
Operating income for the year to date period ended June 30, 2016
 
$
19,852

 
 
 
Increase in gross profit - distillery products segment
 
4,053

 
20.4

pp(a)
Increase in gross profit - ingredient solutions segment
 
1,236

 
6.2

pp
Increase in SG&A expenses
 
(3,235
)
 
(16.3
)
pp
Operating income for the year to date period ended June 30, 2017
 
$
21,906

 
10.3
 %
 

(a) Percentage points ("pp").


























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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 June 30, 2016
 
$
0.37

 
 
 
Change in operations(a)
 
0.06

 
16.2

pp(b)
Change in equity method investments(a)
 
(0.07
)
 
(18.9
)
pp
Tax: Valuation allowance release
 
0.01

 
2.7

pp
Tax: State tax credits
 
0.01

 
2.7

pp
Tax: Change in effective tax rate (excluding tax items above)
 
(0.01
)
 
(2.7
)
pp
Basic and diluted earnings per share for the quarter ended June 30, 2017
 
$
0.37

 
%
 

(a) 
Changes are net of tax based on the effective tax rate for the base year (2016).
(b) 
Percentage points ("pp").


Change in basic and diluted earnings per share year to date period-versus-year to date period
 
Basic and Diluted EPS
 
Change
 
Basic and diluted earnings per share for the year to date period ended June 30, 2016
 
$
0.77

 
 
 
Change in operations(a)
 
0.08

 
10.4

pp(b)
Change in equity method investments(a)
 
(0.08
)
 
(10.4
)
pp
Change in weighted average shares outstanding
 
(0.01
)
 
(1.3
)
pp
Tax: Current effect of ASU 2016-09
 
0.07

 
9.1

pp
Tax: Valuation allowance release
 
0.02

 
2.6

pp
Tax: State tax credits
 
0.02

 
2.6

pp
Basic and diluted earnings per share for the year to date period ended June 30, 2017
 
$
0.87

 
13.0
%
 

(a) 
Changes are net of tax based on the effective tax rate for the base year (2016).
(b) 
Percentage points ("pp").


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

 
 
Quarter Ended
 
Year to Date Ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Sales
 
$
87,892

 
$
82,174

 
$
179,237

 
$
159,365

Less:  excise taxes
 
2,139

 
1,782

 
6,315

 
2,138

Net sales
 
85,753

 
80,392

 
172,922

 
157,227

Cost of sales
 
66,928

 
64,861

 
135,056

 
124,650

Gross profit
 
18,825

 
15,531

 
37,866

 
32,577

Selling, general and administrative expenses
 
8,311

 
6,404

 
15,960

 
12,725

Operating income
 
10,514

 
9,127

 
21,906

 
19,852

Equity method investment earnings
 
(819
)
 
1,079

 
(348
)
 
1,596

Interest expense, net
 
(379
)
 
(328
)
 
(710
)
 
(639
)
Income before income taxes
 
9,316

 
9,878

 
20,848

 
20,809

Income tax expense
 
2,947

 
3,570

 
5,801

 
7,442

Net income
 
$
6,369

 
$
6,308

 
$
15,047

 
$
13,367

 
 
 
 
 
 
 
 
 
Income attributable to participating securities
 
183

 
240

 
433

 
506

Net income attributable to common shareholders and used in EPS calculation
 
$
6,186

 
$
6,068

 
$
14,614

 
$
12,861

 
 
 
 
 
 
 
 
 
Share information:
 
 
 
 
 
 
 
 
Diluted weighted average common shares
 
16,745,679

 
16,617,857

 
16,727,305

 
16,612,416

 
 
 
 
 
 
 
 
 
Basic and diluted earnings per common share
 
$
0.37

 
$
0.37

 
$
0.87

 
$
0.77

Dividends and dividend equivalents per common share
 
$
0.04

 
$

 
$
0.08

 
$
0.08



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MGP INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
June 30, 2017
 
December 31,
2016
 
(Dollars in thousands)
June 30, 2017
 
December 31,
2016
ASSETS
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
Current Assets:
 
 
 
 
Current Liabilities:
 
 
 
Cash and cash equivalents
$
7,911

 
$
1,569

 
Current maturities of long-term debt
$
4,366

 
$
4,359

Receivables
34,930

 
26,085

 
Accounts payable
16,140

 
20,342

Inventory
85,551

 
78,858

 
Accounts payable to affiliate, net
3,181

 
3,349

Prepaid expenses
2,832

 
1,684

 
Accrued expenses
8,009

 
8,945

Refundable income taxes
3,131

 
2,705

 
 
 
 
 
Total Current Assets
134,355

 
110,901

 
Total Current Liabilities
31,696

 
36,995

 
 

 
 

 
Other Liabilities:
 

 
 

 
 
 
 
 
Long-term debt, less current maturities
14,034

 
16,218

 
 
 
 
 
Revolving credit facility
25,332

 
15,424

Property and equipment
252,586

 
246,219

 
Deferred credits
2,568

 
2,978

Less accumulated depreciation and amortization
(158,812
)
 
(153,428
)
 
Accrued retirement, health and life insurance benefits
3,415

 
3,604

Net Property, Plant
 
 
 
 
Deferred income taxes
4,009

 
3,432

and Equipment
93,774

 
92,791

 
Other noncurrent liabilities
402

 
393

Equity method investments
11,152

 
18,934

 
Total Liabilities
81,456

 
79,044

Other assets
2,665

 
2,710

 
Stockholders’ equity
160,490

 
146,292

TOTAL ASSETS
$
241,946

 
$
225,336

 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
241,946

 
$
225,336

 

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