MGP INGREDIENTS REPORTS FOURTH QUARTER AND FULL YEAR 2017 RESULTS
Strong Premium Beverage Alcohol Annual Net Sales Growth of 18%
ATCHISON, Kan., March 1, 2018 - MGP Ingredients, Inc. (Nasdaq/MGPI), a leading supplier of premium distilled spirits and specialty wheat proteins and starches, today reported results for the fourth quarter and full year ended December 31, 2017.
2017 fourth quarter results compared to 2016 fourth quarter results
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• | Consolidated net sales increased 8.7% to $88.2 million, as a result of growth in premium beverage alcohol and specialty ingredients. |
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• | Consolidated gross profit increased 11.0% to $19.5 million, reflecting improved gross profit results in both the Distillery Products and Ingredient Solutions segments. |
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• | Consolidated gross margin increased 40 basis points to 22.1%, driven by a 50 basis point improvement in the Distillery Products segment. |
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• | Net income increased 52.6% to $12.6 million, primarily due to the revaluation of the Company’s deferred income taxes in response to the Tax Cuts and Jobs Act ("Tax Act") becoming law in December of 2017. |
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• | Earnings per share increased to $0.74 per share from $0.48 per share in the prior year period, primarily due to the deferred tax liability revaluation benefit resulting from the Tax Act. |
2017 full year results compared to 2016 full year results
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• | Consolidated net sales increased 9.2% to $347.4 million, as a result of growth in premium beverage alcohol and specialty ingredients. |
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• | Consolidated gross profit increased 16.4% to $76.0 million, reflecting stronger gross profit results in both the Distillery Products and Ingredient Solutions segments. |
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• | Consolidated gross margin increased 140 basis points to 21.9% for 2017, driven by a 160 basis point improvement in the Distillery Products segment. |
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• | Consolidated operating income increased 2.2% to $42.9 million, primarily due to gross profit growth in both segments, offset by investments in SG&A and a decrease in other operating income related to special items recorded in 2016. |
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• | Gain on sale of equity method investment of $11.4 million reflects the pre-tax impact of the sale of the Company’s 30 percent interest in Illinois Corn Processing, LLC ("ICP") during the third quarter of 2017. |
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• | Net income increased 34.1% to $41.8 million. |
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• | Earnings per share increased to $2.44 per share from $1.82 per share in the prior year, primarily due to the net gain on the sale of ICP, the deferred tax liability revaluation benefit, and improved operating performance. |
“We are very pleased with the results this quarter and year, as they underscore our continued progress against our long term strategic goals,” said Gus Griffin, president and CEO of MGP Ingredients. “Both of our business segments showed solid growth over the prior year, driving operating income growth which was consistent with our guidance.”
Distillery Products Segment - Premium Beverage Alcohol Growth of 18% Drives Strong Segment Results for the Year
For the fourth quarter of 2017, net sales for the Distillery Products segment increased 8.9% to $74.0 million, driven by a 13.0% increase in net sales of premium beverage alcohol. Gross profit improved to $17.7 million, or 24.0% of net segment sales, compared to $16.0 million, or 23.5% of net segment sales in the fourth quarter 2016.
For the full year 2017, net sales for the Distillery Products segment increased 9.7% to $291.0 million, driven by an 18.4% increase in net sales of premium beverage alcohol. Gross profit improved to $66.8 million, or 23.0% of net segment sales, compared to $56.8 million, or 21.4% of net segment sales in the prior year.
Griffin said, "We continued to see strong demand for our premium beverage alcohol products, supported by our ability to cultivate solid partnerships with existing customers as well as attract new customers. The continued strong growth of our premium beverage alcohol business, and the resulting favorable mix shift, more than offset the continued soft pricing for our DDG co-product, and delivered both revenue and margin growth."
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Food Grade Alcohol (in thousands) | Net Sales Quarter Ended December 31, | | Quarter vs. Quarter Net Sales Change Increase/(Decrease) | |
| 2017 | | 2016 | | $ Change | | % Change | |
Premium Beverage Alcohol | $ | 46,130 |
| | $ | 40,818 |
| | $ | 5,312 |
| | 13.0 | % | |
Industrial Alcohol | 18,861 |
| | 18,067 |
| | 794 |
| | 4.4 |
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Food Grade Alcohol | $ | 64,991 |
| | $ | 58,885 |
| | $ | 6,106 |
| | 10.4 | % | |
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| | | | | | | | | | | | | | | |
| Net Sales Year Ended December 31, | | Year vs. Year Net Sales Change Increase/(Decrease) | |
| 2017 | | 2016 | | $ Change | | % Change | |
Premium Beverage Alcohol | $ | 177,998 |
| | $ | 150,364 |
| | $ | 27,634 |
| | 18.4 | % | |
Industrial Alcohol | 76,636 |
| | 77,290 |
| | (654 | ) | | (0.8 | ) | |
Food Grade Alcohol | $ | 254,634 |
| | $ | 227,654 |
| | $ | 26,980 |
| | 11.9 | % | |
Ingredient Solutions - Segment Sales Increased 7% for the Year
For the 2017 fourth quarter, net sales in the Ingredient Solutions segment increased 7.8% to $14.2 million. Gross profit increased to $1.8 million, or 12.5% of net segment sales, compared to $1.6 million, or 12.4% of net segment sales in the fourth quarter 2016.
For the full year 2017, net sales for the Ingredient Solutions segment increased 6.5% to $56.4 million. Gross profit improved to $9.2 million, or 16.3% of net segment sales, compared to $8.4 million, or 15.9% of net segment sales in the prior year.
Griffin said, “We are particularly pleased with the gains we have experienced in both our textured wheat protein and fiber businesses for the fourth quarter and full year. The turnaround of our TruTex textured wheat protein business continues to go well. We are pleased with the current results and are excited about the future potential of this product line.”
Other
Corporate selling, general and administrative expenses were $9.0 million for the fourth quarter 2017, compared to $7.0 million in the fourth quarter 2016, primarily due to increases in incentive compensation, personnel costs, and professional fees. For the full year 2017, corporate selling, general and administrative expenses increased $6.4 million to $33.1 million, primarily due to investments in the MGP brands platform (personnel costs and advertising and promotion) and an increase in incentive compensation.
MGP’s gain on the sale of the equity method investment of $11.4 million reflects the pre-tax impact of the previously announced sale of the equity investment in ICP recorded in the third quarter 2017.
The corporate effective tax (benefit) rate for the quarter was (22.9)% compared with 31.3% in the year ago period. The corporate effective tax rate for the year was 20.7% compared with 30.3% in the prior year.
Earnings per share grew to $0.74 for the fourth quarter 2017, compared to $0.48 for the fourth quarter 2016. For the full year 2017, earnings per share grew to $2.44, compared to $1.82 for the full year 2016.
2018 and Long-Term Guidance
MGP is offering the following guidance for fiscal 2018 and beyond.
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• | Reconfirming previous guidance, operating income is expected to grow between 10% and 15% for fiscal year 2018. |
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• | The Company’s conservative estimate of growth in operating income in 2019 is 15% to 20% as sales of aged whiskey inventory becomes a more significant factor. |
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• | 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. |
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• | 2018 gross margins are expected to continue to grow modestly versus 2017. |
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• | 2018 effective tax rate is forecast to be 25%, and shares outstanding are expected to be approximately 16.9 million at year end. |
Conclusion
“We are very pleased with the continued strength and momentum we experienced this year,” Griffin added. “We continue to work to take full advantage of the macro consumer trends benefiting both our business segments. We remain committed to investing to maximize that potential and our investment in aged whiskey is one such strategic investment. That inventory has now reached $65.7 million, at cost.”
“On the beverage side, while our core business will always be supplying other brand owners with premium distilled spirits, we are pleased with the progress of our brands initiative, both the in-market results of our brands and the growth of our organization. Based on that, we are now expanding our brands into a few additional markets,” concluded Griffin.
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 decades 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 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
313-309-9506 or Investor.Relations@mgpingredients.com
Media:
Greg Manis
913-360-5440 or greg.manis@mgpingredients.com
MGP INGREDIENTS, INC.
OPERATING INCOME ROLLFORWARD
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| | | | | | | | |
Operating income | | Operating Income | | Change Quarter-versus-Quarter | |
Operating income for the quarter ended December 31, 2016 | | $ | 10,598 |
| | | |
Increase in gross profit - distillery products segment | | 1,791 |
| | 16.9 |
| pp(a) |
Increase in gross profit - ingredient solutions segment | | 149 |
| | 1.4 |
| pp |
Change in SG&A expenses | | (2,006 | ) | | (18.9 | ) | pp |
Operating income for the quarter ended December 31, 2017 | | $ | 10,532 |
| | (0.6 | )% | |
(a) Percentage points ("pp").
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| | | | | | | | |
Operating income | | Operating Income | | Change Year-versus-Year | |
Operating income for 2016 | | $ | 41,975 |
| | | |
Increase in gross profit - distillery products segment | | 9,981 |
| | 23.8 |
| pp(a) |
Increase in gross profit - ingredient solutions segment | | 752 |
| | 1.8 |
| pp |
Change in SG&A expenses | | (6,414 | ) | | (15.3 | ) | pp |
Change in other operating income, net | | (3,385 | ) | | (8.1 | ) | pp |
Operating income for 2017 | $ | 42,909 |
| | 2.2 | % | |
(a) Percentage points ("pp").
MGP INGREDIENTS, INC.
EARNINGS PER SHARE ROLLFORWARD
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| | | | | | | | |
Change in basic and diluted earnings per share | | Basic and Diluted EPS | | Change Quarter-versus-Quarter | |
Basic and diluted earnings per share for the quarter ended December 31, 2016 | | $ | 0.48 |
| | | |
Change in equity method investment earnings (loss)(a) | | (0.07 | ) | | (14.6 | ) | pp(b) |
Tax: Effect of Tax Act legislation | | 0.19 |
| | 39.6 |
| pp |
Tax: Change in effect of implementation of ASU No. 2016-09 | | 0.11 |
| | 22.9 |
| pp |
Tax: Change in effective tax rate (excluding tax item above) | | 0.03 |
| | 6.3 |
| pp |
Basic and diluted earnings per share for the quarter ended December 31, 2017 | | $ | 0.74 |
| | 54.2 | % | |
| |
(a) | Items are net of tax based on the effective tax rate for the base year (2016), excluding the effect of the adoption of ASU 2016-09. |
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(b) | Percentage points ("pp"). |
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Change in basic and diluted earnings per share | | Basic and Diluted EPS | | Change Year-versus-Year | |
Basic and diluted earnings per share for 2016 | | $ | 1.82 |
| | | |
Change in operating income: | | | | | |
Operations(a) | | 0.17 |
| | 9.3 |
| pp(b) |
Other operating income, net(a) | | (0.13 | ) | | (7.1 | ) | pp |
Gain on sale of equity method investment | | 0.44 |
| | 24.2 |
| pp |
Change in equity method investment earnings (loss)(a) | | (0.17 | ) | | (9.3 | ) | pp |
Change in weighted average shares outstanding | | (0.02 | ) | | (1.1 | ) | pp |
Tax: Effect of Tax Act legislation | | 0.19 |
| | 10.4 |
| pp |
Tax: Change in effect of implementation of ASU No. 2016-09 | | 0.11 |
| | 6.0 |
| pp |
Tax: Change in effective tax rate (excluding tax items above) | | 0.03 |
| | 1.7 |
| pp |
Basic and diluted earnings per share for 2017 | | $ | 2.44 |
| | 34.1 | % | |
| |
(a) | Items are net of tax based on the effective tax rate for the base year (2016), excluding the effect of the adoption of ASU 2016-09. |
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(b) | Percentage points ("pp"). |
MGP INGREDIENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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| | | | | | | | | | | | | | | | |
| | Quarter Ended | | Year Ended |
| | December 31,
2017 | | December 31,
2016 | | December 31,
2017 | | December 31,
2016 |
Sales | | $ | 91,043 |
| | $ | 85,005 |
| | $ | 358,132 |
| | $ | 328,081 |
|
Less: excise taxes | | 2,850 |
| | 3,860 |
| | 10,684 |
| | 9,818 |
|
Net sales | | 88,193 |
| | 81,145 |
| | 347,448 |
| | 318,263 |
|
Cost of sales | | 68,668 |
| | 63,560 |
| | 271,432 |
| | 252,980 |
|
Gross profit | | 19,525 |
| | 17,585 |
| | 76,016 |
| | 65,283 |
|
Selling, general and administrative expenses | | 8,993 |
| | 6,987 |
| | 33,107 |
| | 26,693 |
|
Other operating income, net | | — |
| | — |
| | — |
| | (3,385 | ) |
Operating income | | 10,532 |
| | 10,598 |
| | 42,909 |
| | 41,975 |
|
Gain on sale of equity method investment | | — |
| | — |
| | 11,381 |
| | — |
|
Equity method investment earnings (loss) | | — |
| | 1,776 |
| | (348 | ) | | 4,036 |
|
Interest expense, net | | (250 | ) | | (314 | ) | | (1,184 | ) | | (1,294 | ) |
Income before income taxes | | 10,282 |
| | 12,060 |
| | 52,758 |
| | 44,717 |
|
Income tax expense (benefit) | | (2,357 | ) | | 3,775 |
| | 10,935 |
| | 13,533 |
|
Net income | | $ | 12,639 |
| | $ | 8,285 |
| | 41,823 |
| | $ | 31,184 |
|
| | | | | | | | |
Income attributable to participating securities | | 275 |
| | 254 |
| | 996 |
| | 954 |
|
Net income attributable to common shareholders and used in EPS calculation | | $ | 12,364 |
| | $ | 8,031 |
| | $ | 40,827 |
| | $ | 30,230 |
|
| | | | | | | | |
Share information: | | | | | | | | |
Diluted weighted average common shares | | 16,780,430 |
| | 16,696,787 |
| | 16,746,731 |
| | 16,643,811 |
|
| | | | | | | | |
Basic and diluted earnings per common share | | $ | 0.74 |
| | $ | 0.48 |
| | $ | 2.44 |
| | $ | 1.82 |
|
Dividends and dividend equivalents per common share | | $ | 0.04 |
| | $ | 0.02 |
| | $ | 1.01 |
| | $ | 0.12 |
|
MGP INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
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| | | | | | | | | | | | | | | | |
(Dollars in thousands) | December 31,
2017 | | December 31,
2016 | | (Dollars in thousands) | December 31,
2017 | | December 31,
2016 |
ASSETS | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current Assets: | | | | | Current Liabilities: | | | |
Cash and cash equivalents | $ | 3,084 |
| | $ | 1,569 |
| | Current maturities of long-term debt | $ | 372 |
| | $ | 4,359 |
|
Receivables, net | 34,347 |
| | 26,085 |
| | Accounts payable | 30,037 |
| | 20,342 |
|
Inventory | 93,149 |
| | 78,858 |
| | Accounts payable to affiliate, net | — |
| | 3,349 |
|
Prepaid expenses | 2,182 |
| | 1,684 |
| | Accrued expenses | 11,171 |
| | 8,945 |
|
Refundable income taxes | 1,980 |
| | 2,705 |
| | | | | |
Total Current Assets | 134,742 |
| | 110,901 |
| | Total Current Liabilities | 41,580 |
| | 36,995 |
|
| |
| | |
| | Other Liabilities: | |
| | |
|
| | | | | Long-term debt, less current maturities | 21,407 |
| | 16,218 |
|
| | | | | Revolving credit facility | 2,775 |
| | 15,424 |
|
Property and equipment | 267,288 |
| | 246,219 |
| | Deferred credits | 2,151 |
| | 2,978 |
|
Less accumulated depreciation and amortization | (164,237 | ) | | (153,428 | ) | | Accrued retirement, health, and life insurance benefits | 3,133 |
| | 3,604 |
|
| | | | | Other noncurrent liabilities | 540 |
| | 393 |
|
Net Property, Plant, and Equipment | 103,051 |
| | 92,791 |
| | Deferred income taxes | 12 |
| | 3,432 |
|
Equity method investments | — |
| | 18,934 |
| | Total Liabilities | 71,598 |
| | 79,044 |
|
Other assets | 2,535 |
| | 2,710 |
| | Stockholders’ equity | 168,730 |
| | 146,292 |
|
TOTAL ASSETS | $ | 240,328 |
| | $ | 225,336 |
| | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 240,328 |
| | $ | 225,336 |
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