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MGP INGREDIENTS REPORTS THIRD QUARTER 2018 RESULTS

ATCHISON, Kan., November 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 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

%

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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.






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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


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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").


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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").


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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

 


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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

 

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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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