Yahoo Finance MGP Ingredients, Inc. (NASDAQ:MGPI) Q1 2024 Earnings Call Transcript
MGP Ingredients, Inc. (NASDAQ:MGPI) Q1 2024 Earnings Call Transcript May 4, 2024
MGP Ingredients, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the MGP Ingredients First Quarter 2024 Financial Results Conference Call. [Operator's Instructions] I would now like to turn the conference over to Mike Houston. Please go ahead, sir.
Mike Houston: Thank you. I'm Mike Houston with Lambert Global, MGP's Investor Relations firm. And joining me are members of their management team, including David Bratcher, Chief Executive Officer and President; and Brandon Gall, Vice President of Finance and Chief Financial Officer. We will begin the call with management's prepared remarks and then open the call to questions. However, before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements made today due to a number of factors, including the risk factors described in the company's most recent annual report filed with the Securities and Exchange Commission.
The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. Additionally, this call will contain reference to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures is included in today's earnings release. If anyone does not already have a copy of the earnings release issued by MGP today, you can access it at the company's website, www.mgpingredients.com. At this time, I would like to turn the call over to MGP's Chief Executive Officer and President, David Bratcher. David?
David Bratcher: Thank you, Mike, and thanks, everyone, for joining the call today. On this call, we will begin with an overview of our performance for the quarter ended March 31, 2024, provide updates on key financial performance metrics and discuss the progress we have made towards our strategic plan. At the end of the call, we will open the line for Q&A. I am pleased with the results we posted this quarter and the progress we have made towards our long-term strategic plan. On a pro forma basis, when factoring in the Atchison distillery closure, our defiling Solutions segment achieved sales growth when looking at our business today compared to a prior year period without the adjusted distiller results. We also had solid sales growth in Ingredient Solutions in our Premium Plus brands within branded spirits.
All in all, this quarter was in line with our financial expectations as described during our previous earnings call. Other highlights for the quarter include the promotion of Amel Pasagic to the Chief Commercial Officer role, the commissioning of our newly built textured lead protein facility and several incredible brand initiatives, each of which we will talk about on the call today. Starting with the promotion of Amal to his snowy created role, he will continue to leverage the business intelligence and predictive data insights he developed as CIO and apply them across all three business segments. Amel's wealth of experience and his unique strategic view of our business will be critical in driving the next phase of growth for MGP. We are excited about the insights we will bring to our business and as our commercial leader.
Turning to our Distilling Solutions segment. We are pleased to have completed the Atchison distillery closure in December of 2023, which led to a record quarterly segment gross margin in Q1 of 2024 as well as accomplishing our strategic intent of being browned focused in our distilling solutions business. As we reported last quarter, we have the vast majority of our anticipated total brown goods volume committed for 2024. Also, as we previously indicated, we expect the last 3 quarters of 2024 will result in stronger profits as compared to Q1 due to the variation in the timing of customer demand and the timing of our Bardstown, Kentucky distillery expansion project coming online in April. Turning to branded spirits. We are very pleased with the continued growth of our Premium Plus sales as they represent 42% of segment sales this quarter.
This represents a stark improvement from the 33% figure we experienced in the first quarter of 2023. This meaningful improvement was partially offset by lower volumes of our allocated Single Barrel Premium Plus brands as compared to 2023 due to the seasonal nature of these specialty programs. While the seasonal nature of these special programs put pressure on our gross profits this quarter, we were still able to expand gross margin to 44.9%, which is a testament to our continued investment in premiumization. Our branded spirits strategy remains focused on growing points of distribution by leveraging the expansion of our Premium Plus brand portfolio with particular focus on our tequila and American whiskey brands. As an example, we ship finality into 2 new states during the quarter.
Our brand marketing initiatives during the first quarter included entering into a sponsorship of Power bush #8 car under Richard Solders Racing, which broadly showcases our Revelerben brand and will continue throughout the racing season. In addition, we had six brands win double gold at the San Francisco World Spirits competition and successfully launched new innovative items such as Penelope Turkey, Penelope Rio and Yellowstone Rum Cask Finish. These are just a few examples of our innovation and marketing efforts to increase the sales velocity of our Premium Plus brands portfolio. Turning to Ingredient Solutions. Sales for the quarter were a record and primarily reflect continued rising consumer preference towards high protein, low net card diets, which drove higher sales of our specialty products.
We expect to see this trend continue in upcoming quarters as can be seen by anyone visiting their local grocery store and seeing the proliferation of keto and low net carb alternatives, which ties well to our Ingredient Solutions growth strategy. In addition, we are extremely proud of the grand opening of our texture protein facility, which was dedicated to the Ladd Seaberg, the late hesitant of our Chairman, Karen Seaberg. It was absolutely fabs to see Karen and her family, celebrate his memory and the indelible mark you left on the company with such a beautiful facility dedication. This concludes my initial remarks. Let me turn things over to Brandon Gall for a review of the key metrics and numbers. Brandon?
Brandon Gall: Thanks, David. For the first quarter of 2024, consolidated sales decreased 15% compared to the prior year period to $170.6 million due to the Atchison distillery closure. Excluding the impact of the Atchison distillery in both periods, consolidated sales were in line with the prior year period. Also impacting consolidated sales during the quarter, branded sales were down 3% driven primarily by the temporary shutdown of the Luxury distillery of Barstow, Kentucky to complete the distillation expansion as well as expected declines in our mid and value branded spirits price tiers. As expected, gross profit decreased 10% to $62.8 million, representing 36.8% of sales. This decrease was primarily due to lower sales of mid and value price tier brands as a result of the distributor realignment in 2023, lower sales of allocated single barrel printing plus brand spirits offerings in Q1 as planned, the temporary shutdown of our Luxco distillery of Arslan, Kentucky and the incremental costs incurred in Ingredient Solutions related to the drying of the waste start streams ready for commercial sale as well as our new extrusion manufacturing facility.
Excluding the impact of the Atchison distillery in the current period, gross margin was 37.3%. Advertising and promotion expenses for the first quarter increased $1 million to $8.7 million, primarily driven by increased advertising and promotion investment in support of our Premium Plus portfolio of brands. Brand sports-related A&P totaled $7.8 million for the quarter, represented 15.5% of segment sales. This remains consistent with our premiumization strategy. We will continue to invest in marketing spend against our higher-margin premium plus price tier brands. Operating income for the first quarter decreased 30% to $28.9 million. Adjusted operating income decreased 19% to $33.6 million. Net income for the first quarter decreased 34% to $20.6 million, while adjusted net income decreased 22% to $24.2 million.
Basic earnings per common share decreased to $0.92 per share from $1.40 per share and diluted earnings per share decreased to $0.92 per share from $1.39 per share. Adjusted basic and diluted earnings per common share decreased to $1.07 per share from $1.40 and $1.39 per share, respectively. Adjusted EBITDA for the quarter was in line with our expectations and totaled $40.2 million, a decrease of 17% compared to the year ago period, driven by the factors highlighted on our previous earnings call. In accordance with the applicable accounting guidance, we no longer expect to present the results of the Atchison distillary as discontinued operations in our financial statements. However, for reference, we have quantified the impact of the associate results and the pro forma schedules included in this morning's earnings release.
Moving to cash flow. Cash flow from operations was $24.6 million in the quarter, a record for any first quarter and up from $5 million in the first quarter of 2023. Our balance sheet remains healthy, and we remain well capitalized with debt totaling $300.8 million and a cash position of $19.5 million. Turning to capital allocation. We remain focused on organic and acquisitive growth opportunities that align with our long-term strategy as well as underlying consumer trends, which we believe our business is well positioned to leverage. We will continue to evaluate M&A opportunistically with the goal of accelerating growth and increasing our capabilities and product offerings. Effectively mentioning was we put away with growing future disown solutions and brand Spirit segment sales remains a key priority and is critical to our long-term strategy.
Our investment in inventory of aging whiskey increased slightly this quarter to $254.5 million at cost, an increase of $4.3 million from the end of the year. Investing in capital expenditures to enhance our operational capabilities is another important capital allocation priority, and it resulted in capital expenditures of $13.1 million for the first quarter. We continue to expect approximately $85.8 million in capital expenditures for the year, which will be used for facility improvement and expansion, such as additional warehouses to support our recent capacity increases, driver investment to support our Luxco distillery expansion, the purchase of our previously leased bottling facility in St. Louis Missouri and a main fuel plant in Atchison, Kansas to better monetize the waste starts strain in our Ingredient Solutions segment.
During the quarter, the Board approved a $100 million share repurchase program, and we repurchased 59,84 shares of our common stock for approximately $5 million. The Board of Directors also authorized a quarterly dividend of $0.12 per share. It was payable on May 31 to stockholders of record as of May 17. The Board continues to be dividends as an important way to share the success of the company with shareholders. We will continue to focus efforts on optimizing product mix across all 3 of our business segments and invest in areas that we expect to generate the greatest long-term value for our shareholders. We expect the consumer fundamentals that have supported the historical growth in our business to remain intact throughout 2024. While we continue to monitor the potential impact of the inventory levels of distributors, overall American Lite supply and consumption patterns and inflation on consumers.
Despite these industry headwinds, we feel uniquely positioned to grow as a company in this dynamic operating environment. These factors, in combination with the strength of our underlying business support the confirmation of our 2024 financial outlook. Sales are projected to be in the range of $742 million to $756 million following the closure of the Atchison distillery. Adjusted EBITDA to be in the range of $218 million to $222 million, inclusive of the add back of share-based compensation expense. Adjusted basic earnings per common share are forecasted to be $6.12 to $6.23 range, with basic weighted average shares outstanding is expected to be approximately $22.3 million at year-end. And now let me turn things back over to David for concluding remarks.
David Bratcher: Thanks, Brandon. We are pleased with our positioning to achieve our 2020 objectives. Demand for our products in each of the 3 segments remain strong, and we believe our plans will continue to position the business for long-term success. Despite some reported softening within the branded spirits industry, we feel very optimistic about the long-term health of this industry and are encouraged by the continued growth of the Premium Plus category across the industry. Our strategy is to build a portfolio of branded spirits to increase our points of distribution, accelerating our sales velocity within those points of distribution through effective marketing, expanding our product offerings through innovation and closing a meaningful margin accretive M&A transactions.
In closing, I would like to restate what I said last quarter and that we are committed to evolving our company into a dedicated branded spirits company with desirable brands across the price point universe with a special focus on premium plus and higher-margin offerings as well as continuing to supply our market-leading premium American whiskey in bulk to both craft and multinational entities. We believe this is the optimal way to provide desired returns to our shareholders. That concludes our prepared remarks. Operator, we are ready to begin the question-and-answer portion of the call.
Operator: We will now begin the question-and-answer session. [Operator's Instructions] The first question comes from Gerald Pascarelli from Belport Securities.
See also
10 Best May Dividend Stocks To Buy and
20 Countries with the Highest Annual GDP Growth in the World.
To continue reading the Q&A session, please click here.
