Lancaster Colony Corp (LANC) 2014 Q1 法說會逐字稿

Good morning. My name is Kimberly, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Lancaster Colony Corporation fiscal year 2014 first quarter conference call. Conducting today's call will be Jay Gerlach, Lancaster Colony Chairman and CEO, and John Boylan, Vice President, Treasurer and CFO.

(Operator Instructions).

And now to begin your conference, here is Dale Ganobsik, Director of Investor Relations for Lancaster Corporation.

Thank you, Kimberly.

Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal 2014 first-quarter conference call. Let me begin by reminding everyone our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the Company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the Company's filings with the SEC.

With that said, I'll now turn the call over to Lancaster Colony's Chairman and CEO, Jay Gerlach. Jay?

Good morning and thank you as well for joining us.

Our fiscal 2014 got off to a sluggish start with first quarter sales down 2%. Operating income, net income and earnings per share all down 7% from last year's first quarter. Sales declined in both segments, while operating income was off only in our specialty food segment. During the quarter we invested $2 million in capital projects and repurchased approximately 40,000 shares for about $3 million.

A variety of factors impacted our performance. Let me start with our Glassware and Candles segment, now consisting of candles only. Segment sales are off just over 10%, impacted by generally soft demand, certain seasonal business that did not repeat this year and a noticeable decline in our OEM business. Operating income actually improved slightly with a little lower wax cost and a stronger sales mix.

Moving to our food business sales were down just fractionally. Volume was up modestly, all from our food service channel as retail volumes were flat. Our retail sales mix declined from 51% to 49% for the quarter. The food service channel benefited from new programs with existing customers and generally stronger demand, offset by low six-figure price deflation.

While our retail volumes were flat, increased trade spending resulted in lower sales dollars. The increased promotional spending included more support for added distribution of our Simply Dressed refrigerated salad dressing line, which reached about 60% ACV and more support for croutons now that we have added capacity available. We also spent more promotion dollars to support our New York brand garlic breads in a very competitive category that is not growing.

Additionally, we saw some seasonal sales that fell into the first quarter of last year get pushed to the second quarter this year. We also saw a decline in our private label retail business that was impacted by reduced promotional plans by our customers.

Here is our key category brand performance from IRI for the 12 weeks ended October 6. In refrigerated dressing the category was up 5.3%. Our Marzetti and Simply Dressed brands, principally led by our Simply Dressed, growth was up 16.7%. Croutons, where the category was up 1.1%. Our New York Texas toast, croutons were up 0.5%. Veggie dips, the category was down 3.1%. Our Marzetti and Otria brands were down 5%. Garlic bread, the category was down 3.9%. Our New York brand was down 1.8%. Finally, dinner rolls the category was down 1.9%, and our Sister Schubert brand was down 1.6%. We continue to be the leader in all five of these categories.

Operating income for the segment was impacted by the mix shift of food service and the higher promotional spending. Material costs were relatively flat to last year with soybean oil and sweetener savings being offset by increases in flour, dairy and packaging.

Let me now ask John to make a few comments.

Thanks, Jay, and good morning.

Looking at some of our more notable balance sheet fluctuations as of September 30, our accounts receivable totaling $82.89 million increased over $12 million since June 30. A majority of this increase reflected the first quarter's seasonally stronger candle sales. The September 2013 level declined from the prior letter September levels by roughly $13 million as influenced by the quarter's lower year-over-year sales and due to the quarter's sales mix.

With respect to our inventories, we saw a modest build in some seasonal food inventories that led to consolidated inventories increasing about $4 million since June 30 to $113 million. Compared to the year ago total, inventories actually declined by about $8 million primarily reflecting an anticipation of lower sales of seasonal candle products.

As we remain debt free with cash and equivalents totaling over $133 million and shareholders' equity in excess of $512 million, our overall balance sheet continues to be strong in its capitalization. Moving to the quarter's cash flows, our cash flows provided by operating activities totaled approximately $26.5 million for the quarter, which compares to $16.4 million provided a year ago. Comparatively, the relative declines in receivables and inventories contributed to this growth as somewhat offset by the decline in net income.

One specific component of the quarter's cash flows that you may find of interest is depreciation and amortization that totaled approximately $5.3 million, which is slightly above last year's $5 million. Other items of note include capital expenditures that totalled $2.12 million, share repurchases of $2.957 million and regular dividends of $10.927 million. With respect to capital expenditures, we currently believe the full-year outlay will total around $18 million, down a bit from our earlier expectation, as we have seen a delay in the timing of one of our larger anticipated projects.

I appreciate your attention this morning, and I'll now turn the call back over to Jay.

Thank you, John.

Just concluding the first month of our seasonally strongest quarter, we are monitoring demand closely. In our retail channel we believe we have promotional plans in place more comparable to the levels of a year ago. We are optimistic that seasonal shipments we expected in the first quarter will shift to this quarter, but sell-through to the consumer will be critical to the strength of the quarter.

Food service channel demand seems to be holding up okay, but it is hard to get confident it will be consistently better. We should start to see some overall ingredient cost-savings in the second quarter. Due to the loss of some seasonal candle business we do expect that segment sales to be off in the quarter.

We have seen an up-tick in acquisition opportunities recently and continue to pursue our desire for branded retail category leading opportunities. With just over 1.4 million shares authorized for repurchase and our strong balance sheet, we expect to continue repurchasing shares from time to time and we will, of course, review our dividend at our upcoming November board meeting.

Finally, I'd like to recognize and thank Earle Brown for his long support and work for us in the area of investor relations. He has actually been on every one of our conference calls since we started making those until today. He is retiring a little bit later in November, so we are glad to have Dale Ganobsik take on the added role of Director of Investor Relations for us.

With that, Kimberly, we are ready to take questions.

(Operator Instructions)

Your first question is from the line of [Michael Haven].

Can you talk about the timing of the expected new product launches in 2014?

Mike, we are still looking well into the second half of our fiscal year, probably late third, early fourth quarter we will have some new product coming to market.

Great. Thank you. Can you also please comment on the competitive environment? Are you seeing greater discounting by your competitors?

Yes. I think that varies a little bit by category where we continue to see that I think most aggressively in the frozen garlic bread area. It continues to be a challenging category overall from a growth standpoint and again very competitive.

Okay. Thanks. Finally, can you give us your commodities outlook for this fiscal year?

Mike, this is John. I think as we look forward through the balance of the year, we expect some modest improvement in the commodity outlook. As Jay indicated, it was relatively neutral in the first quarter. Some of the benefit we get from lower commodities will be partially offset by some deflationary impact on our food service sales. But again, we think the overall benefit, while positive, will be relatively modest for the balance of the year.

Great. Thank you very much.

You next question comes from Alton Stump.

Before I ask my question I want to give thanks to Earle for all of his great work over the years, and certainly he will be missed. I look forward to working with Dale, but I think you have huge shoes to fill, Dale. (laughter) I just wanted to ask -- I think you mentioned, Jay, you started to see any more activity on the M&A front. Can you just remind us, obviously you're not going to talk about who you may or may not be looking at, but what would be the sort of ideal type of acquisition that you would like to do?

Again it would be branded retail, ideally in a category leading position. One or two in a given category and growing. That position could be on a national basis. It might just be on regional basis that we would have the opportunity to bring in some geographic growth along as well. We are open-minded as far as categories. I mean, we like the areas we are in today. So produce department is of particular interest to us. We are in the frozen category, but we are also open to the other categories in the store. We are certainly interested, like a lot of people in some of the better for you opportunities that may be out there but not exclusively looking just in that area.

Okay. That's all I have. Thanks, guys.

You next question is from the line of [Phil Tupper Lilly].

[Chris, Saltfisher] calling in for Phil here. Thanks for taking the question. Just quickly, given the increased pressure in the food service mix, just wondering what you guys expect there in the next couple of quarters and if that to be a drag on and to what extent it will be a drag?

Well, again, it is kind of unpredictable. We were, obviously, pleased to see some growth in that channel in the first quarter. Our challenge is just getting confident there might be some consistent growth there. It is not unusual for us to see a month or two of pretty strong performance but then a flat month within that channel. As you know, whether it is food service or retail channel, but at times it seems maybe it is a little bit more of a factor in the food service channel as it relates to consumer confidence and how much people are eating out at restaurants, which is certainly unpredictable but challenged right at the moment.

Okay. I think that's all I had. Thanks so much.

You're welcome.

If there are no further questions will turn the call back to Mr. Gerlach for any closing -- concluding remarks.

Thank you for joining us this morning. We look forward to talking to you in January with our second-quarter results. Thank you again.