Marzetti Co (MZTI) 2013 Q2 法說會逐字稿

Good morning, my name is Kathy, and I will be your conference operator. At this time, I would like to welcome everyone to the Lancaster Colony second-quarter fiscal 2013 results conference call. Conducting today's call will be Jay Gerlach, Lancaster Colony's Chairman and CEO, and John Boylan, Vice President, Treasurer, and CFO. Call lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you, I will now turn today's conference over to Earle Brown, Lancaster Colony's investor relations. Mr. Brown, please go ahead.

Good morning. Let me also say thank you for joining us today for the Lancaster Colony second-quarter fiscal 2013 conference call. Now, please bear with me, while we take care of a few details. As with other presentations of this type, today's discussion by Jay Gerlach, Chairman and CEO, and John Boylan, Vice President, Treasurer, and CFO, will contain forward-looking statements of what may happen in the future, including statements relating to Lancaster Colony's sales prospects, growth rates, expected future levels of profitability, as well as the extent of share repurchases and business acquisitions to be made by the Company.

These forward-looking statements are based on numerous assumptions, and are subject to uncertainties and risks. Accordingly, investors are cautioned not to place undue reliance on such statements. Factors that might cause Lancaster's results to differ materially from forward-looking statements include, but are not limited to, risks relating to the economy, competitive challenges, changes in raw materials costs, the success of new product introductions, the effect of any restructurings, and other factors, as are discussed from time to time in more detail in the Company's filings with the SEC, including Lancaster Colony's report on Form 10-K. Please know the precautionary statements contained in the Safe Harbor paragraph of today's news release also apply to this conference call. Now, here is Jay Gerlach. Jay?

Good morning, and thank you for joining us. We are pleased to report our second-quarter fiscal 2013 results, with total sales up almost 5%, and EPS of $1.28. We did receive a modest CDSOA distribution in the quarter of about $0.01 per share versus approximately $0.06 per share last year. John will comment later on a roughly $0.02 per share tax benefit from the $5 special dividend paid in December.

Capital expenditures for the quarter totaled $5 million with our primary project being the expansion of our crouton production capacity. We expect this project to be complete in March, with the total investment of approximately $11 million. Full-year capital expenditures will total about $25 million. We did not repurchase any shares during the quarter, nor did we make any business acquisitions.

Turning to our food segment performance for the quarter, we saw sales increase about 2.5% and operating income improve over 12%. Operating margins reached 18.5% versus 16.8% last year. Sales grew, primarily due to pricing of about $3 million, and a bit less promotional spend, as volume mix was relatively flat in the quarter. While we did see sales growth from both our retail and food service channels, and continued benefit from new product sales, we also experienced declines in our New York Texas Toast product sales. Our Simply Dressed line of refrigerated salad dressing continued to perform well, and we saw a contribution from Sister Schubert's Mini Loaves, Sweet Hawaiian, and Pretzel Rolls, and our New York Brand Garlic Knots. Our food service channel benefited from good demand from our top chain account customers.

Looking at IRI sell-through data for our key categories for the 12 weeks ending December 30 shows the following. In the refrigerated dressing, the category was up about 6.5%, our growth was 9.7%, and we did in that 12-week period move to a number one position in the category. The veggie dip category was down 1%. We were flat, and we maintained our strong number one position in that category. Croutons, the category showed growth of about 1.3%. Our growth, 2.8% and, again, maintained our number-one position in the category. Frozen garlic bread, the category was down 4.4%. We were down 10%, yet still maintained our number-one market share. And then the frozen dinner roll category, up 4.1%, we were up 10.6%, and again maintained a strong number-one position in that category. Our operating margin improvement was helped by a bit of a mix shift in net sales toward retail versus last year, improved pricing, and input cost decline of about $2 million, and lower promotional spending.

Moving to our Glassware and Candles segment, we saw its second quarter sales rise over 17% on greater seasonal business, and everyday demand, with some favorable impact from Hurricane Sandy. Operating margins reached 10.5% on the benefit of greater volume, a bit lower wax cost and improved product mix. Both segments saw consistently good plant operations throughout the quarter. Let me ask John now, to make a few comments.

Thanks, Jay, and good morning. I will start my comments this morning by addressing some of the more noteworthy changes in our consolidated balance sheet. First, our net accounts receivable, as of December 31, totaled approximately $91 million, which compared to $73 million at June 30. Somewhat similar to what we have seen in prior years, the seasonality of our candle sales was largely responsible for this increase. Compared to the year-ago December, our receivables increased about $7 million, which also reflects the current year's higher sales of candles.

Turning to our inventories, we saw our December balances total about $101 million, which represented a decline of roughly $9 million since June. This decrease is consistent with the seasonal reduction we often experience between these periods. Larger food inventories, in part influenced by a somewhat softer-than-expected December, contributed to our year-over-year quarter-end inventories, increasing about $7 million, or 8%. With respect to our current balance sheet capitalization, we continued to remain debt-free at December 31, despite the distribution of a $5 per share special dividend in the quarter, that totaled over $136 million. Even after this distribution, our cash and equivalents totaled greater than $92 million at December 31, and our shareholders equity exceeded $471 million. We continue to view our balance sheet as providing great flexibility to support our future growth and shareholder returns.

Looking at some relevant cash flow totals, cash flows provided from operations for the most recent six months totaled almost $68 million, which is similar to the $67 million reported in the prior year's comparable period. Other six-month cash flow amounts of note included dividends totalling $156.755 million, capital expenditures of $10.359 million, and depreciation and amortization of $9.971 million. As alluded to earlier by Jay, one final matter to mention is the effective tax rate for the quarter, which was 33.3%. The current year's rate benefited from the impact of the special dividend interacting with our now frozen employee stock ownership plan. We would estimate the per-share impact on the quarter as being approximately $0.02 per share. And with that, I want to thank you for listening today, and I will turn the call over to Jay, so he can conclude our prepared remarks.

Thanks, John. As we move from our seasonally-strong second quarter to the less seasonal third quarter, we're encouraged by the demand we have seen in January for various food products, including both Sister Schubert's and New York Brands. While we have product introductions of our Simply Dressed vinaigrettes and our repackaged veggie dip line late in the quarter, they probably will have little impact on the third quarter. The veggie dip changeover could have a negative impact, as we interrupt retailer buying for the change. Easter volume will all fall in the third quarter this year, which is probably not much different than last year.

We anticipate third-quarter food input costs to be flat to barely favorable versus last year. Fourth-quarter input costs may actually move up some from last year. Our additional crouton capacity should be on stream by late in the quarter, allowing us to pursue new business more aggressively than we have been able in recent months. At this time, we have no significant pricing plan for the balance of the year. Although we have no deals to report today, we are pleased with the activity that our recently-added commitment to acquisition development has shown. Hopefully, we'll have some activity to report as the year progresses. As we begin the second half of fiscal 2013, we are optimistic but cautious about the strength of the consumer and potential raw material cost increases. Kathy, we ready to take questions.

(Operator Instructions)

Your first question comes from the line of Greg Halter.

You have obviously mentioned and touched on the input cost side of things. I wondered if I could ask about your forward hedges on soybean oil and then wheat?

We're pretty well-covered through June on both, actually. The flour costs, as we go through -- particularly through the fourth quarter at a higher cost than what we have been seeing, so we will see a little bit of an uptick there, but generally pretty well covered.

Beyond June, any forwards in place?

Only in soybean oil, and that is relatively modest amounts at this point.

Okay. And you made some comments as well about wax costs. I wondered if you could provide what you see in that area going forward?

We don't have great visibility there, Greg, but think it's generally probably pretty stable. We continue to focus a lot on looking at alternative blends of waxes to try to get our actual costs down, but the actual raw material costs we expect right now to be relatively flat.

You mentioned the margin in that segment, I think it was 10.5%, which would be the best in probably 10 years on a quarterly basis for any quarter. I wanted to ask about the sustainability of that, or whether or not you think the low singles is more the place to be?

Well, I think as you look at the full year, probably low to mid-single digits is realistic. That is our seasonal peak quarter. And I can't say swear that, that's the highest in ten years in that quarter, but it is a strong performance in the quarter -- but not what we typically see for the full year.

And, back on the food business side, are there any new outlets that you may have been able to enter, or any you expect, with this new crouton capacity, either on the West Coast, or anywhere else geographically, for that matter?

In general, as you know, we have been trying to move our key categories more significantly to the west. I don't have anything real major to report there. We continue to be pleased with distribution in West Coast markets with Simply Dressed and are expanding our New York brand presence in those markets with garlic breads. We have been relatively cautious over the last six months or so, as it relates to crouton growth due to our capacity constraints. So, we will be looking at trying to both get into some new markets, as well as provide just more general promotional support for that category again, once the capacity is available.

All right. One last one for you. Would you expect or anticipate that your tax rate goes back to the more normal 34.5% or so area?

Greg, this is John. As we look at on the tax rate, I think for the full fiscal year, we would expect to see the effective tax rate run a little bit below 34% or so. I think, as we move into fiscal 2014, we would lose the benefit of the special dividend, and see it, perhaps, return to somewhat greater than 34%. A little early to be precise on that, but you will see a little bit lower-than-normal effective tax rate for both the third and fourth quarters as well.

All right. You could always pay out another special cash dividend.

(Laughter) That is one thought.

All right. Thank you.

(Operator Instructions)

At this time, sir, there are no further questions.

Well, we appreciate you joining us this morning. Certainly, if there is some followup offline, feel free to call, and we'll look forward to talking with you late April on our third-quarter results.

This concludes today's conference. You may now disconnect.