Part I [Business](index=3&type=section&id=Item%201.%20Business) Lancaster Colony Corporation manufactures and markets specialty food products across Retail and Foodservice segments, focusing on strategic growth through base business acceleration, supply chain simplification, and expansion via licensing and acquisitions - The company's strategic growth plan focuses on accelerating base business growth, simplifying the supply chain for cost reduction and margin growth, and expanding the core business through licensing and M&A[20](index=20&type=chunk) - The business operates in two reportable segments: **Retail (53% of FY2023 sales)** and **Foodservice (47% of FY2023 sales)**[19](index=19&type=chunk)[158](index=158&type=chunk) - As of June 30, 2023, the company employed **3,400 individuals**, with **23%** covered by collective bargaining agreements[35](index=35&type=chunk) Net Sales by Product Class (% of Total Net Sales) | Class of Products | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Retail Segment:** | | | | | Shelf-stable dressings, sauces and croutons | 23% | 22% | 21% | | Frozen breads | 19% | 20% | 21% | | Refrigerated dressings, dips and other | 11% | 13% | 15% | | **Foodservice Segment:** | | | | | Dressings and sauces | 35% | 34% | 32% | | Frozen breads and other | 12% | 11% | 11% | - Significant customer relationships include **Walmart (18% of consolidated net sales)**, **McLane (11%)**, and **Chick-fil-A (26%)**[29](index=29&type=chunk)[30](index=30&type=chunk) [Retail Segment](index=4&type=section&id=Retail%20Segment) The Retail segment manufactures and sells branded products, including frozen breads, dressings, and dips, primarily through U.S. grocery channels, with significant sales from licensed brands Key Retail Brands and Products | Products | Brand Names | | :--- | :--- | | **Frozen Breads** | | | Frozen garlic breads | New York BRAND Bakery | | Frozen Parkerhouse style yeast rolls and dinner rolls | Sister Schubert's | | **Refrigerated Dressings and Dips** | | | Salad dressings | Marzetti, Marzetti Simply | | Vegetable dips and fruit dips | Marzetti | | **Shelf-Stable Dressings and Croutons** | | | Salad dressings | Marzetti, Cardini's, Girard's | | Croutons and salad toppings | New York BRAND Bakery, Chatham Village, Marzetti | - The company manufactures and sells products under license agreements for brands including Chick-fil-A®, Olive Garden®, and Buffalo Wild Wings®[21](index=21&type=chunk) - The top five retail customers accounted for **59% of the segment's total net sales in FY2023**, an increase from **57% in FY2022** and **55% in FY2021**[22](index=22&type=chunk) [Foodservice Segment](index=5&type=section&id=Foodservice%20Segment) The Foodservice segment primarily sells custom-formulated private label products to restaurants, with growth driven by existing customer volume gains and new product development - The majority of Foodservice sales are private label products for restaurants, focusing on custom-formulated dressings, sauces, and frozen breads[25](index=25&type=chunk) - The top five Foodservice direct customers accounted for **58% of the segment's net sales** in both FY2023 and FY2022[26](index=26&type=chunk) [Human Capital](index=6&type=section&id=Human%20Capital) The company's human capital strategy prioritizes Health and Safety, Talent Acquisition, Total Rewards, Employee Engagement, DEI, and Community Engagement, showing progress in workforce diversity - The human capital strategy emphasizes Health and Safety, Talent Acquisition, Total Rewards, Employee Engagement, DEI, and Community Engagement[37](index=37&type=chunk) - In FY2023, the workforce comprised **36% female** and **44% minority races or ethnicities**[43](index=43&type=chunk) - From January 2020 to January 2023, the percentage of women at VP level and above increased by **58%**, and non-white representation for director and above positions nearly doubled[44](index=44&type=chunk) [Risk Factors](index=7&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including food safety, operational challenges from inflation and labor, brand reputation, customer concentration, cybersecurity, extensive regulation, and significant ownership influence [Risks Related to Health and Food Safety](index=8&type=section&id=RISKS%20RELATED%20TO%20HEALTH%20AND%20FOOD%20SAFETY) The company faces risks from real or perceived food safety issues, potentially leading to costly product recalls, legal claims, and damage to brand image and sales - The company may face business disruptions, product recalls, or claims for real or perceived safety issues, leading to significant financial loss and damaged customer sentiment[53](index=53&type=chunk) - Negative publicity concerning the food industry or the company's products can increase operational costs and reduce demand if consumer concerns are not adequately addressed[55](index=55&type=chunk)[56](index=56&type=chunk) [Risks Related to Our Operations](index=9&type=section&id=RISKS%20RELATED%20TO%20OUR%20OPERATIONS) Operational risks include increased costs and limited availability of raw materials, labor shortages, production disruptions, cybersecurity threats, manufacturing capacity constraints, and climate change impacts - The company faces risks from increased costs and limited availability of key raw materials like soybean oil, packaging, and flour due to inflation, geopolitical events, and climate change[58](index=58&type=chunk)[63](index=63&type=chunk) - Labor shortages, increased labor costs, and high turnover could adversely impact production, shipping, and overall financial results[67](index=67&type=chunk) - Cyber attacks, data breaches, or other information security system failures could cause operational disruptions, significant expenses, and reputational damage[74](index=74&type=chunk) - Manufacturing capacity constraints may lead to an inability to meet customer demand, potentially resulting in long-term loss of product placement[81](index=81&type=chunk)[82](index=82&type=chunk) [Risks Related to the Brands We Sell and Customer Demand for Our Products](index=13&type=section&id=RISKS%20RELATED%20TO%20THE%20BRANDS%20WE%20SELL%20AND%20CUSTOMER%20DEMAND%20FOR%20OUR%20PRODUCTS) The company's business is highly dependent on brand reputation, licensing agreements, and key customer relationships, with concentration risks from major partners like Walmart, Chick-fil-A, and McLane - The company's business could be harmed by the failure to maintain its brand reputation or renew key brand license agreements, such as those for Chick-fil-A®, Olive Garden®, and Buffalo Wild Wings® sauces[91](index=91&type=chunk)[95](index=95&type=chunk) - **Walmart** is the largest retail customer, accounting for **18% of consolidated net sales in FY2023**, and its loss would have a material adverse effect[100](index=100&type=chunk) - Sales to **Chick-fil-A** in the Foodservice segment represented **20% of consolidated net sales in FY2023**, and its loss would materially impact sales and profitability[101](index=101&type=chunk) - **McLane** is the largest Foodservice customer, accounting for **11% of consolidated net sales in FY2023**, serving as a distributor to national chain restaurants[103](index=103&type=chunk) [Risks Related to Regulatory and Legal Matters](index=16&type=section&id=RISKS%20RELATED%20TO%20REGULATORY%20AND%20LEGAL%20MATTERS) The company is subject to extensive federal, state, and local regulations, including food safety, environmental, and data privacy laws, with potential liabilities from a multiemployer pension plan - Operations are subject to stringent food production, packaging, quality, and labeling standards, and non-compliance with evolving privacy laws like CCPA could increase costs and liability[112](index=112&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - The company contributes to a multiemployer pension plan and could face increased contributions or withdrawal liability, materially affecting financial results[119](index=119&type=chunk) [Risks Related to Investments in Our Common Stock](index=17&type=section&id=RISKS%20RELATED%20TO%20INVESTMENTS%20IN%20OUR%20COMMON%20STOCK) Investment risks include the significant ownership interest of the Executive Chairman and family trusts, granting them substantial influence, alongside anti-takeover provisions that could deter acquisitions - As of June 30, 2023, Executive Chairman Mr. Gerlach and family trusts owned or controlled approximately **28% of the company's outstanding common stock**, granting them significant influence on shareholder votes[121](index=121&type=chunk) - Anti-takeover provisions in the company's charter and Ohio corporate law may hinder third-party acquisition, potentially affecting the stock price[123](index=123&type=chunk)[124](index=124&type=chunk) [Unresolved Staff Comments](index=17&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[127](index=127&type=chunk) [Properties](index=17&type=section&id=Item%202.%20Properties) The company utilizes **2.6 million square feet** of operational space, with **0.7 million leased**, operating principal manufacturing facilities across nine U.S. locations for both segments - The company uses **2.6 million square feet** of space for operations, with **0.7 million square feet** being leased[128](index=128&type=chunk) Principal Manufacturing Locations | Location | Principal Products Produced | Business Segment(s) | Terms of Occupancy | | :--- | :--- | :--- | :--- | | Altoona, IA | Frozen pasta | Retail and Foodservice | Owned | | Bedford Heights, OH | Frozen breads | Retail and Foodservice | Owned | | Columbus, OH | Sauces, dressings, dips | Retail and Foodservice | Owned | | Cudahy, WI | Sprouted grain bakery products | Retail | Owned | | Horse Cave, KY | Sauces, dressings, frozen rolls | Retail and Foodservice | Owned | | Luverne, AL | Frozen rolls | Retail and Foodservice | Owned | | Milpitas, CA | Sauces and dressings | Retail and Foodservice | Owned | | Saline, MI | Flatbread products | Retail and Foodservice | Owned | | Vineland, NJ | Frozen breads | Retail and Foodservice | Owned | | Wareham, MA | Croutons | Retail and Foodservice | Leased | [Legal Proceedings](index=17&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings not expected to materially affect financial statements, with no material environmental matters exceeding its $1 million disclosure threshold - The company is involved in routine legal proceedings but does not expect them to have a material effect on its financial statements[130](index=130&type=chunk) - There are no environmental matters to disclose that meet the company's reporting threshold of **$1 million**[131](index=131&type=chunk) [Mine Safety Disclosures](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[132](index=132&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under LANC, with a **60-year history of increasing cash dividends** and an active share repurchase authorization - Common stock trades on the NASDAQ Global Select Market under the symbol **LANC**[134](index=134&type=chunk) - The company has increased its regular cash dividends for **60 consecutive years**[135](index=135&type=chunk) - As of June 30, 2023, **1,176,739 common shares** remained authorized for future repurchase under a plan approved in November 2010[136](index=136&type=chunk) [Reserved](index=20&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2023, net sales grew **9% to $1.82 billion** driven by pricing, with gross profit up **9%** and operating income up **26%**, while the company completed its ERP implementation and ended the year with **$88 million in cash** and no debt Fiscal 2023 Consolidated Financial Highlights | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,822.5M | $1,676.4M | 9% | | Gross Profit | $388.6M | $355.7M | 9% | | Operating Income | $141.5M | $111.9M | 26% | | Net Income | $111.3M | $89.6M | 24% | | Diluted EPS | $4.04 | $3.25 | 24% | - Consolidated net sales increased **9%** due to pricing actions, while consolidated sales volume decreased **5%**[157](index=157&type=chunk) - Project Ascent, the company's new ERP system, completed its implementation in August 2023 after a phased rollout during fiscal 2023 with no major disruptions[150](index=150&type=chunk) - The company ended FY2023 with **$88 million in cash and equivalents** and no debt[182](index=182&type=chunk) [Results of Consolidated Operations](index=23&type=section&id=Results%20of%20Consolidated%20Operations) In FY2023, consolidated net sales increased **9% to $1.82 billion**, gross profit rose **9% to $388.6 million**, and operating income grew **26% to $141.5 million**, despite increased SG&A and impairment charges - Gross profit increased **9% to $388.6 million** in FY2023, with the gross margin holding steady at **21.3%**, as pricing actions effectively offset significant inflationary costs[159](index=159&type=chunk) - SG&A expenses increased **5% to $222.1 million**, driven by investments in personnel, IT, and higher brokerage costs, partially offset by a **$9.5 million decrease** in Project Ascent expenses[160](index=160&type=chunk) - The company recorded **$25.0 million in impairment charges** in FY2023 related to the intangible assets of Flatout, Inc., reflected in the Retail segment[163](index=163&type=chunk) - The effective tax rate increased to **22.3% in FY2023** from **20.3% in FY2022**[170](index=170&type=chunk) [Segment Results](index=25&type=section&id=Segment%20Results) In FY2023, Retail segment net sales grew **5%** but operating income declined **8%** due to impairment charges, while Foodservice net sales increased **13%** and operating income surged **29%** due to pricing and stable operations Retail Segment Performance (FY2023 vs. FY2022) | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $965.4M | $915.2M | 5% | | Operating Income | $139.5M | $151.6M | (8)% | | Operating Margin | 14.4% | 16.6% | -220 bps | Foodservice Segment Performance (FY2023 vs. FY2022) | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $857.2M | $761.2M | 13% | | Operating Income | $106.3M | $82.7M | 29% | | Operating Margin | 12.4% | 10.9% | +150 bps | - Retail operating income was negatively impacted by **$25.0 million in impairment charges** for Flatout intangible assets in FY2023, compared to **$9.7 million in charges** in FY2022[175](index=175&type=chunk) [Financial Condition and Cash Flows](index=27&type=section&id=Financial%20Condition%20and%20Cash%20Flows) The company ended FY2023 with **$88 million in cash** and no debt, with cash from operations significantly increasing to **$225.9 million** due to favorable working capital changes - The company has a **$150 million unsecured revolving credit facility** expiring in March 2025, with no borrowings outstanding at June 30, 2023[183](index=183&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Provided By Operating Activities | $225,901 | $101,813 | | Used In Investing Activities | $(90,782) | $(132,240) | | Used In Financing Activities | $(106,929) | $(97,345) | - The **122% increase in cash from operations** was primarily due to favorable changes in working capital, particularly receivables and accrued liabilities[191](index=191&type=chunk) - Capital expenditures for FY2024 are projected to be between **$70 million and $80 million**[186](index=186&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk stems from fluctuating raw material prices, managed through forward purchasing and fixed-price contracts, with no significant interest rate exposure due to the absence of borrowings - The main market risk is from fluctuating prices of raw materials such as soybean oil and flour[207](index=207&type=chunk) - The company manages commodity price risk through a structured forward purchasing program and fixed-price arrangements, not through derivative instruments[207](index=207&type=chunk) [Financial Statements and Supplementary Data](index=30&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for FY2021-2023, including balance sheets, income statements, and cash flows, with an unqualified opinion from Deloitte & Touche LLP on both financial statements and internal controls - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of June 30, 2023[210](index=210&type=chunk)[211](index=211&type=chunk) - The auditor identified the valuation of long-lived assets and other intangible assets as a critical audit matter due to significant management judgment in assessing impairment indicators[215](index=215&type=chunk)[216](index=216&type=chunk) [Consolidated Balance Sheets](index=33&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets were **$1.113 billion**, driven by higher cash and property, plant, and equipment, with total liabilities at **$250.7 million** and shareholders' equity at **$862.3 million** Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and equivalents | $88,473 | $60,283 | | Total current assets | $374,463 | $351,781 | | Property, plant and equipment-net | $482,206 | $451,368 | | Goodwill | $208,371 | $208,371 | | **Total Assets** | **$1,112,994** | **$1,090,374** | | **Liabilities & Equity** | | | | Total current liabilities | $168,752 | $165,585 | | Total liabilities | $250,727 | $245,687 | | Total shareholders' equity | $862,267 | $844,687 | | **Total Liabilities & Equity** | **$1,112,994** | **$1,090,374** | [Note 6 – Goodwill and Other Intangible Assets](index=47&type=section&id=Note%206%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) As of June 30, 2023, goodwill remained stable at **$208.4 million**, while the net carrying value of other intangible assets significantly decreased to **$4.8 million** due to a **$25.0 million impairment charge** related to Flatout, Inc - In FY2023, the company recorded impairment charges of **$25.0 million** related to the intangible assets of Flatout, Inc. due to lowered expectations for sales and profitability[301](index=301&type=chunk) - In FY2022, the company recorded impairment charges of **$13.2 million** for Bantam's intangible assets and **$8.8 million** for Angelic's tradename intangible asset[303](index=303&type=chunk)[304](index=304&type=chunk) - Amortization expense for other intangible assets was **$2.5 million in FY2023**, down from **$4.4 million in FY2022**[306](index=306&type=chunk) [Note 10 – Stock-Based Compensation](index=53&type=section&id=Note%2010%20%E2%80%93%20Stock-Based%20Compensation) The company grants stock-based awards under its 2015 Omnibus Incentive Plan, with total compensation expense of **$9.1 million in FY2023**, shifting to performance units for long-term incentives based on shareholder return and revenue growth - Total stock-based compensation expense was **$9.1 million in FY2023**, **$9.6 million in FY2022**, and **$7.1 million in FY2021**[268](index=268&type=chunk)[233](index=233&type=chunk) - Beginning in FY2022, the company began granting performance units, which vest based on relative total shareholder return and revenue growth, as a primary long-term incentive vehicle instead of SSSARs[337](index=337&type=chunk) - At June 30, 2023, **$10.1 million of total unrecognized compensation expense** related to all stock-based awards is to be recognized over a weighted-average period of approximately **2 years**[332](index=332&type=chunk)[336](index=336&type=chunk)[341](index=341&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=60&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[361](index=361&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2023, with the SAP S/4HANA ERP system implementation having no material adverse effect - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[363](index=363&type=chunk) - Management concluded that internal control over financial reporting was effective as of June 30, 2023, based on the COSO framework[365](index=365&type=chunk) - The phased implementation of the new SAP S/4HANA ERP system during fiscal 2023 did not have a material adverse effect on the company's internal control over financial reporting[367](index=367&type=chunk) [Other Information](index=62&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - None[376](index=376&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=62&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[377](index=377&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=62&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the November 2023 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the company's 2023 Proxy Statement[378](index=378&type=chunk)[380](index=380&type=chunk) [Executive Compensation](index=62&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive officer and director compensation is incorporated by reference from the November 2023 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the company's 2023 Proxy Statement[381](index=381&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=62&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners, management, and equity compensation plans is incorporated by reference from the November 2023 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the company's 2023 Proxy Statement[382](index=382&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=62&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from the November 2023 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the company's 2023 Proxy Statement[383](index=383&type=chunk) [Principal Accountant Fees and Services](index=62&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on fees paid to and services provided by the independent registered public accounting firm, including Audit Committee pre-approval policies, is incorporated by reference from the November 2023 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the company's 2023 Proxy Statement[384](index=384&type=chunk) Part IV [Exhibit and Financial Statement Schedules](index=63&type=section&id=Item%2015.%20Exhibit%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements, governance documents, and required certifications - Lists the consolidated financial statements included in Item 8 and all exhibits filed with the report, such as the Credit Agreement, incentive plans, and CEO/CFO certifications[385](index=385&type=chunk)[388](index=388&type=chunk) [Form 10-K Summary](index=64&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[390](index=390&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-04065 Lancaster Colony Corporation (Exact name of registrant as specified in its charter) Ohio 13-1955943 (State or other jurisdi ...

Lancaster Colony Corporation (NASDAQ:LANC) Q2 2023 Earnings Conference Call February 2, 2023 10:00 AM ET Company Participants Dale Ganobsik - Vice President, Investor Relations & Treasurer David Ciesinski - President & Chief Executive Officer Tom Pigott - Chief Financial Officer Conference Call Participants Andrew Wolf - CL King Brian Holland - Cowen Todd Brooks - The Benchmark Company Connor Rattigan - Consumer Edge Research Operator Good morning. My name is Anita, and I will be your conference call facili ...

PART I – FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of its financial performance [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements and notes on accounting policies, debt, and segments [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at specific points in time Condensed Consolidated Balance Sheets (Amounts in thousands) | (Amounts in thousands) | December 31, 2022 | June 30, 2022 | | :--------------------- | :------------------ | :------------ | | Cash and equivalents | $95,487 | $60,283 | | Receivables | $126,919 | $135,496 | | Total inventories | $139,413 | $144,702 | | Total current assets | $373,636 | $351,781 | | Total Assets | $1,137,171 | $1,090,374 | | Accounts payable | $131,688 | $114,972 | | Total current liabilities | $180,171 | $165,585 | | Total shareholders' equity | $879,550 | $844,687 | - Cash and equivalents increased by **$35.2 million** from June 30, 2022, to December 31, 2022[10](index=10&type=chunk) - Total assets increased by **$46.8 million**, and total shareholders' equity increased by **$34.9 million** during the six-month period[10](index=10&type=chunk) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section details the company's financial performance over specific reporting periods Condensed Consolidated Statements of Income (Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Sales | $477,394 | $428,427 | $902,931 | $820,483 | | Cost of Sales | $375,292 | $331,825 | $701,774 | $631,514 | | Gross Profit | $102,102 | $96,602 | $201,157 | $188,969 | | Operating Income | $51,327 | $45,306 | $100,625 | $85,817 | | Net Income | $39,973 | $34,370 | $77,565 | $65,025 | | Basic EPS | $1.45 | $1.25 | $2.82 | $2.36 | | Diluted EPS | $1.45 | $1.25 | $2.81 | $2.36 | - Net Sales increased by **11%** for the three months ended December 31, 2022, and **10%** for the six months ended December 31, 2022, compared to the prior year[12](index=12&type=chunk) - Net Income increased by **16%** for the three months and **19%** for the six months ended December 31, 2022, year-over-year[12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section details total change in equity from non-owner sources, including net income and other comprehensive income Condensed Consolidated Statements of Comprehensive Income (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Income | $39,973 | $34,370 | $77,565 | $65,025 | | Other Comprehensive Income, Net of Tax | $95 | $41 | $190 | $83 | | Comprehensive Income | $40,068 | $34,411 | $77,755 | $65,108 | - Other comprehensive income, net of tax, increased for both the three-month (**$95 thousand** vs **$41 thousand**) and six-month (**$190 thousand** vs **$83 thousand**) periods ended December 31, 2022, primarily due to defined benefit pension and postretirement benefit plans[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | (Amounts in thousands) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $140,440 | $41,980 | | Net cash used in investing activities | $(55,776) | $(66,608) | | Net cash used in financing activities | $(49,460) | $(49,416) | | Net change in cash and equivalents | $35,204 | $(74,044) | | Cash and equivalents at end of period | $95,487 | $114,011 | - Net cash provided by operating activities significantly increased to **$140.4 million** for the six months ended December 31, 2022, compared to **$42.0 million** in the prior-year period, primarily due to changes in net working capital[17](index=17&type=chunk)[99](index=99&type=chunk) - Cash used in investing activities decreased to **$55.8 million**, reflecting a lower level of payments for property additions[17](index=17&type=chunk)[100](index=100&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section details changes in the company's equity, including net income, dividends, and stock transactions Condensed Consolidated Statements of Shareholders' Equity (Amounts in thousands) | (Amounts in thousands) | Balance, June 30, 2022 | Net Income (6 months) | Cash Dividends (6 months) | Purchase of Treasury Stock (6 months) | Stock-based compensation expense (6 months) | Balance, December 31, 2022 | | :--------------------- | :--------------------- | :-------------------- | :------------------------ | :------------------------------------ | :------------------------------------------ | :------------------------- | | Common Stock Amount | $137,814 | - | - | - | $5,264 | $140,660 | | Retained Earnings | $1,485,045 | $77,565 | $(45,529) | - | - | $1,517,081 | | Accumulated Other Comprehensive Loss | $(11,172) | - | - | - | - | $(10,982) | | Treasury Stock | $(767,000) | - | - | $(209) | - | $(767,209) | | Total Shareholders' Equity | $844,687 | $77,565 | $(45,529) | $(209) | $5,264 | $879,550 | - Total shareholders' equity increased from **$844.7 million** at June 30, 2022, to **$879.6 million** at December 31, 2022, driven by net income, partially offset by cash dividends and treasury stock purchases[19](index=19&type=chunk) - Cash dividends paid for common stock totaled **$45.5 million** for the six months ended December 31, 2022[19](index=19&type=chunk)[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1 – Summary of Significant Accounting Policies](index=10&type=section&id=Note%201%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC Article 10 of Regulation S-X, reflecting all necessary normal recurring adjustments[24](index=24&type=chunk) - Property, plant and equipment are recorded at cost (or fair value for business combinations) and depreciated using the straight-line method[25](index=25&type=chunk) Construction in progress in Accounts Payable (Amounts in thousands) | December 31, | 2022 | 2021 | | :----------- | :-------- | :-------- | | Construction in progress in Accounts Payable | $15,062 | $26,080 | - EPS is computed using the two-class method, with unvested restricted stock considered participating securities[27](index=27&type=chunk) Net Income Per Common Share Calculation (Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income available to common shareholders | $39,855 | $34,272 | $77,333 | $64,840 | | Weighted average common shares outstanding – basic | 27,471 | 27,443 | 27,460 | 27,451 | | Weighted average common shares outstanding – diluted | 27,493 | 27,464 | 27,476 | 27,490 | | Net income per common share – basic | $1.45 | $1.25 | $2.82 | $2.36 | | Net income per common share – diluted | $1.45 | $1.25 | $2.81 | $2.36 | - There were no changes to significant accounting policies or recently issued/adopted accounting standards impacting the consolidated financial statements[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 2 – Fair Value](index=12&type=section&id=Note%202%20%E2%80%93%20Fair%20Value) This note defines fair value and details the valuation hierarchy and contingent consideration adjustments - Fair value is defined as the exit price, with a three-level hierarchy: Level 1 (observable inputs), Level 2 (indirectly observable inputs), and Level 3 (unobservable inputs)[34](index=34&type=chunk)[35](index=35&type=chunk) - The fair value of Bantam's contingent consideration, initially **$8.0 million**, was written down to zero at March 31, 2022, after a **$2.2 million** reduction at December 31, 2021, due to lower projected EBITDA[37](index=37&type=chunk) Bantam Contingent Consideration (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Contingent consideration at beginning of period | $— | $3,470 | $— | $3,470 | | Change in contingent consideration included in operating income | $— | $(2,170) | $— | $(2,170) | | Contingent consideration at end of period | $— | $1,300 | $— | $1,300 | [Note 3 – Long-Term Debt](index=12&type=section&id=Note%203%20%E2%80%93%20Long-Term%20Debt) This note describes the company's revolving credit facility, outstanding borrowings, and financial covenants - The company has an unsecured revolving credit facility of up to **$150 million**, expiring March 19, 2025, with a variable interest rate tied to SOFR[39](index=39&type=chunk) - As of December 31, 2022, there were no outstanding borrowings under the facility, but **$2.8 million** in standby letters of credit were outstanding[42](index=42&type=chunk) - The facility includes financial covenants for interest coverage ratio (not less than **2.5 to 1**) and consolidated leverage ratio (not greater than **3.5 to 1**), with which the company was in compliance[40](index=40&type=chunk) [Note 4 – Commitments and Contingencies](index=13&type=section&id=Note%204%20%E2%80%93%20Commitments%20and%20Contingencies) This note addresses various claims and litigation matters arising in the ordinary course of business - Various claims and litigation matters arising in the ordinary course of business are not expected to have a material effect on the consolidated financial statements[43](index=43&type=chunk) [Note 5 – Goodwill and Other Intangible Assets](index=13&type=section&id=Note%205%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides details on the company's goodwill by segment and other identifiable intangible assets Goodwill by Segment (Amounts in thousands) | Segment | December 31, 2022 | June 30, 2022 | | :---------- | :---------------- | :------------ | | Retail | $157,400 | $157,400 | | Foodservice | $51,000 | $51,000 | Identifiable Other Intangible Assets (Amounts in thousands) | (Amounts in thousands) | December 31, 2022 | June 30, 2022 | | :--------------------- | :---------------- | :------------ | | Tradenames (net) | $28,048 | $28,715 | | Customer Relationships (net) | $1,211 | $1,480 | | Technology / Know-how (net) | $1,807 | $2,128 | | Total net carrying value | $31,066 | $32,323 | - An impairment charge of **$0.9 million** was recorded in the prior year (Q3 2021) related to Bantam's Retail customer relationships intangible asset due to lower projected cash flows[44](index=44&type=chunk) Amortization Expense (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Amortization expense | $628 | $1,260 | $1,257 | $2,401 | Estimated Annual Amortization Expense for Next Five Years (Amounts in thousands) | Fiscal Year | Estimated Amortization Expense | | :---------- | :----------------------------- | | 2024 | $2,514 | | 2025 | $2,212 | | 2026 | $1,610 | | 2027 | $1,426 | | 2028 | $1,334 | [Note 6 – Income Taxes](index=14&type=section&id=Note%206%20%E2%80%93%20Income%20Taxes) This note provides a breakdown of the company's prepaid federal, state, and local income taxes Prepaid Income Taxes (Amounts in thousands) | (Amounts in thousands) | December 31, 2022 | June 30, 2022 | | :--------------------- | :---------------- | :------------ | | Prepaid federal income taxes | $2,300 | - | | Prepaid state and local income taxes | $800 | $1,900 | [Note 7 – Business Segment Information](index=14&type=section&id=Note%207%20%E2%80%93%20Business%20Segment%20Information) This note details the company's financial performance across its Retail and Foodservice operating segments - The company operates in two reportable segments: Retail and Foodservice, with integrated procurement, manufacturing, warehousing, and distribution activities[48](index=48&type=chunk)[51](index=51&type=chunk) Net Sales by Segment (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Retail | $258,763 | $245,085 | $481,979 | $468,974 | | Foodservice | $218,631 | $183,342 | $420,952 | $351,509 | | Total | $477,394 | $428,427 | $902,931 | $820,483 | Operating Income by Segment (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Retail | $49,352 | $49,606 | $92,252 | $97,784 | | Foodservice | $26,696 | $18,309 | $58,625 | $34,134 | | Corporate Expenses | $(24,721) | $(21,583) | $(50,252) | $(45,075) | | Total | $51,327 | $45,306 | $100,625 | $85,817 | Net Sales Disaggregated by Product Class (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | **Retail** | | | | | | Shelf-stable dressings, sauces and croutons | $94,711 | $87,334 | $185,749 | $177,861 | | Frozen breads | $117,424 | $110,379 | $190,282 | $185,098 | | Refrigerated dressings, dips and other | $46,628 | $47,372 | $105,948 | $106,015 | | **Foodservice** | | | | | | Dressings and sauces | $160,855 | $136,038 | $311,915 | $260,797 | | Frozen breads and other | $57,776 | $47,304 | $109,037 | $90,712 | Foodservice Net Sales by Customer Type (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | National accounts | $171,814 | $141,753 | $332,006 | $267,881 | | Branded and other | $46,817 | $41,589 | $88,946 | $83,628 | [Note 8 – Stock-Based Compensation](index=15&type=section&id=Note%208%20%E2%80%93%20Stock-Based%20Compensation) This note outlines the types of stock-based compensation and associated expense and unrecognized compensation Stock-Based Compensation Expense (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | SSSARs compensation expense | $700 | $1,000 | $1,400 | $2,000 | | Restricted stock compensation expense | $1,500 | $1,300 | $2,800 | $2,400 | | Performance units compensation expense | $600 | $300 | $1,100 | $500 | - As of December 31, 2022, unrecognized compensation expense totaled **$1.8 million** for SSSARs (over 1 year), **$7.9 million** for restricted stock (over 2 years), and **$5.6 million** for performance units (over 2 years)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial performance, condition, and future outlook, covering segments and liquidity [OVERVIEW](index=16&type=section&id=OVERVIEW) This section provides a general introduction to the company's business, strategies, and prevailing market trends [Business Overview](index=16&type=section&id=Business%20Overview) This section describes the company's core business, product channels, and strategic growth initiatives - Lancaster Colony Corporation manufactures and markets specialty food products for retail and foodservice channels, with over **95%** of sales in the United States[60](index=60&type=chunk)[62](index=62&type=chunk) - Growth strategies include new product introductions, expanded distribution, leveraging Retail brands, strategic licensing, Foodservice product development, and complementary acquisitions[62](index=62&type=chunk) - The company is implementing Project Ascent, an integrated SAP S/4HANA ERP system, which began in July 2022 and is scheduled for completion in fiscal 2024[63](index=63&type=chunk) [BUSINESS TRENDS](index=17&type=section&id=BUSINESS%20TRENDS) This section discusses key market dynamics and cost pressures impacting the company's operations - COVID-19 initially shifted consumer demand towards at-home food consumption, positively impacting Retail and negatively impacting Foodservice, but this volatility subsided near the end of 2022[65](index=65&type=chunk) - The company experienced significant inflationary costs for commodities (soybean oil, flour, eggs), packaging, freight, warehousing, and labor throughout 2022 and into the first half of 2023[66](index=66&type=chunk) [RESULTS OF CONSOLIDATED OPERATIONS](index=17&type=section&id=RESULTS%20OF%20CONSOLIDATED%20OPERATIONS) This section provides a detailed analysis of the company's overall financial performance, including sales, profit, and expenses Consolidated Financial Highlights (Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Change (%) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | Change (%) | | :-------------------------------------------- | :------------------------------ | :------------------------------ | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net Sales | $477,394 | $428,427 | 11% | $902,931 | $820,483 | 10% | | Cost of Sales | $375,292 | $331,825 | 13% | $701,774 | $631,514 | 11% | | Gross Profit | $102,102 | $96,602 | 6% | $201,157 | $188,969 | 6% | | Gross Margin | 21.4% | 22.5% | - | 22.3% | 23.0% | - | | Selling, General and Administrative Expenses | $50,775 | $51,538 | (1)% | $100,532 | $103,394 | (3)% | | Operating Income | $51,327 | $45,306 | 13% | $100,625 | $85,817 | 17% | | Operating Margin | 10.8% | 10.6% | - | 11.1% | 10.5% | - | | Net Income | $39,973 | $34,370 | 16% | $77,565 | $65,025 | 19% | | Diluted Net Income Per Common Share | $1.45 | $1.25 | 16% | $2.81 | $2.36 | 19% | - Consolidated net sales reached a second-quarter record of **$477.4 million**, an **11%** increase, driven by pricing actions to offset inflationary costs, despite a **4%** decrease in sales volumes (pounds shipped)[69](index=69&type=chunk) - Gross profit increased by **$5.5 million**, as pricing actions, improved manufacturing efficiencies, and a more stable operating environment effectively offset significant inflationary costs[72](index=72&type=chunk) - SG&A expenses decreased by **1%** for the three months and **3%** for the six months, primarily due to lower professional fees, reduced consumer promotions, and decreased Project Ascent expenditures[74](index=74&type=chunk)[75](index=75&type=chunk) - Operating income increased by **13%** for the three months and **17%** for the six months, benefiting from higher gross profit and lower SG&A expenses[80](index=80&type=chunk)[81](index=81&type=chunk) Effective Tax Rate (Six Months Ended December 31) | Factor | 2022 | 2021 | | :---------------------------------------- | :---- | :---- | | Statutory rate | 21.0% | 21.0% | | State and local income taxes | 2.4% | 3.3% | | Net windfall tax benefits - stock-based compensation | (0.4)% | — | | Other | 0.1% | — | | Effective rate | 23.1% | 24.3% | - Diluted net income per share increased to **$1.45** for the second quarter and **$2.81** for the six months, despite Project Ascent expenditures reducing EPS by **$0.21** and **$0.47**, respectively[83](index=83&type=chunk)[84](index=84&type=chunk) [RESULTS OF OPERATIONS - SEGMENTS](index=20&type=section&id=RESULTS%20OF%20OPERATIONS%20-%20SEGMENTS) This section analyzes the financial performance of the company's distinct Retail and Foodservice operating segments [Retail Segment](index=20&type=section&id=Retail%20Segment) This section details the financial performance of the company's Retail segment, including sales and operating income Retail Segment Performance (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Change (%) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | Change (%) | | :--------------------- | :------------------------------ | :------------------------------ | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net Sales | $258,763 | $245,085 | 6% | $481,979 | $468,974 | 3% |\ | Operating Income | $49,352 | $49,606 | (1)% | $92,252 | $97,784 | (6)% | | Operating Margin | 19.1% | 20.2% | - | 19.1% | 20.9% | - | - Retail net sales increased **6%** for the three months and **3%** for the six months, driven by inflationary pricing and growth in licensing programs (Buffalo Wild Wings, Arby's sauces)[87](index=87&type=chunk) - Retail sales volumes decreased **4%** for the three months and **9%** for the six months, primarily due to price elasticity and the exit of less profitable product lines[87](index=87&type=chunk) - Retail operating income decreased **1%** for the three months and **6%** for the six months, impacted by lower sales and production volumes, despite pricing actions and reduced consumer promotions[88](index=88&type=chunk)[89](index=89&type=chunk) [Foodservice Segment](index=20&type=section&id=Foodservice%20Segment) This section details the financial performance of the company's Foodservice segment, including sales and operating income Foodservice Segment Performance (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Change (%) | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | Change (%) | | :--------------------- | :------------------------------ | :------------------------------ | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net Sales | $218,631 | $183,342 | 19% | $420,952 | $351,509 | 20% | | Operating Income | $26,696 | $18,309 | 46% | $58,625 | $34,134 | 72% | | Operating Margin | 12.2% | 10.0% | - | 13.9% | 9.7% | - | - Foodservice net sales grew **19%** for the three months and **20%** for the six months, driven by inflationary pricing and volume gains from quick-service restaurant customers[90](index=90&type=chunk)[91](index=91&type=chunk) - Foodservice sales volumes decreased **5%** for the three months and **6%** for the six months, impacted by the decision to exit less profitable SKUs and advance ordering ahead of the ERP go-live[90](index=90&type=chunk)[91](index=91&type=chunk) - Foodservice operating income significantly increased by **46%** for the three months and **72%** for the six months, as pricing actions effectively offset inflationary costs, supported by a favorable sales mix and a more stable operating environment[92](index=92&type=chunk)[94](index=94&type=chunk) [Corporate Expenses](index=21&type=section&id=Corporate%20Expenses) This section outlines the trends and drivers behind the company's unallocated corporate operating expenses Corporate Expenses (Amounts in thousands) | (Amounts in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Corporate Expenses | $24,700 | $21,600 | $50,300 | $45,100 | - Corporate expenses increased due to increased investments in personnel and IT, partially offset by a decline in Project Ascent expenses[95](index=95&type=chunk)[96](index=96&type=chunk) [LOOKING FORWARD](index=21&type=section&id=LOOKING%20FORWARD) This section discusses the company's future outlook, including sales volume expectations and cost management strategies - Retail sales volumes are expected to benefit from licensing program growth, but consumer demand elasticity will remain a headwind[97](index=97&type=chunk) - Foodservice sales volumes will continue to be impacted by SKU rationalization but expect benefits from quick-service restaurant customer growth[97](index=97&type=chunk) - Pricing actions and cost savings initiatives are anticipated to offset ongoing cost inflation in the fiscal third quarter[98](index=98&type=chunk) - Project Ascent ERP implementation is on schedule for completion in fiscal 2024, with the Horse Cave facility being integrated in Wave 3[98](index=98&type=chunk) [FINANCIAL CONDITION](index=21&type=section&id=FINANCIAL%20CONDITION) This section assesses the company's liquidity, capital resources, and cash flow generation [Cash Flows](index=21&type=section&id=Cash%20Flows) This section analyzes the company's cash generation and usage across operating, investing, and financing activities - Net cash provided by operating activities increased significantly to **$140.4 million** (vs. **$42.0 million** prior year) due to favorable changes in net working capital and higher net income[99](index=99&type=chunk) - Cash used in investing activities decreased to **$55.8 million** (vs. **$66.6 million** prior year) due to lower payments for property additions, despite ongoing capacity expansion projects[100](index=100&type=chunk) - Cash used in financing activities remained flat at **$49.5 million**, with higher dividend payments and tax withholdings offset by lower share repurchases[101](index=101&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) This section evaluates the company's ability to meet its short-term and long-term financial obligations - The company has a **$150 million** unsecured revolving credit facility with no outstanding borrowings and **$2.8 million** in standby letters of credit as of December 31, 2022, and is in compliance with all covenants[102](index=102&type=chunk)[103](index=103&type=chunk) - Management believes cash from operating activities, existing cash, and the credit facility will be adequate to meet liquidity needs for the next 12 months and beyond[105](index=105&type=chunk)[106](index=106&type=chunk) - Projected capital expenditures for fiscal 2023 are between **$90 million** and **$110 million**, including **$50 million** for the Horse Cave, Kentucky dressing and sauce facility expansion[105](index=105&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=22&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section confirms no changes to the critical accounting policies disclosed in the prior annual report - There have been no changes in critical accounting policies from those disclosed in the 2022 Annual Report on Form 10-K[108](index=108&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=22&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This section addresses the impact of recently issued accounting standards on the financial statements - Recent accounting pronouncements and their impact are disclosed in Note 1 to the condensed consolidated financial statements, indicating no material impact[109](index=109&type=chunk)[32](index=32&type=chunk) [FORWARD-LOOKING STATEMENTS](index=22&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section highlights the inherent uncertainties and risks associated with future-oriented statements - The report contains forward-looking statements subject to various risks and uncertainties, including inflationary pressures, customer reactions to pricing, supply chain disruptions, IT system implementation complexities, and geopolitical events[110](index=110&type=chunk)[111](index=111&type=chunk) - Management believes these statements are reasonable but cautions against undue reliance, and undertakes no obligation to update them except as required by law[110](index=110&type=chunk)[111](index=111&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the company's market risks since the disclosure in its 2022 Annual Report on Form 10-K - No material changes to market risks have occurred since the 2022 Annual Report on Form 10-K[111](index=111&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of disclosure controls and procedures, concluding their effectiveness, and discusses changes in internal control over financial reporting related to the ongoing Project Ascent ERP implementation [Evaluation of Disclosure Controls and Procedures](index=23&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[112](index=112&type=chunk) [Changes in Internal Control Over Financial Reporting](index=23&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section discusses updates to internal controls due to the ongoing implementation of the Project Ascent ERP system - The implementation of Project Ascent, a new SAP S/4HANA ERP system, began in Q1 fiscal 2023, leading to necessary updates in internal controls[113](index=113&type=chunk)[114](index=114&type=chunk) - The company does not expect this ERP implementation to have a material adverse effect on its internal control over financial reporting[114](index=114&type=chunk) PART II – OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, and a list of exhibits [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms that there are no environmental legal proceedings to disclose, based on a $1 million materiality threshold - No environmental matters requiring disclosure were identified, using a **$1 million** materiality threshold[117](index=117&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K[118](index=118&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=25&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides details on common stock repurchases during the second quarter of fiscal 2023, primarily for tax withholding obligations related to stock-based compensation, and the remaining authorization for future repurchases - As of December 31, 2022, **1.22 million** common shares remained authorized for future repurchases under a program approved in November 2010[119](index=119&type=chunk) Common Stock Repurchases (Q2 FY2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------- | :------------------------------- | :--------------------------- | | October 1-31, 2022 | 167 | $177.65 | | November 1-30, 2022 | 51 | $204.46 | | December 1-31, 2022 | 430 | $197.30 | | Total | 648 | $192.80 | - Repurchases were primarily made to satisfy tax withholding obligations from the vesting of restricted stock granted to employees[119](index=119&type=chunk) [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including an amendment to the credit agreement, CEO and CFO certifications, and XBRL documents - Exhibits include Amendment No. 1 to Credit Agreement, CEO and CFO certifications under Sections 302 and 906 of Sarbanes-Oxley Act, and various XBRL documents[122](index=122&type=chunk)[123](index=123&type=chunk) SIGNATURES This section contains the official signatures of the registrant's authorized officers, confirming the due filing of the report [SIGNATURES](index=27&type=section&id=SIGNATURES) This section contains the official signatures of the registrant's authorized officers, confirming the due filing of the report - The report was signed on February 2, 2023, by David A. Ciesinski (President, Chief Executive Officer, and Director) and Thomas K. Pigott (Vice President, Chief Financial Officer, and Assistant Secretary)[127](index=127&type=chunk)

Lancaster Colony Corporation (NASDAQ:LANC) Q1 2023 Results Conference Call November 3, 2022 10:00 AM ET Company Participants Dale Ganobsik - Vice President, Investor Relations and Treasurer Dave Ciesinski - President, Chief Executive Officer Tom Pigott - Vice President, Chief Financial Officer Conference Call Participants Brian Holland - Cowen and Company Connor Rattigan - Consumer Edge Research Andrew Wolf - CL King Operator Good morning. My name is Rocco, and I will be your conference call facilitator tod ...

PART I – FINANCIAL INFORMATION [Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) These statements present the company's financial position, results of operations, and cash flows for the three months ended September 30, 2022, highlighting increased assets, sales, net income, and improved operating cash flow [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$1.131 billion** as of September 30, 2022, driven by higher inventories and property, plant, and equipment, with a corresponding rise in liabilities and shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $377,801 | $351,781 | | **Total Inventories** | $165,939 | $144,702 | | **Property, plant and equipment-net** | $468,086 | $451,368 | | **Total Assets** | **$1,131,233** | **$1,090,374** | | **Total Current Liabilities** | $190,915 | $165,585 | | **Total Shareholders' Equity** | $862,071 | $844,687 | | **Total Liabilities and Shareholders' Equity** | **$1,131,233** | **$1,090,374** | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net sales increased **8.5%** to **$425.5 million** for the quarter, driving a **21.7%** rise in operating income and a **22.6%** increase in net income to **$37.6 million** Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q1 2023 (ended Sep 30, 2022) | Q1 2022 (ended Sep 30, 2021) | Change (%) | | :--- | :--- | :--- | :--- | | **Net Sales** | $425,537 | $392,056 | +8.5% | | **Gross Profit** | $99,055 | $92,367 | +7.2% | | **Operating Income** | $49,298 | $40,511 | +21.7% | | **Net Income** | $37,592 | $30,655 | +22.6% | | **Diluted EPS** | $1.36 | $1.11 | +22.5% | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly improved to **$50.9 million** for Q1 fiscal 2023, driven by higher net income and favorable working capital changes, while investing and financing cash uses decreased Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $50,864 | $(1,172) | | **Net cash used in investing activities** | $(23,481) | $(30,093) | | **Net cash used in financing activities** | $(23,447) | $(26,701) | | **Net change in cash and equivalents** | $3,936 | $(57,966) | - The **significant increase** in operating cash flow was driven by **higher net income** and **smaller negative impacts** from changes in inventories and receivables compared to the prior year[17](index=17&type=chunk)[79](index=79&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail financial statement presentation, segment performance, and accounting policies, highlighting **Foodservice sales growth** and a **$15 million** capital commitment for facility expansion - The company has a remaining commitment of approximately **$15 million** for a capacity expansion project at its dressing and sauce facility in Horse Cave, Kentucky[42](index=42&type=chunk) - Goodwill was stable at **$157.4 million** for the Retail segment and **$51.0 million** for the Foodservice segment as of September 30, 2022[43](index=43&type=chunk) Segment Net Sales (in thousands) | Segment | Q1 2023 (ended Sep 30, 2022) | Q1 2022 (ended Sep 30, 2021) | Change (%) | | :--- | :--- | :--- | :--- | | Retail | $223,216 | $223,889 | -0.3% | | Foodservice | $202,321 | $168,167 | +20.3% | | **Total** | **$425,537** | **$392,056** | **+8.5%** | Segment Operating Income (in thousands) | Segment | Q1 2023 (ended Sep 30, 2022) | Q1 2022 (ended Sep 30, 2021) | Change (%) | | :--- | :--- | :--- | :--- | | Retail | $42,900 | $48,178 | -11.0% | | Foodservice | $31,929 | $15,825 | +101.8% | | Corporate Expenses | $(25,531) | $(23,492) | +8.7% | | **Total** | **$49,298** | **$40,511** | **+21.7%** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses record Q1 net sales driven by pricing actions offsetting cost inflation, strong Foodservice growth, improved operating income, and ongoing ERP and capacity expansion projects [Business Trends](index=16&type=section&id=Business%20Trends) The company continues to face **significant inflationary cost pressures** from commodities, packaging, freight, and labor, though demand volatility between Retail and Foodservice segments has subsided - The company experienced **unprecedented inflationary costs** for commodities (soybean oil, flour), packaging, freight, warehousing, and labor during fiscal 2022, which continued into Q1 2023[63](index=63&type=chunk) - **Demand volatility between Retail and Foodservice segments has subsided**, leading to a **more predictable and stable operating environment** compared to the prior two years[62](index=62&type=chunk) [Results of Consolidated Operations](index=16&type=section&id=Results%20of%20Consolidated%20Operations) Consolidated net sales increased **9%** to **$425.5 million**, despite a **10%** volume decline, with operating income surging **22%** due to effective pricing, improved efficiencies, and reduced SG&A Consolidated Operations Summary (in thousands) | Metric | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $425,537 | $392,056 | 9% | | Gross Profit | $99,055 | $92,367 | 7% | | Operating Income | $49,298 | $40,511 | 22% | | Net Income | $37,592 | $30,655 | 23% | - Consolidated sales volumes, measured in pounds shipped, **decreased 10%** for the quarter[65](index=65&type=chunk) - SG&A expenses **decreased 4% to $49.8 million**, driven by lower consumer promotions, with Project Ascent (ERP initiative) expenses totaling **$9.2 million**[67](index=67&type=chunk) [Results of Operations - Segments](index=18&type=section&id=Results%20of%20Operations%20-%20Segments) Foodservice segment sales grew **20%** with operating income surging **102%**, while Retail sales were flat and operating income declined **11%** due to volume and ERP impacts - Retail segment net sales declined slightly, unfavorably impacted by an estimated **$11 million** in advance ordering ahead of the ERP go-live and the exit from certain product lines[72](index=72&type=chunk) - Retail operating income **fell 11% to $42.9 million** due to lower sales and production volumes, which reduced overhead recovery[72](index=72&type=chunk) - Foodservice net sales **grew 20% to $202.3 million**, driven by inflationary pricing and volume gains from select quick-service restaurant customers[73](index=73&type=chunk) - Foodservice operating income **more than doubled to $31.9 million** as pricing actions effectively offset inflationary costs and benefited from a more favorable sales mix[74](index=74&type=chunk) [Looking Forward](index=18&type=section&id=Looking%20Forward) The company anticipates Q2 Retail sales to benefit from licensing but face demand elasticity, while Foodservice growth continues, with cost inflation offset by pricing and cost savings - In Q2, Retail sales volumes are expected to **benefit from the licensing program** but **face offsets from consumer demand elasticity and product rationalization**[76](index=76&type=chunk) - **Cost inflation will remain a headwind** in Q2, but **pricing actions and cost savings initiatives are expected to help offset it**[77](index=77&type=chunk) - The implementation of Project Ascent (ERP system) will **continue throughout fiscal 2023**, with **full deployment expected in fiscal 2024**[78](index=78&type=chunk) [Financial Condition](index=19&type=section&id=Financial%20Condition) The company maintains a strong financial condition with **$50.9 million** in operating cash flow, an undrawn **$150 million** credit facility, and projected **$90-110 million** in fiscal 2023 capital expenditures - The company has an unsecured revolving credit facility of up to **$150 million**, with **no borrowings outstanding** at September 30, 2022[82](index=82&type=chunk) - Capital expenditures for fiscal 2023 are expected to be **between $90 million and $110 million**[85](index=85&type=chunk) - A significant portion of 2023 capital spending, **approximately $50 million**, is for the capacity expansion at the Horse Cave, Kentucky facility, expected to be **completed in Q2 fiscal 2023**[85](index=85&type=chunk)[88](index=88&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports **no material changes** to its market risks compared to those disclosed in the 2022 Annual Report on Form 10-K - There have been **no material changes** to market risks from those disclosed in the 2022 Annual Report on Form 10-K[93](index=93&type=chunk) [Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were **effective** as of September 30, 2022, with ERP system implementation ongoing and **no material adverse effect** on internal controls - The CEO and CFO concluded that disclosure controls and procedures were **effective** as of September 30, 2022[94](index=94&type=chunk) - During the quarter, the company **began implementing its new ERP system** (Project Ascent) and updated internal controls as necessary, with **no material effect** on internal control over financial reporting[95](index=95&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) The company reports **no material environmental legal proceedings** requiring disclosure for the period - Applying a disclosure threshold of **$1 million** for potential monetary sanctions in environmental proceedings, the company reports **no matters to disclose**[98](index=98&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) There have been **no material changes** to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - **No material changes** to the risk factors disclosed in the 2022 Annual Report on Form 10-K have occurred[99](index=99&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=22&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **533 common shares** at an average of **$149.58** for tax withholding, with **1,225,012 shares** remaining authorized for future repurchase - As of September 30, 2022, **1,225,012 common shares** remained authorized for future repurchase under a plan approved in November 2010[100](index=100&type=chunk) Share Repurchases in Q1 Fiscal 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 42 | $132.38 | | August 2022 | 412 | $147.46 | | September 2022 | 79 | $169.80 | | **Total** | **533** | **$149.58** | [Exhibits](index=22&type=section&id=Item%206.%20Exhibits) This section indexes exhibits filed with the Form 10-Q, including **CEO and CFO certifications** and XBRL data files - The report includes **required CEO and CFO certifications** under Sections 302 and 906 of the Sarbanes-Oxley Act[103](index=103&type=chunk)

Financial Performance & Growth - Lancaster Colony's FY22 net sales reached $1.7 billion, primarily in the U S [6] - The company has a history of increasing regular cash dividends for 59 consecutive years [6, 32] - From fiscal year 1972 through fiscal year 2022, the company achieved an 11% compound annual growth rate [17] - Retail sales accounted for 55% of total net sales, while foodservice sales made up 45% [8, 9] - Net sales increased by 14% from 2021 to 2022, reaching $1,676 390 thousand in 2022 [26, 34] - Diluted net income per common share decreased by 37% from $5 16 in 2021 to $3 25 in 2022 [34] Retail Segment & Licensing - Retail sales consist of 36% frozen breads, 23% refrigerated dressings, dips & other, and 41% shelf-stable dressings, sauces & croutons [8] - Sales of licensed dressings and sauces in the retail channel totaled $333 million for the 52-week period ended 6/26/2022, a 47% increase over the previous year [11] Market Share - Marzetti holds a 23 2% market share in refrigerated dressings with sales of $113 1 million [42, 43] - Marzetti dominates the dips market with an 80 1% share and sales of $135 3 million [42, 48] - New York Brand Bakery leads the frozen garlic bread market with a 41 5% share and sales of $283 9 million [42, 53] - Sister Schubert's holds a 53 0% market share in the frozen roll market with sales of $147 4 million [42, 58]

Financial Data and Key Metrics Changes - Consolidated net sales increased by 17.3% to $452 million, while consolidated gross profit improved by 1.8% to $98.4 million [6][9] - Gross profit margin declined by 330 basis points due to unprecedented inflation and increased supply chain costs [10][14] - Fourth quarter diluted earnings per share decreased by $0.09 to $1.06, impacted by restructuring and impairment charges [14] Business Line Data and Key Metrics Changes - Retail segment net sales grew by 8.8%, driven by pricing actions and advanced ordering by customers [6] - Food Service segment net sales grew over 28%, with pricing accounting for over 24% of the sales increase [7] - Retail sales volumes measured in pounds declined by 2%, compared to a solid volume growth of 9% in the previous year's Q4 [6] Market Data and Key Metrics Changes - Sister Schubert's dinner rolls gained 300 basis points in market share, reaching 54.2% in frozen rolls [6] - Marzetti refrigerated dressings posted a share gain of 140 basis points, growing to a category-leading 24.8% [6] Company Strategy and Development Direction - The company is focused on leveraging its new SAP S/4 HANA ERP system and the Horse Cave expansion as part of its strategic transition to Lancaster Colony 3.0 [20][22] - The strategy includes accelerating core business growth, simplifying the supply chain, and expanding through focused M&A and strategic licensing [22] - The company plans to continue addressing inflationary cost increases through revenue growth management and productivity initiatives [16][19] Management's Comments on Operating Environment and Future Outlook - Management expects continued industry-leading sales growth in fiscal year 2023, driven by pricing and new product launches [18] - The company anticipates another year of significant inflation and plans to implement further price increases to offset rising costs [19] - Management acknowledges potential headwinds from consumer demand elasticity and a slowing economy [18] Other Important Information - The company completed a successful ERP system cutover with no unplanned disruptions in operations [5] - Capital expenditures for fiscal year 2022 totaled $132 million, with a forecast of approximately $100 million for fiscal year 2023 [15] - The company remains debt-free with $60 million in cash on the balance sheet [15] Q&A Session Summary Question: Expectations for gross margin improvement in fiscal '23 - Management feels confident about topline growth but expects some margin dilution due to pricing adjustments [26][29] Question: Contribution of licensed sauces in the quarter - Chick-fil-A Sauce contributed approximately $34 million in retail scanner sales, while Olive Garden contributed about $36 million [34] Question: Pricing discussions with retailers - Recent price increases were fact-based and constructive discussions were held with retailers regarding input costs [44] Question: SKU rationalization plans - The company does not expect significant further SKU rationalization, having already reduced SKUs by about 25% [46] Question: Outlook on commodity inflation and hedging - Despite some moderation in soybean oil prices, the company expects overall commodity costs to increase due to basis costs and other factors [60][63] Question: Inorganic growth opportunities - Management sees potential for both organic growth through licensing and inorganic growth through acquisitions enabled by the new ERP system [66]

Table of Contents (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-04065 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form10-K (I.R.S. Employer Identification No.) (State or other jurisdiction of incorporation or organization) 380 Polaris Pa ...

Financial Data and Key Metrics Changes - Consolidated net sales grew 12.9% to a record $403 million, with Retail net sales up 7.4% and Foodservice net sales up 19.8% [5][21] - Consolidated gross profit decreased by $22.2 million to $68.3 million, with gross margins declining by 840 basis points due to significant inflationary impacts [22][34] - Third quarter diluted earnings per share decreased $1.22 to a loss of $0.17, driven by operating income decline and special charges related to Bantam Bagels [31][34] Business Line Data and Key Metrics Changes - Retail segment net sales growth was driven by pricing across the portfolio, with a 2% decline in retail sales volume compared to strong growth in the prior year [6][8] - Foodservice segment net sales growth of nearly 20% was influenced by inflationary pricing and increased demand, although total volume measured in pounds decreased by 2% [9][10] Market Data and Key Metrics Changes - Sister Schubert's dinner rolls gained 200 basis points in market share to 51.5%, while Marzetti brand refrigerated dressings increased by 90 basis points to 23.3% [7] - Licensed sauce platform sales at Retail more than tripled from $29 million to $89 million [8] Company Strategy and Development Direction - The company aims to accelerate core business growth, simplify the supply chain, reduce costs, and expand through focused M&A and strategic licensing [36][41] - Key initiatives include a sauce capacity expansion project and the opening of a new warehouse to improve operational efficiencies [12][13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing inflationary pressures and supply chain challenges, indicating that pricing actions will continue to be a primary tool for managing costs [10][37] - The company expects to see continued sales gains in both Retail and Foodservice segments, despite anticipated headwinds from higher commodity and labor costs [37][41] Other Important Information - The company recorded a noncash restructuring and impairment charge of $22.7 million related to the Bantam Bagels business, which was not allocated to reportable segments [29] - Capital expenditures for the fiscal year are forecasted at approximately $150 million, including $90 million for the Horse Cave expansion project [32][34] Q&A Session Summary Question: Inflation outlook and repricing for fiscal 2023 - Management discussed the significant margin pressure due to rapid increases in freight and commodity costs, indicating that pricing actions will be necessary to manage these challenges [48][49] Question: Consumer elasticity and private label competition - Management noted that pricing actions have been accepted better than expected, with private label products also increasing in price, but consumers are still supporting branded products [58][59] Question: Volume trends in Foodservice and COVID impacts - Management explained that while transaction trends in Foodservice were affected by staffing challenges during the Omicron surge, overall sales continued to grow driven by pricing [63][64] Question: Opportunities in Retail business and licensing partnerships - Management highlighted upcoming product launches and expansions in licensing partnerships, particularly with Chick-fil-A and Buffalo Wild Wings, as key growth opportunities [68][70] Question: Margin outlook for Q4 and fiscal 2023 - Management indicated expectations for sequential improvement in margins for Q4, despite ongoing inflationary pressures [71]